It’s a pleasure to speak again at Reform. Reform is an organisation that has done an amazing job over the last few years provoking and inspiring new thinking about our public services, in ways that are truly challenging and exciting.
And it was only a few months ago that I was privileged to deliver the Robert Oakeshott Memorial Lecture here at the ICAEW. It’s fantastic to be back, and to build on the growing momentum behind public service mutuals.
The need for new ways of delivering public services has never been greater than it is today.
You know the story. Four years ago, the UK was deep in recession, with a budget deficit bigger than Spain, bigger than Ireland. Doing nothing wasn’t an option. We realised we’d run out of money and we had to think; thank heavens there were think tanks around to help us.
There was also a growing urgency to tackle the issue of productivity in the public sector. This flatlined between 1997 and 2010, even though it had risen by 30% in the private services sector – the nearest equivalent – over the same period.
Of course if there’d been a similar rise in public sector productivity during this time, the maths is pretty simple – the budget deficit would have been tens of billions of pounds less. But many of those who wanted change – amongst them Tony Blair, Alan Milburn, John Reid – were shackled by those who held to a narrow and misguided belief that you can’t deliver better services without ploughing in more money.
Over the past 4 years we’ve proved that old defeatist consensus wrong – decisively. Since 2010 the civil service has shrunk by 17%, with more to come. Productivity has improved. It isn’t that the civil service is doing less – I promise you it is doing more, precisely because productivity has improved significantly.
Austerity in public finances will remain a fact of life for some time to come. At the same time, public services need to keep step with the modern world. They must operate in a transparent and responsive way.
So what do you do? We chose not to take the low road. The way of indiscriminate, salami-sliced cuts to services. This is the easier option for the bureaucrat, who doesn’t have to face the political consequences, but it risks reducing the role of government to a meek administrative function, remote from the concerns that matter to people and with less ability to shape our future prosperity and wellbeing.
Instead, we’ve chosen the high road of transformational change, which is tougher to navigate but the right path. It means unrelenting hard practical work, but presents a positive opportunity to create a better future.
Five principles for public services reform
And rather than producing elaborate strategies – governments are very good at doing white papers and thought pieces – we’ve just gotten on with it. It’s what I call the JFDI school of government – just do it.
So it wasn’t until a visit earlier this year to Spain, who have been very generous in response to the help we gave their new government a couple of years ago in the development of their austerity measures, that I reflected on what we had achieved, identifying 5 principles for public service reform.
The first principle is openness, because being transparent builds trust, sharpens accountability, informs choice over public services and brings improvements. Being clear about spending allows taxpayers to see exactly how their money is put to use in real time, or as close to real time as we can manage, enabling people to judge how services perform.
Open data is also a raw material for innovation and growth. As the industrial revolution was built on steel, so the digital revolution is built on data. That’s why we’ve published more than 14,000 data sets on data.gov.uk, making it the largest open data portal in the world.
The second principle is digital. If it can be done online, it should be done online, and only online – digital by default. Digital transactions cost a fraction of post, telephony and face-to-face. And as well as being cheaper, services delivered online are faster, simpler and more convenient for the public to use.
This is why we are moving services online, but we aren’t just recreating the same services. Rather we are taking the opportunity to rethink how services are structured – instead of expecting the user to bend to the needs of government, we are doing it the other way around. That’s the approach taken by some of the world’s most successful and innovative companies, and by bringing it to Whitehall we’re delivering better and cheaper services.
The third principle is a properly innovative culture, so public servants have permission to try sensible new ideas, moving away from the risk aversion that has tended to hold back progress.
“Move fast and break things” is the Facebook mantra. “Fail fast” echoes around places like Silicon Valley. We don’t need to break everything, but the best organisations learn most from the things that don’t work. The culture of the civil service must change to not only tolerate but require risk taking.
The fourth principle is tight control from the centre over common areas of spend, ensuring taxpayers’ money gets where it’s needed.
On first entering government we introduced tough spending controls in areas like marketing and consultancy, and we’re making departments share office space and release underused buildings onto the market. For 2013 to 2014 we saved £14.3 billion against a 2009 to 2010 baseline simply by doing the kind of things that most businesses do automatically when times are tough.
The lion’s share of these savings came through the operation of these tight central controls, and they are here to stay – no organisation would allow control over areas like property to be relinquished, and examples such as reforming the sprawling estate in Bristol prove their worth.
But tight control over the centre must be matched by much looser control over operations, which is my fifth principle, and the subject I want to focus on today.
Shifting power away from the centre is a historic opportunity to redesign our public services by putting committed public servants in the driving seat.
In a recent event for civil servants in Newcastle, the first question I was asked was about barriers. This wasn’t about reform being too fast but too slow – the layers of bureaucracy and process are blocking staff from achieving better outcomes for citizens.
This is why trusting them with control can change things in a way bureaucrats sitting in London can’t – it is why they should be given the power, freedom and responsibility to deliver services as they know best.
For too long, delivery of public services has been shackled by a top-down, Whitehall-knows-best attitude. It meant that good people, brimming with ideas and bursting with enthusiasm, were ground down by a culture that was overly bureaucratic and risk adverse.
Setting public servants free requires a complete change in mindset. It’s the quality of public services people receive that matter most, not process or institutions.
Success should be measured on performance and outcomes – everything else, including who actually delivers the service, is a secondary consideration.
Commissioners should have the freedom and the flexibility to choose the very best option for each situation without having one hand tied behind their back by dogma or convention.
In practice, this means more and more public services should be delivered from outside the core public sector, and we must look beyond the traditional solutions to draw on a wider constellation of suppliers, from joint ventures, mutuals and charities through to SMEs and start-ups. We need the broadest possible ecosystem of providers.
