Stand by for a revolution - but don't expect to hear about it yet

Public services face a new world after the election

By Neil Stewart

What contribution are public services’ budgets to make to getting our public accounts back onto an even keel and, more importantly, how will this be done? That is the big question that has not been answered in this election. Indeed it has been avoided by the parties with determination for fear of frightening the voters.

We know that the political parties have committed to halve the deficit in four years.  We know that the Comprehensive Spending Review was postponed by Gordon Brown, so the specifics for departments and programmes just lack the final detail that tells public sector managers their fate.  We hear that key services like the NHS will be “ring-fenced”  and that “frontline services” in education will be protected.  We hear that with some budgets protected, others will have to be cut by 20 per cent.  We wait to hear what the newly-elected ministers will choose to do.

We know that Gus O’Donnell and his Treasury mandarins have had an extra year to think about the enormity of what is needed and will have plans and options for the new ministers in the government. But how it will be done and what that means for senior public managers remains unclear, very unclear.

History teaches us some lessons about how little the election debate can tell us.  As Margaret Thatcher's Conservative Party contemplated how to restore UK finances and earn our living in the world, the main mechanisms were not visible in the elections that set the path for three decades.  The VAT tax rise, the first great stealth tax, was a shock not trailed or understood in the 1979 election.  Privatising through share issues and popular capitalism never surfaced in the 1983 campaign – it would be selling the silver, said Harold McMillan. Outsourcing and competitive tendering were below the radar and companies like Capita had not been invented. 

In the economy, the lifting of foreign exchange controls by the first Thatcher administration and then “big bang” liberalisation of the City in 1986 were as dramatic and unexpected as independence for the Bank of England.  And the oft-forgotten European Single Market treaty, signed by Mrs Thatcher, that now delineates so much of how we do business and public sector procurement, gave away “sovereignty” on business and public sector management on a scale far exceeding current debates.  In government, there was the rise of agencies and the emergence of the purchaser provider split to drive efficiency and quality. None of these hit the election headlines.

The private sector, which represents four out of five employees in the UK, has been through two years of hell and now appears just to be coming out of recession. They will be unforgiving of public sector protest that it is all too hard.  Many employees have lost their jobs and some big names like Woolworths have gone to the wall.  Private sector employees have seen their incomes reduced by up to 20 per cent -  and these are not the rich of the City of London.  Private sector management have asked and achieved startling changes in companies and startling sacrifices by employees, often  completely confounding trade unions and commentators, agreeing to cut hours, putting people on part-time working, closing whole factories for months for lack of demand.  They have had a good recession compared to the predictions of mass unemployment and bankruptcy.  Outside the finance and property sectors, businesses have remained robust, even with very large debts to finance from the private equity world.  Mergers and takeovers have happened with less blood and more speed than expected.  

Employees in the private sector had the choices set out for them: they were market facing, they understood what their business had to do and had no “entitlement” to  survive.  Choices mostly involving short term pain for longer term gain (not finding yourself permanently unemployed)  and it was a choice they understood. Will the same be the case in the public sector? Will they be offered “lesser evil” choices to preserve services, jobs and in many cases communities?

Can public sector management, from the mandarins to the local service manager, match that effort? Can they win that argument?  How will they do it and with what mechanisms?

Reading between the lines of manifestoes, the answers seem to fall into the following categories, with these implications for public managers:

1   Devolve decision making and more discretion, to the unit of delivery.

In the hospital, the poly clinic/ health centre, the school , the college or university , the police division, the performance bar is about to get much higher for those in de facto chief executive positions. But so will the freedom – and government will approve top salaries for the top performers despite the current senior salary bashing.

2   Take over, close or merge those that are failing.

One management will take over another and keep services going, keeping intact assets from teams of people to capital.  Failing public service management must know that they will be dealt with. 

A new breed of public service manager will be needed to match the mergers and acquisitions cadre in the private sector - specialists who move in fast, preserve value where they can, address the issue and find a new settlement.  And there will be a growth in interim management for those displaced.

