John Hutton – 2007 Speech on Public Sector Reform

Below is the text of the speech made by John Hutton, the then Secretary of State for Work and Pensions, to the CBI Public Services Forum on 16th May 2007.

Can I first of all thank the CBI for inviting me to come and talk with you this morning.

I very much welcome the commitment of the CBI to engage in the debate about public service reform.  For many years business organisations in the UK were not always fully involved in the debate about how we improve the quality of our public services.  That has now changed.  Businesses use and fund public services.  Education, transport and health systems make a critical difference to the competitiveness of the UK economy. And increasingly you are part of the solution – partnering with the public sector in the delivery of those services.  The creation of the CBI’s Public Services Strategy Board and this Public Services Forum reflects the tremendous growth of this new industry and a commitment on behalf of business in engaging fully in that debate. We welcome this involvement and participation.

This is probably the right time for us to reflect on what we have learnt from a decade in office – what has worked and what hasn’t worked – and for us to debate where the focus of public service reform needs to shift to meet the challenges of the coming decade.

There is no doubt in my mind that a continuing commitment to reforming our public services will be central to the Government’s agenda.  The reason for this is obvious.  Globalisation and demographic change necessitate an appropriate response from our public services so that we can help individuals and families realise the opportunities of the new world economy.  Without such a response, our society and our economy would be impoverished – the life chances of millions diminished.

I know there are some on the political margins who hope the coming political transition inside the Labour Party will open a window of opportunity to reverse our approach.  They will be disappointed.  The core of our reform programme – significant and sustained investment, choice, personalisation and empowerment for users, devolution to the front line, an open minded approach to who provides – is being built into the DNA of our public service infrastructure.

There is little doubt that this Government’s progress on public service reform can be described as a journey.  It is tempting for all of us when we look back to try and retrofit a neat story about our public service reforms.  In reality, whether in the public or private sector, you have to learn on the job. And themes do emerge over time.

There are four that stand out.

First, that investment in our public services – in people, technology, infrastructure – has been a necessary pre-condition for reform.  But on its own it is insufficient.  Many in my party wanted to believe that we would deliver service improvement simply by building more schools and hospitals and recruiting more staff.  Ten years on we recognise the incredible benefits that that investment has brought – I see it all the time in my own constituency and across the country – but we also recognise its limits. Money can not solve all of the problems we face.

Second, timelines are frustratingly long.  If ministers decide that something fundamental needs to change in the system today, in reality it often takes several years before the effects of that change start to flow through.  Then more time before it has widespread impact.  And for that reason alone, we should perhaps have started more of our reforms from Day 1.

Third, that part of the political and intellectual journey we have been on, is to realise that the development of social markets hold the key to reform.  This has been perhaps the most controversial and difficult of our reforms.  Opening up monopoly state provision to private and voluntary sector providers.  In the early days we believed that structural change was a distraction from raising educational standards or healthcare.  Eventually we came to understand that structural change and incentives also have an important role to play in raising standards; that you simply could not have one without the other.

And finally, it is clear that there are limits to central intervention, planning, targets, audit and inspection.  Self-sustaining reform – a built-in mechanism to drive continuous quality improvement – can only be achieved if individual users of public services become the drivers of performance in the system and local staff and institutions are empowered to respond to and help deliver those preferences.

And it is on this last point – about how we create a wider ownership for reform that I want to focus my remarks today.

It has become a familiar critique that despite substantial investment, recruitment of hundreds of thousands more staff and above average wage increases, that those who have to deliver public services feel insufficient ownership or responsibility for the reforms being implemented.

So, one of our most difficult tasks in this next phase of reform is how to share power, responsibility and accountability with staff and institutions to create a new momentum behind these reforms, one that is less reliant on central direction but balanced by new accountabilities to customers and an intolerance of failure.

You know only too well from the way you manage your own businesses, that there is ultimately a limit to how much you can achieve through imposing targets and practice on staff.  If those that work within your organisations do not believe in what you are saying and feel disconnected from the process of change, then change – real and sustained – simply won’t happen.

Forging a new relationship with staff will be important.  5.5 million people are now employed in the public sector.  They are a conduit for informing and shaping the national public debate about our public services.

There are those that think the root of this problem lies with too much top down central control and the imposition of targets that distort customer priorities.

There are those that think we have placed too much emphasis on structural change and reorganisation for its own sake.

There are those that think the so-called marketisation of our public services has eroded a public service ethos.

There are those that think the cause lies with our tone, our communication strategy or ‘narrative’.  If only we explained more clearly what we were trying to do, then ‘they would get it’.

And there are those that think it will always be like this and that we just need to accept that they will never be ‘on our side’.  Change disrupts comfortable patterns and established ways of doing things.

As ever, there’s no simple answer.  No straightforward solution.  I’m sure that there is more we need to do to engage effectively with staff.  Communicate where we are going and why.

But for me, what this challenge really reflects is a more fundamental question. ‘Who owns the responsibility for reform in our public services today?’

I don’t just mean the day to day implementation of today’s priorities but tomorrow’s innovation in patient care, welfare or teaching standards?

Because we believed strongly in the case for change, we drove it hard from the centre.  We ‘owned’ the challenge of change.  Both the problem and the answer.  We came to believe that policy makers and politicians in Westminster and Whitehall were meant to be the brain for every creative impulse across the system.  It delivered improvements and continues to do so.  But it comes with a price.  A stream of initiatives, targets and legislation in which staff often feel passive recipients; in which they have little influence or control.