Yes, this means change. But far from posing a threat to the private sector, these approaches open up opportunities beyond traditional outsourcing.
In a conventional sense, outsourcing has been going on for years, and there are plenty of examples where it works well. But there are other examples where we failed to strike exactly the right formula. Outsourcing won’t always be the best fit, and that’s where we need to do things differently.
Government has an obligation to spend taxpayers’ money wisely. We’ve saved a lot of money by renegotiating contracts and by acting as a single customer, instead of departments paying differing amounts for the same goods and services.
There isn’t anything extraordinary in this. Our suppliers have had exactly the same conversations with their private sector clients. It’s what all good organisations do when times are tough.
And we should have been doing it a lot sooner. The civil service in particular must improve its commercial capability and more public servants need to develop hard-nosed commercial acumen. They can do it. They are all bright people. But historically we have not equipped them with the skills and the knowledge required – we’re changing that.
It is also true that for too long, too many public service commissioners had become too dependent on too limited a range of suppliers. Only real competition can secure the best quality and cost, which means allowing businesses of all sizes to compete on equal terms.
Historically government has had a pretty poor record with smaller firms, almost deliberately freezing them out by setting requirements they could not meet, meaning we missed out on the innovation and value that they can offer. Now we’re aiming for 25% of central government spend to be with SMEs, and we’re seeing more of them at the top of the supply chain.
To be clear, we’re not against large suppliers when they offer a good deal. But our approach is about encouraging competition, to get maximum value for taxpayers.
We’re also exploring new models of delivery, which move us from contractual relationships to true partnerships with the private sector.
We are looking beyond the old binary choice of monolithic monopolistic state provision or full-blooded commercial outsourcing – and embracing a new range of models which can happily coexist in the space that lies in between.
Two years ago, we made the first move when we created MyCSP, to administer the Civil Service Pension Scheme. It is not the most exciting activity, but it does something that really matters.
Rather than following the traditional outsourcing route, we created a mutual joint venture. This meant putting 25% of the organisation in the hands of employees. Government retained 35%, and the rest went to our private partner.
Two years on I’m proud to say it’s been hugely successful: winning new business and increasing turnover by 31% in its second year of trading, while simultaneously improving the quality of service and reducing operating costs.
And a large part of this success is down to its staff. They’ve had a voice on the board and a hand on the tiller, helping to steer this new business through its early years.
By raising their own productivity by 15% each year, staff have helped improve the organisation. And they share in that success, taking home a second year dividend of around £2,000 each.
But the biggest incentive is not financial – it is the freedom to act and do what’s needed.
We’ve built on this by launching a number of other joint-ventures in the past year. As they demonstrate, services improve and productivity rises when the staff have a stake. When the private sector’s track record of efficiency is combined with the public service ethos it can be an incredibly effective and powerful combination.
There are loads of latent entrepreneurs in the public sector. They may not think of themselves as entrepreneurs but they have all of that spirit of enterprise – the creativity, the knowledge, the experience, the drive.
That’s why one of the most exciting developments over the past 4 years has been the public service mutual.
Later today, we will be celebrating the first 100 mutuals to spin out from the public sector – up from just 9 in 2010.
The one thing they all have in common, is outstanding levels of staff engagement, which in turn raises productivity and improves services for the people who rely on them.
I’ll never forget when I visited a new mutual in Swindon. It was created by the coming together of some healthcare professionals and community carers, in order to deliver a proper integrated service.
During the tour, one nurse asked me inside the stockroom. I thought this sounded a little dull but I agreed. Once inside, I saw that someone had painstakingly labelled each item of stock with its unit price. When I asked why, she explained that it helped them understand the cost of treatment. On pressing again – why do you need to know that – she lit up: every pound saved was a pound that could be put straight back into better patient care, improving services for users.
In Essex, speech and language therapists from the mutual Provide have decided to start using iPads to deliver their service remotely, increasing flexibility and contact time with patients. Stuck in the NHS, the lag between idea and implementation could have been months if not years.
Visiting another mutual, this same issue reared its head – where before huge amounts of time was spent writing business cases, now it is devoted to patients and services.
And just last week, I was told about a phenomenal achievement by the staff at Bromley Healthcare. Empowered to act on their own judgement, they’ve brought down the healing time for leg ulcers from an average of 21 weeks to an average of just 5.
Just think about the cost of human suffering this alleviates. And the cost to the taxpayer it saves. Mutuals work because staff can see how things can be done better and are empowered to go ahead and do it, without getting bogged down in bureaucratic treacle. They can see the results of their actions directly, taking pride in successes and responsibility for failures.
Profit is not a dirty word. I believe in profit. But most mutuals choose to be non-profits. And this is something it took me a little time to get my head around. Until one of the first mutuals I visited explained that their motivation came not from getting a dividend or seeing their stock increase, but from the genuine control they had over the company. There is a profound psychological and emotional impact of feeling like a business.
And just like mutuals, charities and social enterprises are often much closer to the people we want to help. They are able to adapt to the needs of the user in ways that the state will always find more difficult.
So Whitehall is loosening its grip. More and more services are going to be delivered from outside of the public sector. It’s the way of the future.
Of course there will remain an important role for outsourcing. But it may be a little different, and we’ll be better at it. We’re already a better customer, which we really needed to be.
It’s also no longer the only alternative. Joint ventures, social enterprises, mutuals, charities, and SMEs are establishing themselves in the mix.
There’s strength in diversity. It offers more choice for government, more opportunities for business and for civil society, and better services for the public. And that, really, is what matters most of all.