20101206 Public service delivery

MORE WITH LESS

by Ian Mulheirn and Barney Gough

Rethinking public service delivery

MORE WITH LESS

Rethinking public service delivery

by Ian Mulheirn and Barney Gough

FIRST PUBLISHED BY

The Social Market Foundation, December 2010

11 Tufton Street, London SW1P 3QB

Copyright © The Social Market Foundation, 2010

The moral right of the authors has been asserted. All

rights reserved. Without limiting the rights under

copyright reserved above, no part of this publication may

be reproduced, stored or introduced into a retrieval

system, or transmitted, in any form or by any means

(electronic, mechanical, photocopying, recording, or

otherwise), without the prior written permission of both

the copyright owner and the publisher of this book.

THE SOCIAL MARKET FOUNDATION

The Foundation’s main activity is to commission and

publish original papers by independent academic and

other experts on key topics in the economic and social

fields, with a view to stimulating public discussion on the

performance of markets and the social framework within

which they operate.

The Foundation is a registered charity and a company

limited by guarantee. It is independent of any political

party or group and is financed by the sale of publications

and by voluntary donations from individuals,

organisations and companies. The views expressed in

publications are those of the authors and do not

represent a corporate opinion of the Foundation.

CHAIR

Mary Ann Sieghart

MEMBERS OF THE BOARD

Viscount (Tom) Chandos

Gavyn Davies

Daniel Franklin

Martin Ivens

Graham Mather

Brian Pomeroy

DIRECTOR

Ian Mulheirn

CONTENTS

ACKNOWLEDGMENTS 7

ABOUT THE AUTHORS 8

EXECUTIVE SUMMARY 9

CHAPTER 1: INTRODUCTION 18

CHAPTER 2: THREE WAYS TO DELIVER PUBLIC SERVICES

23

CHAPTER 3: STARTING WITH THE CITIZEN 28

CHAPTER 4: OUTCOME-BASED COMMISSIONING 43

CHAPTER 5: WEAK OR ABSENT MARKETS 60

CONCLUSIONS 65

SOCIAL MARKET FOUNDATION

7

ACKNOWLEDGEMENTS

The authors are grateful to our sponsor – Avail and The Learning

and Skills Council – for enabling this work to go ahead.

They would like to thank colleagues and external supporters

of SMF for their help in developing the ideas in this essay. The

authors are particularly indebted to Jeff Masters and David

Furness for their thoughts and reflections.

MORE WITH LESS

8

ABOUT THE AUTHORS

IAN MULHEIRN

Ian Mulheirn was appointed Director of the Social Market

Foundation in October 2008. He joined the Social Market

Foundation as the Chief Economist in February 2008, after

three years as an economic advisor at HM Treasury. He has

worked in a variety of policy areas including child poverty,

savings & investment, welfare to work and higher education

funding. He has also undertaken research into the drivers of

worklessness in London and evaluation of the Working Tax

Credit and the National Minimum Wage. He has a Masters

degree in Economics from university College London and an

undergraduate degree in Philosophy Politics and Economics

from Oxford University.

BARNEY GOUGH

Barney joined the SMF as a researcher in March 2006. He co-

authored and edited a number of publications before

working on the SMF Health project and co-authoring the

final report. He became Head of the Commissioning

programme at the SMF in 2009, and led the reducing

recidivism research project. Barney now works for the youth

and community charity The Challenge network. He took his

BA in social and political sciences at Emmanuel College,

Cambridge University.


9

EXECUTIVE SUMMARY

While public service reform has been on the agenda for years, in

the times of plenty, it has lacked the urgency or coherence that

today’s fiscal situation demands. This paper argues that a market-

based approach to public service delivery is the basis for public

service effectiveness and efficiency over the coming decade. The

fitful progress towards greater market-based provision has been

piecemeal and lacked a coherent framework to help policymakers

to think through the benefits and the pitfalls of greater

marketisation. This paper sets out such a framework to help

government think through the reasons for deploying the baffling

array of commissioning approaches in the delivery of public

services.

There are three ways to deliver public services: command

and control by central government, a trust model of devolved

power to front line professionals and putting power in the hands

of service users through choice and control.

Command and control models have been useful in

prompting significant improvement in certain aspects of public

service delivery. For example waiting times in the NHS have come

down in response to central government diktat. But poorer

patients are not well equipped to negotiate systems that are

fixated on government targets and there are information

problems too – civil servants do not necessarily know enough to

be effective.

Trust models have the advantage of securing good relations

with motivated professionals. And they remove some of the

unintended consequences of top down performance

management that can be a feature of command and control. But

trust models are vulnerable to producer capture – services

MORE WITH LESS

10

arranged for the convenience of the people who work in them

not the people who use them.

Choice and competition gives consumers the option to take

their custom elsewhere in a real market setting as providers are

forced to respond to their needs. Markets offer strong incentives

for providers to ensure that costs are minimised where possible.

But in addition to these static efficiency gains, the pluralism of

markets offers dynamic benefits of increased service effectiveness

and innovation over time, as different providers compete to find

more effective ways to serve citizens.

What does this mean for policymakers? The first insight is that

while ensuring fairness and efficient societal outcomes are

important reasons why government must fund services – as, for

example, in the case of education – there is no such rationale for

funding to be accompanied by direct government provision. And

history shows us that centrally planned and directed systems

tend to be inefficient. Therefore the best way to deliver services

is to start with the citizen and rely on market mechanisms to

deliver efficiency gains.

That private markets often result in unequal outcomes does

not reflect a causal relationship between markets and inequality.

Rather unequal market outcomes are a reflection of the fact that

citizens typically come to the market with different levels of

resources. Under these conditions markets often exacerbate

inequality. But this situation is precisely what state funding

avoids, since publicly funded services can be allocated according

to need. Citizens come to public service markets as equals.

What does all this mean for policy in practice? It means that in

every policy area we should begin by thinking about handing the

money to the service user. Putting the service user in control of


11

the public money spent on them should be seen but as the only

place to begin. By thinking through the reasons why such an

approach can fail, we can establish a framework for public service

delivery.

PUTTING THE SERVICE USER IN CONTROL

There are a range of different forms of this kind of market

approach, the most common of which are the vouchers, direct

payments to users or choice. In education, putting the service

user in control means allowing parents to choose a school for

their child, while giving parents cash or vouchers to pay for

childcare requirements in a way that suits their needs, has a

similar effect.

All of these approaches are vehicles for personalisation,

seeing the citizen as consumer, and promoting choice to drive

provider competition and therefore service improvement. True

personalisation of services is valuable firstly because it allows

resources to be allocated to where they’re most needed – static

efficiency. By setting it in a market context, personalisation also

stimulates providers to find better ways of doing things over

time.

In order to break the stultifying central control of public

services, policy-makers must think of the ultimate service user as

a consumer, and design delivery around them. However, despite

the evidence that starting at the individual level can improve the

efficiency and quality of some public services, it is true that the

consumer model will not work well all settings. Understanding

the reasons for the model’s failure can help policymakers to know

what tools to turn to next.

MORE WITH LESS

12

There are a range of circumstances that may render it

inappropriate for devolution of spending control and/or choice

to the service user. Three key issues are the following:

· Problems of agency : where the chooser’s decisions

affect others - specifically taxpayers. This can occur in two

forms. First, there may be a problem of agency in terms of

what the ’consumer’ spends the money on. For example,

if personal budgets in healthcare were commonly spent

on things that had no beneficial effect on patients’ health

outcomes, the taxpayer – who might then have to foot

the bill for more effective treatment – might legitimately

feel aggrieved. The second form of agency is in the form

of the amount of the good consumed. Where the agent is

keen to consume the service, such as a motivated

jobseeker keen to receive guidance from a personal

advisor, expenditure can be rationed. But what about

situations in which the jobseeker is reluctant to engage –

where they tend to ‘underconsume’ the good of

employment support? In each of these cases of agency,

particularly where it is difficult to identify under- and

over-consumers, a pure consumer approach is

inadequate.

· Information problems: where complex or infrequent

decisions by users lead to weak competition in markets.

Effective markets operate in conditions of repeated

choices that allow consumers to learn from their mistakes

and test out different products. This leads to effective

competition between suppliers, reducing prices,

improving quality and stimulating innovation over time.

But within a given public service it is important to ask

whether these conditions hold. In acute healthcare, for

example, it would be naïve to imagine that the patient

could act unaided as a consumer of health services – both


13

because they have limited experience of such choices

and because the information asymmetries involved are

too much for most patients to overcome without

assistance.

· Coordination problems: where services, by their nature,

require central co-ordination. Many public services

require that expenditure is centrally coordinated. In these

cases, fragmented individual financial control and direct

choice is clearly not viable or desirable. An obvious

example here, where devolution of choice and control to

the individual is fundamentally unworkable, is street

cleaning. Coordinated services are therefore a class of

public service for which we need to find a different

starting point than the individual level.

Where the above problems arise, we must instead look to a

level above the individual to commission effective and efficient

public services. Employing a third party to coordinate the

delivery of services can overcome problems of variability in the

levels of desired consumption on the part of service users. A third

party is also necessary to overcome coordination problems. These

examples typically mean needing moving from a situation where

providers compete for customers in markets, to one where they

compete to win contracts for markets – for example, competing

for the right to operate all criminal justice rehabilitation services

in a given area. Competition for customers where the customer

does not want to engage will fail to deliver good outcomes. But

without a consumer in charge, how can we ensure that services

are responsive to users’ needs and cost effective? One approach

is for government to commission for outcomes.

