The Politics of Public Sector Reform

From Thatcher to the Coalition

M. Burton

• Publisher: Palgrave Macmillan
• Year: 2015
• ISBN:
  9781137316240
• Topic: Politics & International Relations
• Subtopic: European Politics
• Index: Politics & International Relations

The first comprehensive 'bird's eye' account of public sector reform supported by references from over 400 official sources, this book is an invaluable guide to all those in the public, private and voluntary sectors grappling with the twin challenges of managing public spending austerity and the pressure in response to transform public services.

Part I

The Background to Reform

1

Reform Under the Conservatives 1979–1997

The election of Margaret Thatcher in 1979 was to prove to be a watershed in the history of public services. Since the creation of the welfare state after the Second World War there had been a consensus through successive Conservative and Labour governments about the central role of government as a benevolent provider of public services from local government to water, telephones, rail and energy. Commentators, referring to the converging views of Labour’s leader of the 1950s Hugh Gaitskell and Conservative politician Rab Butler, called this consensus ‘Butskellism’.

But following the defeat of the 1970–1974 Heath Government, leading Tory politicians such as Sir Keith Joseph and Margaret Thatcher began to rethink their approach to the state. Mrs Thatcher in particular dismissed the post-war consensus as ‘socialist, social democrat, statist or merely Butskellite’ and in particular called it ‘a centralising, managerial, bureaucratic, interventionist style of government’. In her eyes, the public sector had become synonymous with Labour and socialism and the post-war consensus was a sign of Conservative weakness. ‘The result of this style of accommodationist politics was that post-war politics became a “socialist ratchet” – Labour moved Britain towards more statism, the Tories stood pat and the next Labour Government moved the country a little further left’, she recalled in her memoirs. ‘The Tories loosened the corset of socialism; they never removed it’.¹

In her view the public sector, driven by its producer interests, the employees, had grown to the extent that it was now stifling private sector entrepreneurship. ‘Already large and unwieldy after its expansion in two world wars, the British Government very soon jammed a finger in every pie’, she later wrote in her memoirs. ‘It levied high rates of tax on work, enterprise, consumption and wealth transfer .... It made available various forms of welfare for a wide range of contingencies – poverty, unemployment, large families, old age, misfortune, ill-health, family quarrels – generally on a universal basis’.²

Her views had been reinforced by her experiences as a minister under Edward Heath whose initial attempts to expand the free-market sector in the early years of his 1970–1974 government ended in a U-turn, and his subsequent defeat at the hands of striking miners in the nationalised coal industry. She later accused him of trying to implement ‘the most radical form of socialism ever contemplated by an elected British Government’ through his proposals for state-run incomes and prices policy, adding: ‘The Heath Government changed course radically and adopted a programme of corporatism, intervention and reflation’.³

In 1974 when asked to choose between supporting Edward Heath or the miners during an industrial dispute the public chose the latter, re-electing a Labour government. But the so-called ‘winter of discontent’ in 1978/79 when public sector unions took strike action against the Labour government over pay restraints leading to domestic rubbish piling up in the streets undermined public support for unions in general and public sector unions in particular. Not only did this pave the way for Mrs Thatcher’s election in spring 1979 but it also provided some public sympathy for what was to become known as Thatcherism, a smaller role for the state with those services still in public control imbued with private sector management expertise and opened to competition.

Mrs Thatcher wanted the public sector reduced in size with the remainder galvanised through an injection of private sector management practices. Her government was the first since 1945 to challenge the fundamental role of the public sector and require it to reform. She was determined from day one in office to address what she regarded as the overmighty state and in her first Cabinet meeting ‘began the painful but necessary process of shrinking down the public sector after years in which it was assumed that it should grow at the expense of the private sector’.⁴

Mrs Thatcher’s immediate decision was to impose an immediate freeze on civil service recruitment and review the controls by central on local government, an initiative repeated 31 years later by the Coalition under David Cameron. Subsequently under Mrs Thatcher’s governments of 1979–1990, key utilities including gas, electricity, telephones and water were privatised along with Britain’s state-owned airline and council houses offered for sale to their tenants. Compulsory competitive tendering was introduced into local government manual services, firstly in highways, then from 1988 in refuse, street cleaning, cleaning and ground maintenance with private suppliers taking over services previously operated by council employees An efficiency review was undertaken throughout Whitehall to bring in private sector management practices. Some three quarters of Whitehall staff were transferred to over 130 external or ‘Next Steps’ agencies with a remit to manage themselves more efficiently outside traditional Whitehall working practices. In 1983 the Audit Commission was created to combine the auditing of health and local government spending with a focus on increasing performance.