But analyse any of the UK’s best performing companies and you will find few that are able to maintain high customer service standards, innovation and efficiency without creating that shared sense of ownership deep within the organisation that can ensure continued success.

So, if our challenge is to create a shared sense of ownership amongst both staff and customers for the future of public service reform, how we create it is equally critical.

And I am clear that it won’t be achieved by slowing down the pace of reform.  It won’t be achieved just through engaging more effectively with staff or communicating our message.

It will only be achieved through sharing the responsibility and accountability for change.  For as long as reform is seen simply as a dialogue between the national media and politicians, we will continue to detach local institutions and the people who work within them from owning the change that should be made.

That shared sense of ownership can only come if we at the centre are clearer about our national priorities and frame them increasingly in ways that reflect the outcomes that we want to achieve.

If we want to move to a system based on a shared sense of ownership then we will need to empower not only the customer but also the staff to bring about the changes they feel are necessary to respond to customer needs.

The mistake we must avoid is sharing power and responsibility without accountability.  That will never work.  Government can only step back if there’s a strong, responsive framework of accountability for individuals and organisations that fall short.

When we nationalised public services in the post-war era, it was based on a deal with public service professionals that said, ‘we will nationalise this service but we will give you the freedom to get on and manage’.  But there was a flaw. No one took responsibility for service failure. We had come to expect that public services would never be as good as those that could be paid for by people who could afford to opt out.

In 1997 many people within the public sector believed that we would go back to that post-war settlement – except this time with increased investment.

We did of course significantly increase investment.  But we also broke with the post-war past by creating new forms of accountability.  We set national targets and oversaw their delivery through one of the most expansive audit and inspection regimes in the world.  However necessary this shift, it prioritised accountability to the centre.  It underplayed the role of the consumer in shaping public services.  Or the importance of public preferences and choices in driving performance.  As such it meant the ‘ownership’ for change was ‘grabbed’ by the centre and left there.  And as the pace of reform intensified and more fundamental change advanced, the dynamic between employees and the political leadership of the country felt critical at best and passive at worst.

So if we share ownership for change, we must base a new settlement of accountability through two routes; firstly to match devolution of power with the use of payment by results funding systems; but secondly and crucially through enhancing, wherever possible and appropriate, the use of competition that allows the customer to influence public services through the choices they make.

If we can get this right, then public service reform will become more self-sustaining; driven not by central Government, but increasingly designed and championed by those operating within the public sector. Performance should no longer need to be managed through an overly engineered web of targets, audit and inspection.  Instead, accountability driven first hand by customers.

At the DWP our City Strategy seeks to capture these principles – offering local consortia of providers new funding and flexibilities in return for outcome-based payments. And David Freud’s report on our welfare system earlier this year, argued for a more effective market in welfare provision, rewarding providers proportionate to the value to the taxpayer of getting an individual into work and helping them to stay there.

With such an approach must come a re-balancing of welfare expenditure towards those who are most in need. A payment by results system – as we have tested out in the Employment Zones – could create incentives to develop programmes across the full spectrum of clients and avoid cherry-picking of the easiest clients to help by paying more to help those furthest from the labour market and facing the greatest barriers to work.   And critically, the centre will be able to step back as the system imbeds itself.

The same is increasingly true for education and health. At the heart of the public service reform programme in the NHS is the development of a more transparent payment by results system that incentivises output based performance. While in education we are developing and piloting models of “Contextual Value Added” – measuring the results of pupils against what might be expected based on previous attainment and factors relating to their background.

The potential power of such information is not just that it strengthens accountability and performance management – but when combined with greater contestability and choice, it can give the user of public services a strong mechanism to shape these services through the choices they make.

We need to put an end to the essentially passive relationship that has all too often characterised the nature of the interaction between the user of public services and the State that provides them.

A relationship that can be particularly damaging for those who need good quality public services the most – where poor outcomes can all too readily become accepted as all that can reasonably be expected.

Exercising choice over a provider or programme can be a powerful way of restoring a real sense of personal responsibility in the individual – enabling them to shape the service outcomes that they themselves want. Of course there are limits to choice – and we must always understand this. But that must not become an excuse for failing to extend the opportunity of choice to those most in need of our public services.

At its most simple, the ability to make an informed choice is still about getting the very basics of a service culture right within the public sector; choice about which channels to use to access services or booking a next-day appointment with a GP online. At its most complex, choice is about a deliberative process of engagement with a school about a child’s education.

Afterall, public services are there to give people a choice. The choice of a good education, good health and the chance to succeed in life – especially for people who could never afford to buy these services themselves.

Critically, over the past decade we have also learnt about the intrinsic benefits of managed competition as a way of strengthening accountability and shifting the ownership of change.  It is that process of competition and how we structure it that creates the dynamic for change – not necessarily whether competing services are delivered by the public, private or voluntary sectors.

I have always believed that strong public services are the best provider of opportunity that any society can have.

But ultimately our values can only be maintained in the decades ahead if we are prepared to continue radical reform. If we are serious about transforming people’s lives by making our public services accountable to the people they serve.

And if, in doing so, we hope to make the best possible use of the energy, expertise and commitment of public service professionals, then we must be prepared to see through the fundamental change we have begun.