MORE WITH LESS

14

COMMISSIONING FOR OUTCOMES

By only paying providers for getting results, and freeing them up

to think creatively about how to achieve them, outcome

commissioning offers the possibility of combining central

accountability and front line flexibility. There is a great deal of

potential for outcome based commissioning to deliver real

improvements across a range of services.

Perhaps the most common objection to paying for outcomes

is that it can lead to ‘cream-skimming’. This is the situation where

service providers choose to focus on easier-to-help (and

therefore cheaper) service users and ignore the more expensive

ones. However, it is important to note that cream-skimming

behaviour is no less common in publicly-delivered services than

it is under privately-delivered ones. In the private sector, the

problem of cream-skimming behaviour is one that stems from the

payment structure offered to contractors.

In welfare-to-work services, for example, when contracts offer

the same outcome payment for successfully moving any

jobseeker into work, providers inevitably concentrate on the

easiest cases. The payment structure is designed to achieve the

most job outcomes for least cost. But this is something that

publicly-delivered employment services are also encouraged to

achieve. Indeed, the Jobseekers Allowance conditionality regime

is explicitly designed to minimise expenditure, with the

consequence that those jobseekers with the biggest problems

have to wait a year before getting intensive support. Crucially,

cream-skimming behaviour it is not intrinsic to the outcome

payment approach and can easily be avoided if it is deemed to

be undesirable by policymakers.


15

There are reasons why paying for outcomes, in particular, can

fail. The three common ones are as follows.

· Measuring success: where simple, measurable metrics of

success do not exist it is difficult to tie payments to good

outcomes.

· Accountability : where there are too many external

influences to reliably link provider interventions to

successful outcomes, accountability can be too weak to

allow payment by results.

· Time-frames: when outcomes lie too far in the future for

private investors to fund delivery, the approach will not

be viable.

Despite the potential of more market-based delivery to drive

public service productivity over the coming decade, there are

many types of public services that diverge significantly from the

perfectly competitive ideal. The consumer approach and

outcome-based commissioning are not appropriate delivery

mechanisms in all cases. Policymakers should be wary of

structures that may superficially resemble markets but do not

provide the pluralistic and competitive environment that is

needed to deliver improvements.

WEAK OR ABSENT MARKETS

Where markets are weak or absent from public service delivery

for reasons such as those outlined above, it becomes necessary

to re-consider the other two means of public service delivery:

command and control, and trust models.

Central command and control may be seen as the ‘least bad’

option where market-based delivery is not viable. As the last

government began to outline in its lat year of power, it may be

MORE WITH LESS

16

possible to complement top-down targets with universal service

rights and entitlements to augment user ‘voice’. One example of

this is the ‘September Guarantee’ for 16 and 17 year-old school

leavers, which entitles them to a guaranteed place in education

or training. In an era of cuts, such entitlements may be effective

in safeguarding minimum standards, thus reducing the variability

of performance if nothing else.

Trust in professional delivery, on the other hand, reinforces

the ‘gift’ model of public services, where the service user has

services delivered to him or her almost as if they are a gift.

Putting decisions in the hands of producers in this way, however

well-intentioned, is unlikely to enhance the responsiveness and

innovation of public services.

One form of the ‘trust’ approach is the mutual model. This has

some advantages over both command-and-control and

contacted-out delivery models. In situations where services are so

complex that either users or commissioners are unable to be able

to specify exactly what services they need, professionals are

arguably in a better position to determine the allocation of

resources at the front line than are distant public sector

managers. One area in which mutuals could be effective is in

healthcare where information asymmetries are common.

Their mission-driven nature may, in some circumstances, also

be better than trying to specify nebulous delivery requirements

in contractual for as might be more important under contracted-

out provision. However, the mutual model may prove unstable in

practice. While it is often the case that those closest to service

users understand their needs, that does not mean that providers

are unstintingly pursue those needs.


17

There are numerous forms that a market-based to public

service reform can take. But the starting point must be the

individual service user, in the form of individual budgets and

choice. A policy framework that starts with the user would

represent a revolution in thinking from the Beveridgean model

that has continued to dominate service delivery despite the

reforms of the past two decades.

But where the consumer model breaks down, as it does in

many public services, it is important to understand the nature of

the public service, and why choice fails, to inform our

understanding of which tool to reach for next.

MORE WITH LESS

18

CHAPTER 1: INTRODUCTION

A HOLE IN THE PUBLIC FINANCES

Developed nations are emerging from the effects of a severe

global recession. In Britain the recession has ripped a deep hole

in the public finances, being concentrated in areas of the

economy on whose activity the exchequer relied for a substantial

portion of its revenue. The economy might be starting to rally,

but the impact of the recession on the UK public finances will be

felt for years to come. With the 2009-10 deficit coming in at £156

billion, the Chancellor has set out plans to cut £83bn out of

public spending by 2014-15, with further fiscal tightening

planned thereafter.1 A decade’s downward pressure on public

spending will have severe implications for public services.

In addition to the problems created by the fiscal crisis, long-

term trends are also putting pressure on the delivery of public

services. Demographic changes, such as an ageing population,

coupled with increasing public expectations, mean that demand

for high quality public services is changing and growing. On top

of this, global trends such as climate change, migration and

security threats are throwing up new and complicated challenges

for public service delivery.

While these trends drive increasing demands on public

services, the impending and unprecedented fiscal squeeze means

that the country faces a challenge to sustain public services over

the next decade, let alone improve them. Unless the government

can work out how to achieve ‘more for less’, we face a bleak

decade.

1 HM Treasury, Budget 2010 (London : HMSO, 2010) , 15.


19

One approach to dealing with the hole in the public finances

is to attempt to continue delivering the same services via the

same structures, only more cheaply. This might be achieved by

driving down unit costs in the procurement process, by reducing

up-front investment, or by making small cuts right across

departmental budgets (commonly known as ‘salami slicing’).

These strategies are tempting because they do not require

any radical new thinking and would secure initial savings. But

unless such cuts are accompanied by a sophisticated analysis of

the delivery tools that are needed to improve service

effectiveness on the front line, cutting from the centre alone is

unlikely to succeed in achieving efficiencies for two reasons.

First, blunt cuts to some services can lead to unforeseen

ballooning costs in other areas. For example, if GP access were to

be scaled back, it is likely that more patients would turn to A&E

departments instead, at greater expense to the exchequer.

Second, centrally-imposed cuts without a strategy for reform

will lead to rapid deterioration in service quality. Ultimately this

will lead either to a collapse in the service provision altogether or

a popular outcry justifying a return to renewed and unsustainable

spending without reform.

But in developing a strategy to accompany public spending

cuts, decades of experience tells us that central determination of

what to cut and what to keep is bound to fail. Whitehall is simply

incapable of possessing the necessary knowledge to maximize

the public value of public money through centralised command

and control.

But ‘public service reform’ has been a permanent part of the

public policy landscape for years, and the way in which we

MORE WITH LESS

20

commission public services appears to be in a state of permanent

revolution. In some areas individual budgets are advocated as the

next stage of reform, while in others outcome-based

commissioning is the new buzz; an outbreak of enthusiasm for

the ‘John Lewis model’ of service delivery has been a recent

feature of the reform debate, while in other areas, an expansion

of service users’ choice is advocated. And at all times, politicians

pay at least lip service to the idea of freeing up frontline

professional to do what they do best without hindrance from

Whitehall .

What are we to make of this patchwork of ideas? How do the

different ideas about public service delivery and commissioning

relate to one another? And how should we think through which

delivery model is appropriate and which unworkable for a given

public service?

For decades, these questions have gone unanswered.

Contradictory fashions for reform in different parts of the public

services have waxed and waned, and the lessons of success or

failure of different approaches have too rarely been heeded in

other policy areas. This paper sets out to provide a framework for

policymakers to think through the options for commissioning

public services. In doing so it articulates an approach to public

service reform that can achieve often contradictory policy goals:

strengthening financial accountability at the centre, while freeing

professionals to make services effective and responsive to

citizens’ needs.

WHAT THIS PAPER ARGUES

While public service reform has been on the agenda for years, in

the times of plenty, it has lacked the urgency or coherence that

today’s fiscal situation demands. This paper argues that a market-


21

based approach to public service delivery is the basis for public

service effectiveness and efficiency over the coming decade. It

sets out a framework by which policymakers can think through

the reasons for using different approaches to commissioning the

delivery of public services.

Chapter 2 outlines the three fundamental ways to arrange the

delivery of public service: from government through command

and control; through professionals in a trust model of delivery; or

by handing power to individuals or organisations procuring

measurable outcomes on their behalf. While a combination of

each of the three approaches is usually necessary, it is helpful to

think about service delivery in terms of which of them should be

the principal delivery mechanism. We argue that market

mechanisms, thoughtfully deployed, offer the theoretical and

empirical basis for effective reform. Markets are a powerful force

for change, but inappropriately or partially deployed, they can

lead to perverse and unintended outcomes.

Chapter 3 establishes the starting point for a market-based

approach: the individual service user. Starting with putting power

in the hands of the service user is an approach that can be

powerful in driving joined-up and effective services, under the

right conditions. This chapter elaborates on the potential and the

limits of such an approach, arguing that giving power to the

individual should always be the analytical starting point for

policymakers. Policy areas that appear to be good candidates for

more of a choice and control approach include skills policy,

chronic health care, housing provision and schools. In practice,

many public services are inappropriate for the simple consumer

model of delivery alone, but a careful analysis of the reasons why

can point the way to an alternative commissioning approach.