On health she was more circumspect, recognising the popularity of the NHS. She recalled: ‘Housing like education had been at the top of the list for reform in 1987. But I had reserved health for detailed consideration later’.⁵ But she still believed that its ‘monolithic, state-provided system’ made it both unresponsive to patients and inefficient. She recalled: ‘Dedicated its staff generally were; cost conscious they were not’.⁶ And she added: ‘The NHS was a huge organisation which inspired at least as much affection as exasperation, whose emergency services reassured even those who hoped they would not have to use them and whose basic structure was felt by most people to be sound. Any reforms must not undermine public confidence’.⁷

But she also admitted that change was more complex to achieve, the White Paper proposing more private sector involvement in delivery and self-governing hospital trusts, appearing only in 1989. Nonetheless, the momentum for reform was underway. As one commentator on her government, David Marsland, later noted 15 years after she had ceased to be prime minister: ‘In [the Education Reform Act 1988 and NHS and Community Care Act 1990] the thrust of reform was similar – enhanced attention to the consumer’s role, introduction of competition, devolution of management to local operating levels and tough central frameworking’.⁸

But while it maintained a clear ideological antipathy to the idea of the state as a primary provider of services, Thatcherism also conceived the concept of public services being more responsive to users’ needs. Politicians on the right argued that the public sector was dominated by employees, through their trade unions and professional bodies, which created rigid, inflexible working practices. They saw public bodies like local authorities and health services as monopolies unwilling and unable to adapt to changing customer needs and burdened by expensive hierarchical structures. They saw them as unfairly protected from wider economic pressures affecting the private sector. They believed that competition would expose this inherent inefficiency and that where competition was not possible, public services must be monitored through inspection and regulation. These views, while initially articulated by politicians and theorists on the right, were soon to be shared by those on the left.

In addition public services were under financial pressure as Thatcher made lowering taxes a priority. As Latham and Prowle point out:

The size of the UK post-Second World War public sector as a percentage of GDP rose to the point where it significantly exceeded the US but was significantly less than that of some European counterparts. In part this created a sense of dissatisfaction on behalf of the public who would like to see European level public services but are only prepared to pay North American tax rates. The pressure has therefore been on the delivery of more efficient solutions for public service delivery and administration.⁹

Reforms to the public sector initiated under the Thatcher government were to run like a thread through successive administrations, Conservative and Labour. As one observer commented in 2005:

These two great reforms [of health and education] have provided, despite cosmetic changes under Labour since 1997, an essential basis for Tony Blair’s attempts at modernisation since 2001.¹⁰

The principle that public services must be managed as efficiently as possible, with minimum bureaucracy, learning lessons from the private sector in being customer-centric and adapting working practices around the needs of users, not employees, was to acquire cross-party consensus in the following decades. The differences were over the scale and responsibilities of the public sector and over the degree of privatisation.

Many on the left of politics argued that public services were public precisely because they could not be adequately or equitably provided by private companies. Critics of reform believed that the ‘public sector ethos’ ran counter to the ethos of the private sector with its outcome focus on profit, that introducing the profit motive to public services would mean the poor losing access to universal services in favour of those who could pay. Opposition also came from public sector trade unions and professional bodies, the former using their leverage within the Labour Party as providers of funds, to attempt to discourage policies promoting public sector reform. Indeed unions continue to see the term ‘public sector reform’ as a cover for privatisation and cuts in services.