3   Give more ownership in the process to the staff – or client/customer groups.

Through “John Lewis” mutualisation or “social enterprises” many of which will not be run by charities but be wholesale arms length service providers owned by a mix of staff and citizens and run by a new breed of public service manager.  In the hope that they will solve their own challenges with staff consent, without strikes and add new value, design new services.

“Not for profit” is the most stupid term in business and the public sector.  As every football manager will tell you, if you play for a draw you nearly always lose in the last few minutes.  Like the managers of John Lewis, these new managers will aim to add value, make a “profit”, a surplus. But that surplus will not be distributed to shareholders or speculated against in open markets, it will pay back to employees, be put back into services or given back to the community.           

4   Allow differences around the UK.

You can already work under different rules and management regimes in Scotland Wales and Northern Ireland. The same will apply in city regions and other devolved structures. That divergence will accelerate, especially in England.

Public managers will find themselves working for new “elected beasts” with an authority that is higher than that enjoyed by the current local politicians.  Alex Salmond, Boris Johnson, Ken Livingstone, Rhodri Morgan have all carried consent from the public which public managers need for big changes. Even in health we will see different priorities, with some areas clearly more focused on public health, obesity, child development than other, often more prosperous areas.

 5   More choice and market mechanisms.

Increased purchaser/providers splits and more personalised budgets  will give people more choice about where they take their custom for a range of services.

The new managers will be negotiating with a new breed of commissioners and in many cases facing consumer choice.  They will be managing the perceptions, expectations and track record of their service - not just administering it to a higher authority.   In Sweden, senior managers have been measures against opinion polling of perceptions and expectations of their services for over 30 years.

6   New public services providers on contract.

Examples include the welfare to work programmes with new providers like A4E emerging at arms length.  These new managers will be working with a public service challenge in some of the hardest areas.  They will in practice be previous public service managers with different powers of coercion and direction -  but how different has yet to emerge.

7    Elected politicians are back as arbiters.

The central state has slowly and reluctantly woken up to the fact that change requires consent and that often means local consent. For all their flaws, elected politicians are the only mechanism to deliver that.

If you are in health, universities, colleges, the police, social security you could be forgiven for not noticing the rise of “Total Place” and the drive to make all agencies work together under local political direction. The most startling manifestation is the Conservatives’ proposal for elected police commissioners. 

8   Delayering.

Lastly, if massive savings are to be made with the kind of changes outlined above, then there will be delayering both in the units of delivery and in the supervisory state, 

The state has spent 30 years since Mrs Thatcher appointed Sir Peter Levene in defence procurement and Sir Roy Griffiths in health and started the process of management reform designed to take public sector managers on the journey from being administrators, to managers, to general managers, chief executives and prepare them for the next level as public sector entrepreneurs.   If Sir Gus O’Donnell believes that journey is reaching its conclusion, then the arguments for massive intermediary agencies and civil service hierarchy weaken and many of the most visible ways in which we are governed will change dramatically.

 A lot of this is in place already in legislation and structures such as Monitor in the NHS. Vast amounts of pre-figurative work have been done in academies, housing associations and a few big charities. The changes in the Audit Commission offer one example, with the focus on the massive mining of data and key performance indicators.

So, for managers in these many bodies some of the best jobs will be back in the delivery units, and the most esteemed jobs will be the entrepreneurial chief executives, facing their local and regional clients.

When the public spending figures are finally published in departmental and service detail, these will be the trends and mechanisms that will lie behind the hopes that we can do “more for less”, preserving and improving services without a rerun of the dysfunctional and destructive 1980s, when limited restraint on the growth of public expenditure was made to feel like Armageddon.

Regardless of the outcome of the election, these are trends that are well established, in the DNA of this generation of politicians. It is only how fast or how slowly they progress that will be affected by May 6 2010.

28 April 2010

Neil Stewart. Chair and Chief Executive, Neil Stewart Associates

Neil Stewart is Chairman and Chief Executive of Neil Stewart Associates. Formed 18 years ago the company focuses on advising, devising, and publishing on the government and public policy agenda producing topical policy conferences and undertaking consu