MORE WITH LESS

22

In the many cases where treating the service user as

consumer breaks down, it can be necessary to move to a

commissioning model that puts a third party to coordinate and

join-up services, making them responsive to users’ needs. But to

achieve central financial accountability at the same time as

liberating the front line to use their knowledge of the situation to

provide appropriate services is a continuing conundrum. Chapter

4 therefore discusses the potential of outcome-based

commissioning to achieve these two goals, in a range of new

areas - including offender management, employment services

and skills provision - while also exploring the limitations of the

approach.

Finally, Chapter 5 considers what options policymakers have

for the delivery of services in which markets are inherently weak

or absent. In such cases contracted-out service provision suffers

from being able only to exert weak competitive pressure on

providers and in some cases it may be that delivering services

either by central control or frontline professionals may be more

effective. The answer will depend on the nature of the service.

In establishing a framework, this paper aims to go further

than simply describing the feasible range of approaches to

service commissioning. Instead this framework provides a tool for

policymakers to analyse the essential nature of a range of public

services, and think about the appropriate market instrument to

improve their delivery.


23

CHAPTER 2: THREE WAYS TO DELIVER PUBLIC SERVICES

Over the past twenty years, a wide range of different models for

the delivery of public services has emerged. The Thatcher and

Major governments rapidly expanded the range of services

delivered by private contractors, introduced purchaser-provider

splits within the health service and elsewhere, and tried to

expand choice in schools. The 1997 Labour government initially

looked to improve service delivery through Whitehall-determined

targets across a range of services, before returning to hone many

of the market-based approaches developed in the 1990s. In

recent years, the last government advocated a range of new

mechanisms - including individual budgets for service users,

payment-by-results for contractors, and most recently mutuals -

as a way to energise public service delivery.

Despite the fact that across different public services very

different delivery models are deployed, little consideration is

given to how policymakers arrive at one model rather than

another in any given service. The absence of any theoretical

framework to govern this decision arguably means that effective

strategies are slow to migrate from one service area to another.

Meanwhile, we are slow to learn the lessons of approaches that

have been less successful. So what are we to make of this blizzard

of delivery models? In the fiscally straightened times ahead it will

be important to develop a way to analyse public service delivery

across the board if we are to identify how to get more from less.

Public service delivery, unlike the private economy, involves

three kinds of actor: the citizen user of the service, the producer

of the service and the government. These three stakeholders

provide the framework for thinking about how effective and

MORE WITH LESS

24

efficient services can be delivered. While all three must, to some

extent, be involved in the methods of delivery of any service, how

primary decision-making power is allocated across the three

actors defines the model of service delivery.

· Retaining power primarily with government to steer service

delivery through targets and centrally determined

strategies, delivered by public sector providers, represents

the command and control model of delivery.

· Devolving power to front line professionals who are then

left to shape the service according to their perception of

need, is referred to as the trust model.

· Putting power in the hands of service users through choice

and control .

COMMAND AND CONTROL

The command and control approach is potentially effective at

addressing specific problems in service delivery, such as long

wait times for patients in A&E. It also has the advantage of

establishing a clear line of accountability from democratically

elected politicians to service users. But as Liam Byrne has argued,

the welfare state is the “site of capture by the middle class.”

Inevitably those who are more articulate or who know how

systems work are better able to lay claim to public resources

available, whether that be in health education or elsewhere. For

this reason, centralised, bureaucratically delivered services have

led to deeply unequal outcomes and public services have failed

the people for whom they were primarily intended: the poor. In

the coming decade of fiscal austerity, this inefficiency is

something that no government, of whatever hue, can either

afford or allow to persist.


25

Moreover, the centralised approach suffers from endemic

information problems: those furthest away from the front line –

civil servants and ministers – try to direct the operational side of

things with little understanding of the needs of service users or

the knock-on effects of their targets. At the same time, those

actually involved in service delivery have little autonomy to

respond effectively to service users’ needs.

TRUST

These well-worn criticisms of centralisation therefore lead many

to advocate that greater professional autonomy and trusting the

professionals as a better route to effective service delivery.

Indeed, it is often the case that the complexity of services means

that professionals have the greatest claim to service control on

information grounds.

Nevertheless, ‘trusting the professional’ clearly carries

significant risks. Whether well-intentioned or not, unaccountable

control of service delivery by professionals tends to encourage a

system primarily built around the needs and desires of those

professionals, rather than those of the citizens for whom the

services are intended. Such producer capture has been evident in

the fact that huge numbers of GPs chose to opt-out of delivering

out-of-hours services to patient under the Quality Assurance

Framework.

CHOICE AND COMPETITION IN MARKETS

The shortcomings of both central and professional control of

public service delivery therefore lead us to consider putting

power in the hands of service users through choice and control.

Creating markets for the delivery of public services and

empowering citizens as consumers has often been advocated as

MORE WITH LESS

26

a route to more responsive, efficient and effective public services

for three reasons. Since consumers have the option to take their

custom elsewhere in a real market setting, providers are forced to

respond to their needs. Second, markets offer strong incentives

for providers to ensure that costs are minimised where possible.

But third, and in addition to these static efficiency gains, markets

offer dynamic benefits of increased service effectiveness and

innovation over time as different providers compete to find more

effective ways to serve citizens. In short, where applicable,

markets drive better, cheaper and more responsive public

services than either of the two other models. The challenge, then,

is to work out where and how to apply them.

While the theoretical benefits of market-based public services

are clear, the reality of service delivery is complicated. But a clear

understanding of the justification for putting power in the hands

of the citizen points the way to a starting point for policymakers

in analysing public service delivery. In developing the framework

this essay suggests a range of policy areas where the delivery or

commissioning approach might benefit from reform in order to

produce better services with less money.

The remainder of this essay provides a practical and

applicable framework for policymakers to think through the

appropriate vehicles for the delivery of public services, and what

that means for commissioning and procurement in practice. To

derive that framework, we must begin by defining the essential

role of the state in public services. Isolating the essential nature

of public services then provides a starting point for thinking

about commissioning that service provision.

Taking the first step in setting out the framework, the next

chapter considers in more detail the rationale for starting with

the individual service user. It then goes on to look at why the


27

consumer approach can break down in some policy areas, making

it inadequate as the basis for shaping delivery in every case.

Understanding the limitations of the consumer model in various

settings points the way to the next stage in the framework.

MORE WITH LESS

28

CHAPTER 3: STARTING WITH THE CITIZEN

The public service reform agenda of the past twenty years has

been characterised by perpetual revolution in the delivery and

commissioning of services. But this has proceeded without any

apparent systematic attempt to think through what the nature of

a given service means for how it should be delivered or

commissioned. In order to consider whether services might be

better arranged, it is important to begin by re-articulating the

fundamental goals of public services. Why do we have them and

what are their aims?

There are two reasons for the existence of public services. The

first is one of efficiency: services need to be coordinated by the

state where the free market economy would not otherwise

provide. This is the case for public goods in the traditional

economic sense (such as street lighting) or the correction of

externalities or market failures (such as the benefit to wider

society of educating a citizen). Private funding of such services

(at least without state backing) is beset by risks of free-riding of

non-paying users of the service, leading to under-provision of

them compared to the social optimum.

The second justification for public services is one of fairness:

we are concerned not to leave the provision of some services to

the free market. Why? Because we recognise that the distribution

of wealth and income is such that consumption of essential

services would be deeply unfair without government

intervention. Hence healthcare, education, social care, childcare,

employment support and many other government services are

publicly funded on the grounds of fairness. In most cases, the

fairness and efficiency arguments cohere in the same service, as

for example in health and education.


29

But while these justifications outline the theoretical rationale

for public services, they say nothing about the nature of service

delivery. While it is the case that public services are intrinsically

different to privately consumed goods, that difference derives

from the nature of their funding, not the method of their

delivery. That taxation funds public services does not mean that

government must provide them. In order to get from establishing

the need for public funding of public services to a view on their

appropriate delivery, we need an additional theoretical

framework.

As a starting point for the delivery of public services, the

assumption that public funding implies state delivery should

strike us as very odd. Indeed, as many have noted in the past,

top-down allocation of public services, while it promises equality

of provision, does nothing of the sort.2

People of different political persuasions can disagree on the

appropriate level and scope of public services. But, insofar as

services are delivered at all, all sides should agree that equality and

efficiency goals remain their aim. In all this, state or top-down

delivery has confounded the fundamental goals of public

services.

But if the state should not determine who gets what services,

then who else should shape them but individual citizens? In all

other areas of life individuals determine the shape of the

provision of goods and services through their own choices and

preferences. Standard economic theory, and a century-long

experiment with state socialism, suggests that, as a rule, this

approach is generally superior to any other method of allocating

resources. The left has often reacted against the application of

such approaches to public service delivery because of a visceral

2 Jul ian Le G rand, The other inv i s ib le hand (Pr inceton Univers i ty Press , 2007) , 33.

MORE WITH LESS

30

sense that when individuals are allowed to exercise their own

preferences - i.e. market mechanisms - the market throws up

unequal outcomes for citizens. They rightly argue that such

disparity of outcomes would be unacceptable for public services,

particularly those which are primarily justified on the grounds of

fairness (such as healthcare).

But that private markets often result in unequal outcomes

does not reflect a causal relationship between markets and

inequality. Rather unequal market outcomes are a reflection of

the fact that citizens typically come to the market with different

resource endowments. Under these conditions markets often

exacerbate inequality. But this situation is precisely what state

funding avoids, since endowments for publicly funded services

can be allocated according to need. Citizens come to public

service markets as equals.

So while it will always be government’s role to determine the

principles on which public resources are apportioned to citizens,

the state should aim, as far as possible, to leave the shaping of

services in the hands of individuals. As an approach to public

service delivery, and under the right conditions, markets offer the

most powerful method of matching needs with resources, and

therefore of getting more for less in public services as a whole.

