Domestic politics has returned. Last week, debates raged over the funding and delivery of public services. Jeremy Corbyn and Theresa May clashed over the collapse of Carillion, but really that was only half the story.
Overlooked was that nationalised services are all-too-often mismanaged. The NHS is a prime example. On Friday, the NAO showed that NHS trusts took £4.bn in “financial support” last year — £3.1bn through interest-bearing loans, with the rest cash injections. Trusts still ended the year £800m in the red.
Professor Tim Briggs, national director of quality and efficiency, argues that variation in care is so great that trusts should not receive more funding until they improve care. Where Carillion failed, and shareholders lost out, NHS trusts received a bailout.
All the while NHS finances as a whole ended in the black due to the efforts of GPs. GPs act as businesses. They are handed yearly budgets to manage the health of registered lists of patients, pay staff and buy equipment – sharing remaining proceeds between ‘partners’. Some use this to radically change their model of care — offering more services (such as x-rays) and technology (such as smartphone triage). These, larger, practices are higher-quality and often run larger profits. Those running them point to the importance of the profit motive.
In many other cases, competition has improved value for money. A 2002 review found that privately financed projects are less likely to overrun on costs. The Coalition Government’s Work Programme stands to save £41 million on previous schemes. Many can shift financial risk to providers. A piloted rehabilitation-services contract for those leaving prison paid purely for reducing reoffending, and successfully so.
Yet, Carillion is a reminder that private providers struggle to win the argument. In private markets, failure not only comes with the territory, it is healthy: at least half the productivity gains over 10 years can be attributed to the replacement of less-productive firms with more-productive ones. Nearly one-third of government spend is with external suppliers. If the system is broken, as Mr Corbyn claims, the country would grind to a halt.
This does not mean that public-services markets are perfect. Last week, the NAO also ruled that PFI deals had not achieved value for money. PFI contracts are too often used to keep debt off balance, and include heavy payments for simple procedures, such as £8,154, in one case, for a school to replace a blind. It shouldn’t take a business mastermind to amend these issues, however. Price is also too often the deciding factor for winning contracts: Carillion was overrunning on costs on three major public-sector projects. Civil servants should focus more heavily on the value of proposed services.
Policymakers should recognise that business incentives are part of public services. Combining a public sector “ethos” with business nous can help deliver the best services for the lowest cost. All organisations need to be set up to thrive. If profit-making improves outcomes, it should not be snubbed no matter where politicians stand on the political divide.
Alexander Hitchcock is research manager at Reform. @AlexJHitchcock