Retreat from reform – the initial policy decisions of the new Government

The new administration has introduced a deeply divided policy programme. It is based on a positive approach to competition and financial management in the economy but a significant retreat from reform across the most important areas of the public sector.

The new Government seems to exist in two different worlds. It accepts the case for less government intervention and competition in the private economy, while taking actions that will decisively weaken competition and choice in public services. The retreat from reform can be seen very clearly in policy decisions affecting:

  • the NHS – a twelve-month review of health policy when urgent decisions on cost control and reform are already one to two years overdue (4 July); and delays and cancellations of contracts to allow private sector companies to compete for NHS-funded treatment;
  • student / university finance – an increase in taxpayer-funded maintenance grants which contradicts the principle of tuition fees (5 July);
  • schools – an increase in the regulation of city academies and an explicit rejection of school choice (10 July); and
  • housing – a Green Paper (23 July) proposing housebuilding according to central priorities.

For skills and welfare reform, initial decisions have not moved reform forward

  • skills – a White Paper advocating the same central planning which has delivered such poor outcomes over the last two decades (18 July); and
  • welfare reform – a Green Paper which repeats the principles of existing policy (18 July).

The public sector policies represent a clear reversal of the arguments of the previous Prime Minister. In his final statements, Tony Blair said that his experience in office had taught him the limits of central government authority over public services and the value of reform. The new Government has, in effect, rejected this experience.

For example, in his foreword to the 2005 Education White Paper, Tony Blair praised the school choice programmes of Sweden and Florida. But in the debate following his statement on 10 July, Ed Balls explicitly ruled out school choice. Similarly, in recent statements, Tony Blair explained that he had been wrong to argue for “standards rather than structures”; in fact a structure of choice and competition was important too. But on 10 July, Ed Balls reverted to the “standards not structures” formulation.

The themes of the new Government’s public sector policies can be described as:

  • an inputs-led approach. Ministers have praised increases in public sector spending and costs for their own sake. Their key attack on the Opposition has been over putative reductions in spending;
  • central intervention. Ministers have pledged to intervene in detail, from the maths curriculum in schools to the buildings of the London NHS to the numbers of houses in different regions. This is at odds with the Prime Minister’s rhetoric of a decentralised, “people first” policy approach; and
  • the producer interest. The NHS review, for example, gives much greater prominence to the views of health service staff than to patients.

The Opposition Parties’ responses to these announcements have been very mixed:

  • the most negative response has been by the Conservative Party with regard to health. David Cameron’s opposition to all hospital closures amounts to a moratorium on reform;
  • both parties have indicated support for higher spending in certain policy areas. The Conservative Party has canvassed views on a huge increase in welfare spending while the Liberal Democrats have advocated even higher taxpayer funding on higher education; and
  • more positively, both parties have questioned the increase of central regulation over city academies and the Conservatives have highlighted the weaknesses in the Government’s skills agenda.

The initial decisions will have damaging consequences. They will impose an upwards pressure on public sector costs just as the public spending envelope is about to narrow. The UK has already seen the largest rise in public spending in Europe over the last decade with hugely disappointing results in terms of public service outcomes.

The Government has indicated that these extra costs will be funded by efficiency savings. But the recent record on efficiency savings is very weak. As a result the new spending commitments will almost certainly be funded by an increase in taxation. This will frustrate the Treasury’s welcome goal of a competitive economy and increase the pressure on vulnerable groups, in particular young people (the “IPOD generation” – insecure, pressurised, over-taxed and debt-ridden).

The Government’s goal of a competitive economy is clear and transparent. What has been concealed is a certain future of a significant increase in state activity and in the tax burden. The Comprehensive Spending Review offers a chance for the Government to reassess its initial decisions, and for the Opposition parties to reassess their positions. The Spending Review’s priorities should be public service reform – based on choice, competition and prices rather than administrative savings through “efficiency” – and targeted tax reform and reductions.

The key policy challenges for the next decade are to reduce the tax burden, in order to meet the challenges of global competition and an ageing population; and to achieve high quality education and training, to enable all citizens to gain from the opportunities of advancing technology. The new Government’s first decisions take the UK in the wrong direction.