What does all this mean for policy in practice? It means that in

every policy area we should begin by thinking about handing the

money to the service user.

THE USER AT THE CENTRE: VOUCHERS, CHOICE AND DIRECT

PAYMENTS

The above analysis makes giving citizens their money to spend

the natural starting point for all public service delivery. Putting

the service user in control of the public money spent on them


31

should be seen, not as one among a suite of options for service

delivery, but as the only place to begin. The onus should be on

policymakers to provide a compelling case for not handing the

money directly to the service user. In effect there are a range of

different forms of this kind of market approach, the most

common of which are the following.

· Vouchers: individuals are given virtual money to spend with

approved providers. Childcare vouchers are an obvious

example here.

· Direct payments: service users are allocated resources and

allowed to choose the service that best suits their needs.

The social care individual budget pilots that concluded in

2008 are a good example of this approach.

· Choice: citizens are provided with a range of service

providers to choose from. The new coalition government’s

plans to expand school provision are aimed at facilitating

parent choice here.

All of these are vehicles for personalisation, seeing the citizen as

consumer and promoting choice to drive competition and

therefore service improvement. There are differences between

these approaches in that choice and vouchers are rather like

picking a set menu, while direct payments are more akin to

choosing a la carte . The differences between them tend to

consist in the constraints on the uses to which the money is put.

But these differences are less important for the purposes of this

essay: in all cases the funding level is determined by government

and the money follows the service user’s decisions, which can be

more or less constrained.

The idea of personalisation has been claimed by advocates on

both the right and left of the political spectrum. Fernandez et al.

argue that this is because “Conservative commentators can

MORE WITH LESS

32

applaud its market-like characteristics, while for New Labour the

policy resonates neatly with the broader thrust of the choice in

public services campaign.”3 Such a degree of consensus should

really be unremarkable, since the argument for personalisation is

built around improvements in both equity and efficiency. If the

theory is borne out by the facts then one might expect politicians

from all sides to welcome it as a rare opportunity for

unambiguous improvement in government policy.

True personalisation of services is valuable firstly because it

creates a market in the provision of public services, allowing

resources to be allocated to where they’re most needed and

stimulating actors to find better ways of doing things over time.

The first of these characteristics means that citizens get to shape

the services they use but also face a clear limit to the value of the

services they can consume – thus encouraging them to achieve

the best value for money. The second characteristic offers the

potential for the bottom-up approach to stimulate innovation,

and in doing so raise the quality and lower the price of the

services that are provided.

So what does the evidence say about the money-saving

potential of putting purchasing power or choice in the hands of

individuals? The extension of budgetary control to social care

users and health service users is a phenomenon that is in its

infancy. This means that conclusions about the effectiveness of

the approach can draw on a relatively limited evidence base.

Many researchers have concluded that, compared with top-

down approaches, social care costs are reduced by devolving

more control to the individual. For example, Hasler, reporting on

direct payments to social care service users in West Sussex,

3 Fernandez , J .L . , Kendal l , J . , Davey , V . e t a l ‘Di rect payments in England: factors l inked to var iat i ons in

local provs ion ’ , Journal of Soc ia l Pol ic y, vol . 36 , no. 1 . 97-121


33

concludes that, for the small group of people involved, saving of

some £2,000 per person were made.4 Many of the studies

commonly cited in support of the cost-saving effects of

individual budgets are often criticised on the grounds of

methodology.

The most rigorous and systematic evaluation of the

deployment of individual budgets was the 2008 evaluation of the

Individual Budgets Pilot Programme in the UK.5 The authors

conclude that, overall, there was no statistically significant

difference in the cost of care packages between randomised

groups of individual budget holders and a comparison group.

However, they do conclude that for several specific groups -

people with mental health problems, younger disabled people

and, perhaps, those with learning difficulties - individual budgets

do appear to be more cost-effective.

Self-directed support has been tested for people managing

mental health conditions in a range of US states. Evidence from

Florida suggests that service users are more likely to direct

spending away from crisis support and towards employment

support and preventative measures.6 However, since service users

were self-selecting it is very difficult to draw firm conclusions

about the causal effect of self-directed support.

Choice in schools has been an element of education policy

since the 1988 Education Act, and successive governments of

both parties have tried to improve the choice mechanism. And

4 Frances Has le r , “L iv ing i s about more than bed and breakfast ” , Heal th Matte rs ( 1997) vol . 32, 12-13

5 Carol ine Glendinn ing et a l , Evaluat ion of the Individual Budgets P i lot Programme: F inal Report (York :

Un ivers i ty of York Soc ia l Pol icy Research Un i t , 2008) .

6 Vidya A lakeson , “ In te rnat ional developments in sel f -d i rected care” , I s sues in In te rnat ional Heal th

Pol i cy (London : Commonwealth Fund, Februa ry 2010) .

MORE WITH LESS

34

there is some evidence on the effectiveness of choice in schools

in driving up standards.7

But the scope for the market to drive up quality depends

heavily on the context in which choice operates. For example, the

success of choice in the Swedish school system was hampered by

the fact that there is no mechanism by which poorly performing

schools can ‘go bust’. Choice, in other words, does not

necessarily equate to a market environment and is therefore no

magic bullet on its own. For this reason, the success of the

Conservative party’s plans to expand choice further in the UK will

only lead to improved performance if they can find a way to

allow a market – with all that entails for failing schools – to

operate more fully. Current plans rely on parents taking over

failing schools, but it is an open question whether this will occur

in practice.

So putting the power in the hands of the end-user can have

advantages in terms of efficiency, responsiveness and innovation:

the instrumental justification for markets. But it can also be

argued that markets bring wider benefits on the libertarian

grounds that giving people choice is intrinsically better than not

doing so. By this way of thinking, the same service provided by

the state would have more value had they been chosen by the

ultimate user. User control over services turns on its head the

paternalist notion that public services are a ‘gift’ from

professionals or the state, rather than a citizen’s entitlement.

AN EXPANSION OF CHOICE

There is a wide range of public service delivery areas in which

choice and control could be more commonly devolved to the

individual, allowing them to prioritise their needs and exert

7 Jonathan Wi l l iams and Ann Ross i ter , Choice : the ev idence (London : SMF, 2004) .


35

pressure on providers. Some possible areas for reform include the

following.

· Skills policy . The Brown Government’s gradual roll-out of

skills accounts represented a movement in the right

direction, giving individuals much more control over how

money is spent on their behalf. The Conservative party

has outlined its concept of life-long learning accounts for

individuals to build on skills accounts. Combined with

guidance and advice, greater personalisation of skills

funding offers significant real efficiency savings, by

cutting out bulk-bought courses that may be a poor fit for

both employee and employer.

· Housing provision . In the face of ballooning Housing

Benefit bill, the Local Housing Allowance was introduced

by the government in 2008 to encourage recipients to

shop-around for a good deal on their rent. However, as

the public finances have tightened, the temptation to

withdraw any excess money that recipients might

otherwise keep under the scheme has precipitated a

return to something more like the old system. The market

principles of LHA remain, however, an area where

empowering recipients to choose could produce better

outcomes and save the exchequer money in the long-run.

· Schools. As discussed above, liberalisation of school

supply, as planned by the coalition, offers the possibility

of a better market in education. The question of how to

deal with failing schools, however, remains an area that

lacks clear answers.

· Long-term healthcare . The partial success of the

individual budget pilots both here and abroad presents

the possibility that, particularly when budgets are likely to

be cut, putting control in the hands of the user can

improve outcomes and reduce costs.

MORE WITH LESS

36

THE LIMITS OF CONSUMERISM

In order to break the stultifying central control of public services,

policy-makers must, therefore, think of the ultimate service user

as consumer, and design delivery around them. However, despite

the evidence that starting at the individual level can improve the

efficiency and quality of some public services, it is intuitively

obvious that the consumer model will not work well all settings.

For example, individual budgets in the provision of roads would

decentralise the provision of that public good so much as to

make co-ordinated decision-making all but impossible. Choice for

offenders in the provision of prisons, if allocated to offenders,

would clearly be absurd. So what is the nature of those public

services that cannot be devolved to the individual?

Until we have a clear understanding of the theoretical

limitations of leaving the individual to commission, policy-makers

will find it difficult to know how to commission at some other

level, while simultaneously achieving value for money and

stimulating innovation. Deconstructing what it is about services

that makes them inappropriate for a consumer-centred approach

enables us, first, to understand how to make choice work better.

But secondly it allows a better understanding of the situations in

which choice may be a bad thing.

There are a range of circumstances, specific to each type of

public service, that may render it inappropriate for devolution of

spending control and/or choice to the service user. Three key

issues are the following:


37

· Problems of agency : where the chooser’s decisions

affect others.

· Information problems: where complex or infrequent

decisions by users lead to weak competition in markets.

· Coordination problems: where services, by their nature,

require central co-ordination.

Each of these throws up a set of questions that policymakers

must ask themselves in designing the commissioning of a given

public service.

1. Is there a problem of agency?

The problem of agency is captured in the question: is someone

other than the actual service user affected by the decisions and

outcomes of the service user? If so, it will be inappropriate to

allow unlimited choice for the service user in circumstances

where their interests are not directly aligned with those of others.