Reform under John Major 1990–1997

Under Thatcher’s successor John Major, who became prime minister in 1990, the momentum for change in the public sector was maintained, but with key differences. In his autobiography (1999) Major recalled how improving public services was as much a priority as his predecessor when he wrote: ‘I wished to improve the performance of public services. Where this could best be done in the private sector I would privatise. Where not, I wished to devolve decision-making so as to cut bureaucracy and improve the image of the service and the morale of public servants. There should be no excuse for poor performance’.¹¹ He added: ‘The future of public services was high on my agenda in November 1990 when I entered Downing Street’.¹²

But there was a fundamental difference in approach. If Thatcher introduced the concept that public services needed to be challenged and preferably privatised or opened up to competition, Major believed they could be changed while still in state ownership. He argued that public services had value and that relying just on privatisation was ‘too ideological, too lacking in vision or ambition’.¹³ Unlike many in his own party, Major believed in the core value of state-owned services, his views coloured by his upbringing. As he later described, his own life history was ‘different from that of most of my predecessors at Number 10’ and ‘when I was young my family had depended on public services’. He added:

These personal experiences left me with little tolerance of the lofty views of well-cosseted politicians, the metropolitan media or Whitehall bureaucrats who made little use of the public services in their own lives and had no concept of their importance to others. They may have looked down on the public sector and despised it as second-rate but many of them knew nothing of the people who worked there or the manifold problems they faced.¹⁴

His approach, less ideological, more focused on change from within rather than wholesale privatisation, was to set the tone for reform during the following quarter century.

Major adapted the Thatcherite assault on the public sector by arguing that it did not require abolition but reform and admitting that his own party had been too quick to condemn it. ‘Privatisation had brought huge improvements in the quality of service in the 1980s as well as lower price’, he wrote. ‘Yet the public face of the Conservative Party carelessly, sometimes tactlessly, still allowed itself to be seen as not caring about improving the public sector ... The impression too often conveyed was that our support was grudging; and our policy of privatising some parts of the public sector led people to believe we were hostile to all of it’.¹⁵

Major did not only continue Thatcher’s drive to change public services, he also as new prime minister made it his personal agenda and by inference suggested she had only half-completed the task. His view however was not that the state had become over-mighty but that the services it delivered were inept. He wrote in his memoirs that on becoming prime minister the state of the public sector ‘dismayed and angered’ him adding:

Despite many excellent public servants the service offered was often patronising and arrogant ... There was a mentality in parts of the public sector that no one had responsibility to give better service to the public ... Services were run carelessly, wastefully, arrogantly and, so it seemed to me, more for the convenience of the providers than the users ... I wanted to bring the discipline and effectiveness of the private sector into the public services.¹⁶

Major took the view that both the public sector and his own party’s attitude towards it needed a step change and as he later remarked: ‘The culture of the public sector needed changing and I believed I knew how to do it’.¹⁷ This new managerially based approach to public service delivery was to become known as New Public Management.

Major and his ministers believed privatisation was right for certain services like British Airways, the railways, coal industry and British Telecom and he backed the contracting out of certain central and local government services, but he was lukewarm about it in schools or health. Nonetheless he faced opposition not just from public sector unions and from the right of his own party which believed only privatisation and competition were the solutions to poor performance but also the Treasury which believed services could be kept in-house with the proper funding. Major wrote later:

In order to achieve improvement I knew I would have to confront old attitudes both towards public services and inside them. The Tory right were not the only ones with an attitude problem. They believed the only good public service was a privatised one; but the vast majority of civil servants, even in the Treasury, seemed to believe the only way a service could be improved was to throw money at it.¹⁸

Major began outlining his philosophy even before he became prime minister. In 1989 in a speech to the Audit Commission when he was chief secretary to the Treasury he warned against denigration of the public sector, calling instead for a focus on improving its performance...

Table of contents

• Cover
• Title Page
• Copyright
• Contents
• The Politics of Public Sector Reform: From Thatcher to the Coalition
• Part I: The Background to Reform
• Part II: The Drivers of Reform
• Part III: Reforming the Key Public Services
• Part IV: The Role of Performance Regimes in Public Sector Reform
• Conclusion: The Next Steps for Reform
• Notes
• Index