“Markets for good”: the gauntlet

10 December 2014

Following the launch of “Markets for good”, Reform held a roundtable to discuss the ideas set out in the report. Attendees praised the report for its analysis of the problems in current public service commissioning, and there was agreement that bold action is needed to overcome some of the key problems that policymakers have been grappling with for decades. In particular silo thinking – which has resulted in a fragmented approach to providing support for those most in need – and the fact that public service markets are not really markets at all.

At the heart of this is an attempt to achieve a “whole person” approach to service delivery, and this raises the issue of departmental silos. This results in interventions being duplicated, inappropriately sequenced, or not provided at all. Even the Troubled Families agenda, which aimed to align the objectives of the DWP and DCLG for families with complex and multiple needs, has been dogged by issues of budget protectionism. Indeed attendees were sceptical that true integration has yet been achieved.

The ultimate goal is to be able to align incentives and budgets to ensure that demand is being reduced at source, rather than being displaced into different parts of the system. The current methods of outsourcing may represent improved value for money, but they are just meeting demand at a reduced price point and for discrete objectives, rather than reducing demand itself and thereby overall cost to the Exchequer.

“Markets for good” proposes a more systemic way of contracting services, where “King Outcomes” are related to needs which cross departmental boundaries. Attendees agreed with this principle but raised questions over how you apply it effectively. In particular, attendees queried how these outcomes would be agreed given they are dependent on variable departmental priorities.

Further, they would require a comprehensive assessment of need, the cost of which must be accounted for. Programmes such as the Work Programme do not currently classify claimants by need, which has been attributed to the prohibitive cost and complexity of carrying out these assessments.

Another area of discussion was the report’s proposal on “dynamic pricing”, which it argues would allow providers to manage their exogenic risks. Attendees pointed out that this would make it hard for departments to plan their budgets, and potentially undermines the risk shift away from the taxpayer.

Attendees debated the nature and potential of payment by results (PBR), and whether it is inherently a more effective way of delivering services or simply a useful tool to use where appropriate. The report argues that PBR should be used in every contract across human public services. Some attendees cautioned that, whilst an effective payment mechanism, PBR is not a panacea and that fee for service must still have a place in the outsourcing landscape.

Setting aside the challenges to a government agreeing ultimate outcomes for human public services, implementing a radical new model raises further questions. Markets for good proposes a relatively “big bang” approach to reform. Attendees were broadly agreed that reform at pace and scale was needed – the current model is not working – but flagged that this creates a new suite of problems, including the affordability of whole system change. They were also concerned about ability of government to transfer risk and innovation to contractors without losing control of the policy levers to effect change.

The next generation of public service reform will have to take these challenges into account, but they must not deter action. “Markets for good” has laid down the gauntlet, politicians, policymakers and providers now need to find a way to move beyond the challenges to redesign public service delivery in a way that will reduce demand.

Clare Fraser is a Senior Researcher at Reform

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