Since public services are, by definition, publicly funded, the

decisions of any citizen to consume them inevitably has an effect

on others who also paid for them. Hence, agency is a

fundamental problem for public services. But there are two

versions of the agency problem: one relates to whether the level

of use of services by one citizen is in the interests of other

citizens; the other relates to the ends to which those resources

are put.

a) Agency in what is the money spent on

A good example of the former type of agency problem is in

the commissioning of employment services. The justification for

public funding of employment services stems primarily from the

cost to taxpayers of not providing such assistance to jobseekers.

MORE WITH LESS

38

So both jobseeker and taxpayer have an interest in what kind

of services the public money is spent on: the former might

prioritise getting a certain type of job, while the taxpayer might

prefer to get the person into the nearest available employment

to reduce the benefit bill. Hence, leaving budgetary control

entirely in the hands of the individual jobseeker is unlikely to be

cost-effective for government.

A similar agency problem is evident in skills provision. The

justification for public funding of skills acquisition rests on the

idea that its value to wider society is greater than that to either

the individual or the employer on their own. But that means that

employee, employer and future employer all have a legitimate

interest in how public money is spent. Leaving that control

entirely in the hands of any one of those possible ‘agents’ to

direct the investment is unlikely to result in the best social

outcome for all. Where agency problems imply a divergence of

aims between interested stakeholders, devolution of budgetary

control entirely to one of them will not be cost-effective.

b) Agency in the amount consumed: do users tend to under-consume or over-consume the service

When the actions of the service user affect others, there is a

role for government in working out how to ensure that the ‘right

amount’ of the service is used. Where the danger is that people

want unaffordable amounts of a good thing (perhaps in social

care) the solution is reasonably simple: a limit on expenditure is

set and within that limit the individual can still be free to choose.

In such cases individual budgetary control is highly appropriate.

A gatekeeper of some kind is necessary to allocate resources

according to need – to set an individual’s budget constraint – but

the user is free to decide how to maximise the value of those

resources by shaping the services used themselves.


39

But where the danger is that users tend to under-consume a

public service, this raises the problem that they may need to be

‘nudged’ or forced to use more of the service, rather than having

the consumption decision left to them as an individual budget or

choice mechanism would imply. In these situations the agency

problem stems from the fact that the primary ‘service user’ is not

the only, or even perhaps the main, person set to benefit from

their engagement with the service. The most obvious example of

such a situation is in the incarceration of prisoners who, given

the choice, would obviously choose not to be locked-up. In such

cases it is clearly necessary for the service to be enforced by

someone other than the ultimate user, and individual choice or

budgetary control are, by definition, inappropriate.

More interesting than examples of uniformly over- or under-

consumed public services, however, are cases where the level of

desired consumption varies massively from person to person

within the same service. For example, while some people are in

danger of monopolising their GP’s time with minor ailments that

do not need attention, a problem at least as large is that high-risk

groups never visit their GP until their health condition becomes

more serious and hence more expensive to treat. Here, the

challenge for the provider is to act as a gate-keeper for those

who ‘over-consume’ but to be proactive in getting under-

consumers to engage. The difficulty, of course, is in identifying

which people are under-consumers and which over-consumers.

Similar variations in consumption are clear in such things as

school education and welfare-to-work, where some pupils or

jobseekers will want as much assistance as they can get while

others will not engage. In these types of public service, a cost-

effective service depends on the extent to which users can be

made to engage positively with the process. Neither learning nor

job-search can happen without effort on the part of the service

MORE WITH LESS

40

user. Such services are often described as being co-produced: the

delivery of effective public services through the contribution of

the citizen as well as that of the provider.

In these cases of ‘co-production’ – where the engagement of

the service user with the professional is integral to service

effectiveness - the difficulties of variable levels of engagement by

service users means that commissioning at the individual level is

much more problematic. To create value from the public service,

delivery involves an assessment of an individual’s desired level of

consumption, combined with encouragement, incentives or

sanctions if that desired level is too low from a societal

perspective. But this co-production challenge is problematic, not

least because differentiating between service users who are and

aren’t engaged requires a fine level of detail in the hands of

whoever allocates resources. The information asymmetry

between service provider and user means that devolving

decisions to the front line – both in terms of allocating resources

and the approach to service delivery - is essential for cost-

effective outcomes. But front-line flexibility gives rise to

questions about central accountability. Tackling this tension is

the focus of the next section.

2. Is the choice too complicated or infrequent for the market to work effectively?

In many public services it is the case that individual users might

be well placed to make decisions about the service they would

like to receive, but for the nature of the choice they face.

Effective markets operate in conditions of repeated choices that

allow consumers to learn from their mistakes and test out

different products. This leads to effective competition between

suppliers, reducing prices, improving quality and stimulating

innovation over time. But within a given public service it is

important to ask whether these conditions hold. Is the choice too

complicated for the non-specialist to understand? Are decisions


41

made so infrequently that the would-be consumer has no

opportunity to learn from past attempts? These information

problems can render individual budgets and choice ineffective

for achieving value for money in public services.

Patient choice in acute healthcare provision, for example,

could not, in most cases, be operated meaningfully or effectively

without the close support and advice of a qualified professional.

Where choices are complicated or infrequent for the user,

guidance from professionals – along the lines of the Patient Care

Advisors used in NHS choice pilots - is essential if cost-

effectiveness is to be improved.

Personal management of chronic conditions, by contrast, is

much more conducive to individual choice and control since

there is plenty of opportunity for repeated choice and learning.

Here, training such as that offered by the NHS Expert Patient

Programme can help to ensure that service users are empowered

to get maximum value for public money in the services they use.

3. Is there an identifiable service user?

Many public services require that expenditure is centrally

coordinated. In these cases, fragmented individual financial

control and direct choice is clearly not viable or desirable. An

obvious example here, where devolution of choice and control to

the individual is fundamentally unworkable, is street cleaning.

Coordinated services are therefore a class of public service for

which we need to find a different starting point than the

individual level.

The above three characteristics of public services can render

them inappropriate for a consumer-based approach. But even

where choice is deemed viable on these dimensions, the

policymaker’s work is not necessarily over.

MORE WITH LESS

42

· Demand needs to be sufficiently high to achieve the

necessary economies of scale if cost-effective services are

to be available. Hence the large increases in financial

support for childcare since 1997 have made putting

control in the hands of parents more viable than when

funding was lower.

· Similarly, sufficient supply-side capacity and flexibility is

necessary if choice is to be effective. Here the

Government’s extension of the right to choose the

hospital in which you are treated has opened up private

hospital capacity to NHS patients to enable choice to

work effectively.8 Conservative plans to liberalise school

provision are in a similar vein.

WHAT CAN POLICY MAKERS DO IN THE FACE OF THESE

DANGERS?

Where the above problems of agency, infrequent or complex

choice, or coordinated services arise, we must instead look to a

level above the individual to commission effective and efficient

public services. This typically means moving from a situation

where providers compete in markets, to one where they compete

for markets. But without a consumer in charge, how can we

ensure that services are responsive to users’ needs and cost

effective? One approach is for government to commission for

outcomes.

8 Zach Cooper , et a l , “Does hospi ta l compet i t ion improve ef f ic iency? An analys i s of the recent market-

based reforms to the Engl i sh NHS’ , CEP Discuss ion Paper No 988 (London : LSE , 2010) .


43

CHAPTER 4: OUTCOME-BASED COMMISSIONING

As the above chapter makes clear, market-based service

provision, in the form of genuine user choice and control, should

be the first port of call for policymakers for both instrumental and

libertarian reasons. But, where it breaks down, we must instead

look to a level above the individual to commission effective and

efficient public services.

COMPETITION FOR MARKETS

When services are commissioned on an individual’s behalf, that

offers the possibility that all three of the shortcomings of the

choice model can be overcome. The commissioner can:

· be instructed by government to take account of the

interests of other citizens in delivering services to the

primary use;

· be expected to have the expertise and scale to overcome

information problems; and

· operate on a scale necessary to coordinate decision-

making.

Further, while the consumer model sometimes fails, leading back

to a form of top-down provision, market disciplines can remain.

Instead we simply move from services characterised (primarily if

not exclusively) by competition within markets, where providers

seek to provide the best service in order to attract ‘customers’, to

service provision characterised by competition for markets.

This approach has been evident across all areas of public

policy in recent years. Government has put out to tender fixed-

MORE WITH LESS

44

term contracts to operate everything from prisons and railways,

to employment programmes and government office buildings.

The theory behind these developments is that by opening up

provision to a wide range of possible providers, such

contestability will result in reduced service operation costs

and/or increase quality. Even where there are relatively few

providers in a given market, it is argued, the threat of market

entry by competitors keeps service providers on their toes,

encourages good performance and keeps costs low.

However, there are at least two general problems that recur

when government runs contracting rounds for public service

provision. These problems go to the heart of the theoretical

benefits of a market-based approach to public service delivery.

· First, there is significant tension between the benefits of

competition for markets and the need for investment by

delivery partners. If contract durations are short,

contractors will be understandably reluctant to invest in

developing their service in expectation of a future return.

Long contracts are therefore needed to encourage high-

quality provision in services that require large amounts of

investment. But long contracts deny the static efficiency

benefits offered by markets that conform to economists’

perfect competition world. If providers are secure in their

contracts for, say, ten years, the competitive threat to

their business is some way in the future, which blunts

market incentives to minimise cost and improve quality –

at least until the next contracting round looms.

· Secondly, the complexity of service delivery in most areas

of public policy is such that the contractual approach on

its own tends to have to stipulate highly detailed input


45

and/or process requirements for delivery partners. By

focusing on securing the detail of process, government

removes the flexibility of providers to innovate. This

destroys the dynamic efficiency benefits of markets to try

new approaches and learn more effective ways to do

things.

