Break up Whitehall and globalise our public services: the new austerity state

June 28, 2013

Let’s be honest, this week’s spending review won’t stop Britain’s debt reaching massive proportions by the next election. Despite an all-party consensus on spending restraint beyond 2015, there’s no political will for cuts of the kind that will turn this situation around. It’s why I increasingly believe that the new thinking on spending reform won’t be about cuts, but about how to turn our public sector into hard cash: commercialising it and selling aggressively into new international markets.

It’s an idea that emerged before, albeit with no real ambition. Just before the 2010 election, Labour set up a quango to sell the NHS to foreign firms and governments, an initiative which was quietly re-launched in Dubai by the Coalition early this year. Being run by bureaucrats has made these efforts flop somewhat, but the aim was exactly right – and it should be adopted much more widely and in areas government hasn’t even recognised yet.

Our public services are among our biggest employment sectors, and there are similarly large public sectors worldwide that, like ours, increasingly have to open to external providers in order to meet efficiency and demand pressures. You may not think it, but our providers are actually way better and more efficient than many of their public counterparts overseas, and the best should be exported to exploit that.

Healthcare is the biggest such market worldwide, worth $4 trillion a year and rising. Our best NHS hospitals should be right in the middle of this, selling their brands and expertise as franchises, tasked with making cash to reinvest in care back home. They were recently given more scope to earn serious outside income, so the opportunity is wide open.

Our best schools could do much the same. Private sector schools successfully franchise themselves for the children of the rich of other countries, so why shouldn’t our best state school brands do the same in mass markets? There are huge opportunities for English-speaking schooling, including in fast-emerging economies that need better education to enable their growth to be sustainable in the longer term.

We also have new markets around our welfare and justice systems. These mostly involve private providers who are free to export already, but the best could be helped to market abroad, in return paying a commission if they win trade using a public sector brand. The new Police and Crime Commissioners who best cut crime could follow suit. Even good councils, who with newly devolved responsibilities are innovating way faster than central government, could look at selling civic management services to foreign municipalities.

Imagine the scale of the demand worldwide for better public service provision as state spending is squeezed, but ageing and growing populations need more cash-intensive services like schooling, health and social care. Recent trade missions have focused on areas like our creative, biotech and high-end engineering industries, which are all very snazzy, but they employ hardly anyone. The revenues we could bring home from the worldwide export of our public service provision are much bigger.

The Government’s overseas trade activities have omitted such areas, however. Whitehall mandarins’ tendency to choke off initiatives outside the comfort zone of officialdom means new thinking of this kind is rare to emerge, but a bigger threat to the potential export our service expertise is how some of our own services are very visibly and very publicly harming people. State cover-ups of failing hospitals and schools gaming exam boards to cheat the league tables are high-profile current examples which would do serious damage to fledgling UK brands.

Two things therefore need to happen. The first is to get our own house in order so that we can market ourselves positively as worldwide service leaders. This means taking clear action to allow poor service providers to be taken over by good ones and to allow in new providers to expand choice. It is a scandal that this so rarely happens, in spite of the public demand for it shown in any opinion research on the matter – including my own, which was published earlier this year. The second is simply that government must create overseas trade missions based explicitly on public service delivery and showcase our best providers to the world.

As for Whitehall, it will not only have to be slimmed, but many parts broken up and devolved down, with the centre performing a funding and commissioning role, contracting external partners for the administration and delivery of services. It was a vision set in by the Prime Minister himself in 2011: a “decentralised” public sector with a presumption of open competition for service delivery in almost all areas.

While the civil service and some parts of the Coalition have made it difficult to bring this vision of reform about, ministers like Francis Maude and Philip Hammond have made real steps towards it in their procurement reforms. Many local councils have also gone this way, sharing back office functions and commissioning front-line delivery from external partners.

The rising demand for public services we will see, driven by population growth and ageing, makes all this inevitable. Our public sector has grown to consume nearly half our GDP, but its productivity has remained flat, to put it kindly. But with reform to allow in the best possible providers, and being much more ambitious about our public sector as an engine of trade and growth, we could really start to turn that around. Using our biggest national assets and employers to create the jobs and wealth we so desperately seek has to be a priority from here onwards.

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