The tension between short-term contracts offering highly

competitive tendering, and longer-term ones providing strong

investment incentives is almost certainly an insurmountable

trade-off, since the contractual security required for investment is

inherently anti-competitive. The announcement earlier this year

by Lord Adonis, until recently the Secretary of State for Transport,

that rail franchises would be extended to run for 10 years is an

admission that the last round of contracts placed too much

emphasis on competition and not enough on investment

incentives.9

However, the focus on defining processes does not simply

restrict the scope and remove the incentives for providers to

innovate. It also leaves decisions about what constitutes an

effective public service to those furthest away from service users:

policymakers. Nevertheless, despite the information problems

associated with this approach, the reasons for the re-imposition

of Whitehall control in this way are clear. Accountability for

public money necessitates that the centre should dictate what

happens with the money. Or does it?

OUTCOME-BASED COMMISSIONING

Outcome-based commissioning is characterised as a shift from

government paying delivery partners for the processes they

complete (regardless of whether they constitute a good use of

9 Pickard , J . and Pl immer, G. ‘Adonis t r ies to l ock in t ra in operato rs ’ F inanc ia l T imes , 20 January 2010

MORE WITH LESS

46

public money), to one where it pays for the achievement of

desired outcomes. An area of policy in which this approach is

increasingly being deployed across the world is that of welfare

reform. Under outcome-based employment services, providers

are paid by the state for getting people into work and keeping

them there. This represents a radical shift from previous systems,

which often paid contractors for delivering processes, such as

basic skills training classes for jobseekers.

Where providers are paid for achieving good outcomes, this

approach has two key benefits. First, when combined with

payment by results, it offers a mechanism to leverage private

investment into public services, on the promise that investors will

see a return if outcomes improve – paid for by reduced public

spending in the area. Public spending cuts over the coming

decade will make ‘spend to save’ reforms impossible to fund

unless they draw on private investment in this way. There is

consequently huge potential to use this approach to enable

private finance to step in as the public sector retrenches.

Second, it removes the need for Whitehall policymakers to try

to learn solutions to increasingly difficult problems through

analytical work, such as what interventions are successful at

getting people into employment. Instead, that job and the risks

that go with it can be handed to market participants to find out

what works on the ground.

In recent times, government has increasingly recognised that

outcomes for users can be improved when contractors are able

to innovate in achieving defined goals. In 2007 the Treasury

noted that a good procuring authority should consider using an

outcome based specification, to give suppliers, who know more

about their business than potential buyers, more scope to

provide “innovative solutions to solve the underlying problem


47

the procurement is designed to deal with, rather than deciding

what the precise solution should be at the outset.”

By only paying providers for getting results, and freeing them

up to think creatively about how to achieve them, outcome

commissioning offers the possibility of the central financial

accountability and front line flexibility. In making that shift,

outcome commissioning offers three benefits over standard

contracting, which directly address the three ways in which the

consumer approach breaks down.

Agency problems

Since, under payment by results, government pays a third party

for the achievement of socially desirable results, there is no

longer any concern that the individual will use resources in a way

that does not benefit other stakeholders. Hence the agency

problems associated with the consumer model are overcome.

Second, providers are free to use their understanding from

engagement with users to tailor services more closely to

individual need. This is not simply a question of allocating

spending effectively. Strong incentives to achieve results,

combined with process flexibility, encourages front-line staff to

maximise the engagement of service users in achieving the

desired outcome. In services where co-production is the key to

good results, far from displacing service user engagement, outcome

commissioning provides an environment in which it can be fostered.

In addition to addressing the agency problems that can

frustrate the consumer approach, outcome commissioning can

also solve another agency problem: that of government. By

requiring government clearly to stipulate the results it seeks for a

given public service, outcome commissioning can drive a much

clearer democratic discussion about public services than is

possible under either a bureaucratic delivery model or a

MORE WITH LESS

48

contractor model in which processes are agreed but outcomes

ignored.

This has particularly been evident in the debate over ’cream-

skimming’ of easier clients and ‘parking’ or ignoring of harder-to-

help people in employment services. Recent evidence of this

behaviour by private contractors on the Pathways to Work

programme has caused concern.10 In reality, the transparency that

contracting has brought has revealed a problem that has long

existed under state-delivered employment services – that

policymakers continue to direct resources towards those who can

be found work with the least money. That transparency of

outcome commissioning has stimulated a useful debate around

whether that is a desirable or cost-effective thing.

Information problems

Under the consumer model, the infrequency or complexity of the

choices being made by citizens sometimes mean that they have

insufficient information about what kinds of services represent

good value for money. For example, an unemployed person may

never or only rarely have experienced unemployment before and

hence be unsure either of the best way to find work, or of where

to find the services they need. Such information problems can

prevent a market from functioning effectively.

Under an outcome commissioning model, service users can

be guided by commissioners acting to bring together the

necessary services and advise jobseekers of effective strategies

for finding work. Commissioners’ relentless focus on what works

to get people into employment aggregates the experiences of

many jobseekers allowing others to benefit from that

information, in a way they could not on their own.

10 Maria Hudson , et a l , “The in f luence of outcome-based contract ing on provider- led pathways to

work” , Research Report No 638 (London : DWP, 2010) .


49

Co-ordination problems

The final stumbling block for the consumer model, identified in

Chapter 3, was that of co-ordination problems. Related to the

information solution described above, outcome commissioning

allows for the necessary level of service coordination without

compromising the service-user focus of delivery.

DOES IT WORK?

Although measuring outcomes is still a fairly new phenomenon

across much of public service delivery, there are some areas in

which it has been attempted as a way to improve accountability.

On example is in children’s services.

Outcomes-based accountability to improve the well-being of children

An outcomes-based approach to improving children’s well-being

- known in the sector as Outcomes-Based Accountability (OBA) -

has been introduced in over 40 states in the US and in Australia,

Holland, Ireland, Norway and Chile. With the publication of Every

Child Matters: Change for Children in 2004 the focus of service

planning for children and families in England has also shifted to

achieving outcomes as opposed to service outputs.

Put simply, outcomes based accountability in the children’s

sector is about clearly setting out the overall outcomes being

strived for, and determining what quantifiable improvements in

children’s welfare and well-being would be required to achieve

these improvements. It is about moving away from process

measures and delivery targets, and thinking instead about results.

Outcome-based accountability uses clear language and is based

around three common sense performance measures: “How much

did we do? How well did we do it? And is anyone better off?”

MORE WITH LESS

50

A study commissioned by the Improvement and Development

Agency for Local Government (IDeA) examined the early impact

of outcome-based accountability and the extent to which it has

contributed to changes in culture, planning and accountability.11

The study selected five organisations (Cheshire County Council,

North Lincolnshire Council, Portsmouth City Council, the borough

of Telford and Wrekin, and NCH – The Children’s Charity) all of

which were in the process of applying the ideas of OBA.

The study found that the introduction of OBA improved

partnership working as different agencies began to work to a

common purpose - improving selected outcomes for children,

families and communities. The clarity of the language used and

logical process involved in OBA, coupled with the focus on

achieving measurable outcomes, led to a greater sense of shared

responsibilities. A cultural shift occurred with the development of

a sense of shared ownership of problems and a willingness to

pool resources.

The study also found that the introduction of OBA improved

accountability and clarity, as the goal of delivering improved

outcomes meant that every intervention had to be shown to be

effective. The study revealed that all of the respondents had a

“remarkably clear understanding of the importance of gathering

data to underpin decision making”. While the five organisations

were at different stages in their implementation of OBA the study

commented that all of the organisations were “moving towards

better and more systemic ways of working as well as developing

more accurate awareness of whether services are making a

difference to the lives of children, families and communities”.

Outcome-based payment in welfare-to-work

11 Col lete McAuley and Dan iel C leaver , Improv ing serv ice de l i ve ry – in troducing outcomes-based

accountabi l i ty (London : IDeA , 2006) .


51

Coupling outcomes with a system of payment by results and

competitive tendering is an even more powerful way of ensuring

accountability. Outcome-based payments have been successfully

used in a number of countries to improve the way unemployed

people are helped back into work. In 1998 the Australian

government set up ‘Job Network’, one of the first comprehensive

attempts to apply market mechanisms to the provision of

subsidised employment services. Under this system private sector

organisations were free to bid to provide Job Network services

and were rewarded for the employment outcomes they achieved

for jobseekers. For example, a provider received outcome

payments of over $6,600 if it successfully found a job that lasted

at least 26 weeks for a job seeker who had been unemployed for

3 years or more.

An assessment of the scheme by the Productivity Commission

found that the outcome orientation ensured that the objectives

were clear, that there were strong incentives for finding better

ways of achieving job outcomes, and that cost efficiency was

encouraged. The Commission concluded that in Job Network’s

first year, the job outcome performance was similar to the

previous state-run model. However, with the flexibility to tailor

their help to jobseekers, contractors delivered the same rate of

job outcomes at significantly lower cost while also achieving

greater satisfaction levels from jobseekers and employers.12 In

particular, the Intensive Assistance programme specifically

targeted at harder-to-help jobseekers was estimated to have

lowered the cost per employment outcome dramatically: it fell

from AUS$12,100 in 1995-96 to AUS$5,440 in 2000-01 – a real-

terms fall of 58.9%.13 The Commission also predicted that

12 Organ isat ion for Cooperat ion and Development , “ Innovat ions in labour market pol ic ies : The

Austra l ian way” (Par i s : OECD, 2001) , 20. Product iv i ty Commiss ion , “ Independent rev iew of the job

network (Melbourne : Commonwealth of Austra l ia , 2002) .

13 Sal ly Cowl ing and Wi l l iam F . Mi tchel l , “ Fa lse p romise or fa lse p remise? Evaluat ing the job network” ,

Austra l ian Journal o f Labour Economics 6 : 2 ( 2003) .

MORE WITH LESS

52

outcomes would be likely to improve over time as poorer

performing Job Network providers exited and as providers

learned what works best.

In the UK the 2007 Freud Review14 noted the success of

programmes that have used outcome-based targets: the

Pathways to Work pilots supported those on Incapacity Benefits

through ongoing mandatory contact with highly skilled

providers, who were able to provide quality employment, health

and financial support. Compared to non-Pathways areas, these

pilots led to an eight percentage point increase in the rate at

which people left Incapacity Benefit.

Likewise Employment Zones (EZ), where the long-term

unemployed are referred to private providers for 30 weeks, paid

contractors according to how many people found work. Providers

were paid more the quicker they got people into jobs.

Evaluations show that the EZ areas outperformed New Deal

comparison areas in term of job-starts, although satisfaction with

the jobs found and subsequent job retention was lower in the EZ

areas.15

These examples highlight the power outcome-based

commissioning to achieve the specified goals. Ongoing debates

around exactly what outcomes should be required – particularly

over the definition of sustained employment - demonstrate the

policy clarity that the approach can bring, as well as the

complexities of defining the desirable results of a public service.

14 David Freud, “Reducing dependency, increas ing opportun i ty : opt ions for the futu re of wel fa re to

work . An independent rev iew to the Department for Work and Pens ions” , (London : HMSO, 2007) .

15 Jon Hales et a l , “Evalua t ion of employment zones” , (London : Nat ional Centre for Soc ia l Research ,

2003) .


53

AVOIDING THE PITFALLS

Perhaps the most common objection to paying for outcomes is

that it can lead to ‘cream-skimming’. This is the situation where

service providers choose to focus on easier-to-help (and

therefore cheaper) service users and ignore the more expensive

ones. Where a uniform level of outcome payment is offered,

private contractors would not be acting in their shareholders’

interests to do anything else. It is important to note, however,

that this is not a phenomenon that is absent in the state sector.

Indeed the present welfare-to-work regime in the UK is entirely

designed to minimising costs by encouraging the easier clients

to move back to work quickly and leaving the hardest-to-help

jobseekers without support until later in their claim. Pressure to

minimise the costs of the system and reduce the numbers

claiming Jobseeker’s Allowance make this approach inevitable.

Nevertheless, in the private sector, the problem of cream-

skimming behaviour is one that stems from the payment

structure offered to contractors. However, it is not intrinsic to the

outcome payment approach and can easily be avoided if it is

deemed to be undesirable by policymakers.

One alternative to fixed uniform payments for outcomes is for

government departments to undertake statistical profiling of

service user in order to assess how costs vary with user

characteristics. This information can then be used to guide the

outcome payments offered. However, statistical profiling runs the

risk of simply hiding rather than eradicating the tendency to pick

easier clients and ignore harder ones. Observable characteristics

used in profiling, such as education level or age, are only partially

predictive of how easy someone will be to stop re-offending or

find work. Other unobservable characteristics, such as the

motivation of the service user, are at least as important in

MORE WITH LESS

54

determining the costs associated with the person when co-

production is an important element of service provision. Where

contractors are able to assess clients at first hand, the

information asymmetry with commissioners in government

departments can mean that parking remains but slips under the

radar.

A more effective alternative to uniform payments involves

deploying a graduated payment structure, sometimes known as

an escalator payment. This offers an increasing payment per

outcome as providers help a higher and higher proportion of

their clients to achieve the success outcome. Establishing a

payment schedule that saves the exchequer money, while

enabling providers to help more people, is a complicated

problem. It requires solid data and rigorous data analysis, but is

feasible in most cases.

EXPANDING PAYMENT FOR OUTCOMES

Given the potential for outcome-based commissioning to cut

costs and sharpen the focus of contractors on achieving the

desired outcome, what areas of public service delivery might

benefit from such an approach?

· Reducing re-offending . As the SMF argued in a recent

paper on this subject payments for reducing recidivism

among low-tariff offenders has the potential to join up

complicated and disparate service delivery strands.16 The

challenge here will be to ensure that contractors have

sufficient control over the pre- and post-release

environments of prisoners to be willing to assume the

risks of payment by results. The coalition government

16 Ian Mulhei rn , et a l , Pr i son break (London : Soc ia l Market Foundat ion , 2010) .


55

plans similar reforms for post-release services as part of

it’s planned ‘rehabilitation revolution’.

· Skills. It has long been argued that the focus on outputs

in this policy area – such as the number of people with a

Level 2 qualification - has led to a rapid increase in the

number of people winning qualifications with little

apparent impact on the outcomes that policy might seek

to achieve, such as higher-skilled employment,

progression in work or retention of employment. This

could be changed by deploying a payment by results

framework where FE colleges and other providers are paid

for delivering measurable improvements in a student’s

subsequent productivity. The challenge here is to

establish a viable proxy, such as pay and progression. The

danger, however, is that these outcomes can be ‘gamed’

to make progression appear to have occurred.

· Welfare to work . The SMF has consistently argued for

expansion of payment by results to include all jobseekers

from the first day of their unemployment benefit claim.17

Doing so would release the full benefits of access of

frontline providers to information about jobseekers,

rather than requiring them to go through a rigid, centrally

determined system.

THE LIMITS TO OUTCOME-BASED COMMISSIONING

Despite the potential of outcome commissioning to drive

cheaper, more responsive and more effective public services, this

approach, as with the consumer model, is no panacea. There are

reasons why paying for outcomes, in particular can fail. The three

common ones are as follows.

17 Ian Mulhei rn et a l , Vicious cycles (London : Soc ia l Market Foundat ion , 2009) .

MORE WITH LESS

56

· Measuring success: where simple, measurable metrics of

success do not exist it is difficult to tie payments to good

outcomes.

· Accountability : where there are too many external

influences to reliably link provider interventions to

successful outcomes, accountability can be too weak to

allow payment by results.

· Time-frames: when outcomes lie too far in the future for

private investors to fund delivery, the approach will not

be viable.

1. Measuring success

One of the most pressing limitations to government paying

providers for outcomes is that of measurement. Some service

outcomes, such as stopping re-offending or finding work, are

more conducive to clear binary measures than others. Success in

other services is often more nebulous. For example, it would be

difficult to commission school provision on a simple payment-by-

results basis since ‘good’ school outcomes are often hard to

define and widely agreed to be much broader than simply exam

success. Developing good measures of ‘soft’ or more subjective

data is difficult and expensive, if accuracy and reliability are to be

achieved.

At a more subtle level, even where there are binary measures

of success, it is not always easy to capture them. For example, it

is impossible for the state to observe someone’s actual re-

offending rate: it must instead rely on their reconviction rate to

judge success.

Finally, when paying for results, there are often risks for

government around defining what constitutes success. The

starting point for government is to establish a baseline

counterfactual: what would have happened in the absence of the


57

contractor’s efforts? In many cases this is no small undertaking

and requires careful analysis, as explained above. But once the

counterfactual has been established, performance above or

below the benchmark may not constitute success of failure for

two reasons: first, external changes to the environment might

alter the counterfactual, for example a recession reducing the

rate at which people can find work; second, changing case mix

can make it either easier or harder for providers to hit their

targets.

2. Accountability

Clear accountability is essential if outcome commissioning is

effective. This means that unless providers are sufficiently in

control of the processes that lead to good or bad results, they

cannot reasonably be rewarded or penalised for failing to attain

them. Ultimately this means that paying for outcomes can only

be viable for broad policy outcomes and where contractors have

sufficient control of the environment that generates good or bad

outcomes. For example, a basic skills training provider cannot be

effectively paid by results when their clients find employment,

since there are too many other contributory factors in achieving

employment over which the trainer has no control. In areas of

policy where a focus on simple and broad outcomes is

inappropriate, outcome commissioning is likely to be

unworkable.

3. Time-frames

The final category of problems for outcome commissioning in

which providers are paid by results relates to the time-frame for

payment. Since the approach relies on leveraging private finance

into public service delivery, the length of time until results are

seen, and hence payments made, determines whether the

approach is viable. This means that paying for good adult

outcomes, on whatever measure, for children in care (for

MORE WITH LESS

58

example) would involve a very long wait until pay-day for

investors in the care system.

WHAT CAN POLICYMAKERS DO IN THE FACE OF THESE

FAILURES?

Proxies for success

There are a number of ways in which the measurement and

timeframe problems can be tackled. However, the ever-present

risk is that the apparent solution represents payment for partial

outcomes, or a return to paying for the achievement of process

targets, rather than real, desirable and comprehensive outcomes.

For example, in healthcare, patient-reported outcome

measures (PROMS) are collected to help inform patients’ choices

regarding acute services. Patient perceptions of their own

experience are one part of a successful health outcome. But were

they to form the basis of financial reward for providers, they

would likely skew the focus of health services away from a clinical

definition of a good outcome – perhaps nebulous and vague –

and presumably resulting in poorer clinical outcomes. Outcome

proxies must therefore be carefully considered if they are to

avoid perverse results.

Interim process targets, such as the ‘distance travelled’

towards employment, are often proposed as viable outcome

proxies. By this approach providers are rewarded for helping

people, even if the ultimate outcome goal is not met. However,

policymakers should be wary of such solutions. By removing the

focus from outcomes, such proxies slip back to paying for the

achievement of process targets, such as the completion of a basic

skills course, instead of that of entering work. This is unlikely to

lead to more cost-effective service provision overall because it

removes the scope for innovation and the incentives for


59

achieving what really matters: good outcomes. Moreover, interim

targets should be unnecessary since providers who are good at

moving people towards employment should, in aggregate, also

prove effective at getting their clients into work.

Driving accountability through the system

Where accountability problems currently make paying on

outcomes unworkable, it is sometimes possible to re-organise

service delivery to drive better accountability. For example, the

idea of paying prison governors for reducing the recidivism rates

of inmates is problematic since they do not have control of the

huge range of other public services that we know are integral to

reducing re-offending. Instead, were contractors to be in charge

of incarceration, health, re-settlement and employment of ex-

offenders, they could be reasonably held to account for the re-

offending outcomes achieved, since they control so many of the

factors that we know influence subsequent behaviour.18

But in some cases, particularly where hard outcomes are

difficult to define, outcome based commissioning, and payment

by results in particular, are less useful. At that point policymakers

must return to consider the range of policy delivery mechanisms

that are available when markets are either weak or entirely

absent.

18 Mulhei rn et a l , P r i son Break.

MORE WITH LESS

60

CHAPTER 5: WEAK OR ABSENT MARKETS

The last two chapters have outlined two powerful market

mechanisms for driving more cost-effective public service

delivery over the next decade. There is scope for significant

expansion of these tools over the coming decade to improve

service delivery and reduce costs. But as has been explained the

appropriateness of the consumer model or the outcome-based

commissioning model of public service delivery depend crucially

on the nature of the service in question. Where the outcome

commissioning model fails – either for measurability,

accountability or time-frame reasons – it is necessary to consider

what options remain for policymakers in environments where

only weak market mechanisms are available. This chapter

therefore concludes with a consideration of the options available

to policymakers to drive performance in environments where the

benefits of markets are difficult or impossible to realise.

WEAK MARKETS

Despite the potential of more market-based delivery to drive

public service productivity over the coming decade, there are

many types of public services that diverge significantly from the

perfectly competitive ideal. The consumer approach and

outcome-based commissioning are not appropriate delivery

mechanisms in all cases. Policymakers should be wary of

structures that may superficially resemble markets but do not

provide the pluralistic and competitive environment that is

needed to deliver static and dynamic efficiency improvements.

Where a given service diverges so much from resembling a

market, neither the ultimate service user, nor the government


61

acting on users’ behalves, has the power to enforce competitive

market conditions on producers.

This can occur where high levels of up-front investment are

required, as with public utilities. This makes it difficult for

government to maintain competitive pressure on providers

through re-tendering while still making the contracts sufficiently

long in duration to be attractive to investors.

It can also occur when the individual consumer model fails,

for the reasons outlined in Chapter 2, and where outcomes are

too nebulous or far off in the future to deliver through a payment

by results framework. One example of such a service might be

children’s care services. Here, individual choice is clearly

unworkable, but ‘good outcomes’ are both multifaceted and,

even when measurable, are only evident after many years.

Where markets are weak or absent from public service

delivery for reasons such as these, it becomes necessary to re-

consider the other two means of public service delivery:

command and control, and trust models. New thinking in both

areas has led to some interesting policy ideas in each delivery

approach. How do these compare to market approaches and

when might policymakers use them?

CENTRAL CONTROL AND THE ROLE OF ENTITLEMENTS

The absence of effective market mechanisms creates problems

for driving responsiveness, and therefore cost-effectiveness, in

public services. Trust in professional delivery reinforces the gift

model of public services. Putting decisions in the hands of

producers, however well-intentioned, is unlikely to enhance the

responsiveness and innovation of public services.

MORE WITH LESS

62

Performance management and centrally-imposed targets will

remain an essential part of public service delivery in some areas

where markets are absent. However, the top-down nature of

these approaches makes them particularly blunt tools for

improving service responsiveness. Nevertheless, some innovative

recent thinking has sought to explore the possibility of

augmenting targets, set and monitored in Whitehall, with forms

of bottom-up monitoring by service users.

Liam Byrne, until recently the minister in charge of public

service reform, recently declared that the Government is

“developing a strategy that takes public services away from a

target culture” instead “giving people rights and entitlement to

core public services." It is argued that, where possible, rights will

replace targets.

The recent Cabinet Office paper Putting the Frontline First set

out citizen entitlements such as the right to be treated within 18

weeks, and seen within two weeks, for urgent cancer referrals.19 In

education policy, the September Guarantee for 16 and 17 year-

old school leavers entitles them to a guaranteed place in

education or training. All of these measures aim to clarify what

citizens can expect from their public services and hence

strengthen their voice in dealing with providers from either the

public, private or third sectors.

It remains to be seen how effective the entitlements agenda

will be in increasing responsiveness and public service efficiency,

and indeed whether the new government will pursue this

approach at all. But the principle of bottom-up enforcement of

service guarantees may be a promising way to augment central

control where real market mechanisms are absent or weak. In an

era of public spending cuts, such entitlements may be effective

19 HM Government , Putt ing the f ront l ine f i r s t : smarte r government (London : HMSO, 2010) .


63

in safeguarding minimum standards, reducing the variability of

performance, if nothing else.

TRUST AND MUTUALS

Recently the two main parties have both explored the idea of

empowering producers and consumers of public services by

setting up cooperatives. The Conservative party has advocated

the idea of giving professional groupings the opportunity to

deploy their frontline knowledge and assume responsibility for

service delivery. On the face of it, at least, the mutuals idea is

essentially a trust model, in which power is handed to the front

line professionals who are deemed to know best how to use

scarce resources.

The mutual model has some advantages over both command-

and-control and contacted-out delivery models. In situations

where services are so complex that either users or commissioners

are unable to be able to specify exactly what services they need,

professionals are arguably in a better position to determine the

allocation of resources at the front line than are distant public

sector managers.

Compared to a contracting out model, mutuals might have

the advantage of being mission rather than profit driven,

reducing the risk that providers will simply work to the letter

rather than the spirit of the contract with commissioners.

However, the mutual model may prove unstable in practice.

While it is often the case that those closest to service users

understand their needs, that does not mean that providers are

unstintingly pursue those needs, for the same reasons outlined in

Chapter 2. Where the interests of providers to not coincide with

those of service users, and without a choice framework in place,

MORE WITH LESS

64

dissatisfaction with services will inevitably default to

democratically accountable ministers. The result is likely to be a

return to centralised control.

Where mutuals do underperform, central government has

another alternative to taking service delivery back in house: it

could put the contract out to tender. Indeed, opponents of the

Conservatives’ plans for mutuals have argued that mutualisation

will be a Trojan horse for further contracting out. Insofar as

mutuals can be made to be more responsive to users’ needs

through the threat of putting their contracts out to tender, this is

a good idea.

So while the mutuals approach appears at first as a trust

model of delivery, mutual providers seems likely to come under

pressure from either the threat of competitive tender or a return

to in-house control by public providers.


65

CONCLUSIONS

Over the next decade we are likely to see a radical public service

reform agenda develop. As this essay has argued, the approach of

policymakers should be a sceptically pro-market one in which the

primary tool for delivery is choice and competition. Markets offer

improvements in the cost-effectiveness of public services, as they

force providers to respond to the needs of users. Competition

boosts the chances of new innovations to further improve service

quality and cost-effectiveness over time.

There are numerous forms that public service reform can take.

But the starting point must be the individual service user,

through vehicles such as individual budgets and choice. A policy

framework that starts with the user would represent a revolution

in thinking from the Beveridgean model that has continued to

dominate service delivery despite the reforms of the past two

decades.

Where the consumer model breaks down, as it does in many

public services, establishing and contracting for outcomes

presents a good second best market solution to commissioning

in a range of public services. Thus far the approach has only been

deployed in welfare reform, and even here only to a limited

degree. The approach should be extended, and other policy areas

can learn much from government’s recent experience to widen

the application of this commissioning approach.

Where individual control is inappropriate and commissioning

for outcomes is difficult, policymakers following the market

approach are left with the option of weaker market mechanisms

of contracted out provision. In these settings information

asymmetries and the need for high levels of investment in some

services further curtail competitive pressures that are the

desirable characteristics of any reform. At this point policymakers

MORE WITH LESS

66

must compare the three delivery routes: would producer-led

service delivery, or command and control be more effective than

contracted out provision? Where competitive pressures are very

weak, there is no a priori reason to imagine that private sector

provision is superior to public or third sector delivery. The

decision must rest on the nature of the service and where the

information asymmetries are least severe.

Radical thinking will be required to get more for less from

public services over the coming decade. But the ad hoc way in

which market-based reforms have occurred in the past must be

replaced by a systematic rethink of how services are delivered

across the board. Different areas of government have much to

learn from each other, but they will only be able to do so once

they think about service delivery in the same way. This essay has

set out a framework to allow just that.


67

Copyright © The Social Market Foundation, 2010

Social Market Foundation

11 Tufton Street | Westminster | London SW1P 3QB

Phone: 020 7222 7060 | Fax: 020 7222 0310

www.smf.co.uk

Public service reform has been on the agenda for years. But in the

times of plenty, it has lacked the urgency or coherence that today’s

fiscal situation demands. This paper argues that a market-based

approach to public service delivery is the basis for public service

effectiveness and efficiency over the coming decade. The fitful

progress towards greater market-based provision has been

piecemeal and lacked a coherent framework to help policymakers to

think through the benefits and the pitfalls of different approaches.

This paper sets out such a framework to help policymakers navigate

the baffling array of commissioning approaches in the delivery of

public services to achieve more for less in the lean times ahead.

Documents

20101206 Public service delivery