Category: Public Services

Health, education, local services and public services generally

Value for money starts with effectiveness

Bing Image Creator’s take on a value for money audit in progress. Mid-2020s technology serves us with 20th Century images…

Inflation stalks the modern economy, and the public really doesn’t like it. Meanwhile public services are under stress, demand for welfare rises, and taxes are as unpopular as ever. Increasing public spending when the economy’s supply side is stretched either leads to more inflation or more taxes. How to square the circle? More immigration? That isn’t very popular either, and puts housing under stress. Economic growth? But that means facing severe headwinds, from the popular demand for more leisure (aka retirement), to NIMBYism, and resistance to globalisation. Public policy is a tough gig these days if you want to solve problems rather than just stir up resentment. But one thing pretty much everybody can agree on is that it’s a good idea to get better value for public spending. But how?

Back in the 1980s when I was in accountancy training I read up about value for money auditing, which was coming into fashion then, as accountants sought to expand their remit. The textbook said that value for money should be viewed at three levels: the three Es. First, Effectiveness: is the spending achieving the results it was meant to? Second, Efficiency: could the outputs be achieved with fewer inputs? And third, Economy: could those inputs be bought at a lower cost? This remains an excellent framework for looking at value for money. As you progress along this chain, though, the scope of questioning gets narrower, and the questions become easier to answer. Which means that too often the analysis gravitates towards Economy before the question of Effectiveness has been properly dealt with. In his recent speech on value for money, the Head of the National Audit Office, Gareth Davies, picked five themes for the achievement of better value for money, focused on Efficiency and Economy – Effectiveness hardly got a look in. The five themes were: large infrastructure projects, asset management, procurement, digital transformation and reducing fraud, error and tax evasion.

At the Economy level, lets’s look at two issues in particular to get a feel for the difficulties of focus on the third E – pay and procurement. Pretty much every time some senior executive is asked for ideas on value for money, they come up with the idea of more centralised procurement, so that government can drive a hard bargain with suppliers. This is a common idea amongst leaders of big organisations, who need to keep promoting the idea that size brings benefits, and that their massive salaries are just a rounding adjustment in the great scheme of things. And it makes sense in the right context. When buying drugs from massive pharmaceutical companies, it is best to do this a big centralised way, as the NHS does, or otherwise the suppliers will take advantage. But there is a dark side. When I worked for a big multinational bank as a unit finance director, I remember being hauled into a meeting at head office alongside my counterparts in other parts of the organisation, in which we were instructed to refer all significant purchasing decisions to the centralised purchasing department. The message was delivered by the head of that department, who showed no evident expertise beyond bullying, and it was received in a silence that bespoke passive resistance. This was yet more bureaucracy that was going make getting things done even harder. I applied for voluntary redundancy not long after. One story in particular always comes to my mind to illustrate the problems of centralised procurement. A hospital bought surgical gloves in packs of 50 as part of its procurement deal, but the hospital had no system for dealing with partially used packs. It was commonplace for staff to take a pack from stores, extract what they needed and discard the rest.

Things aren’t any better at the level of public sector pay. The government, in cahoots with unions, likes to negotiate pay levels centrally. The Treasury is in control of the government side, and clearly feels that its monopoly buying power can be used to keep pay rates down. It is generally right, which is one reason that public services are wading through a series of disruptive strikes as employees try to improve their pay without leaving and getting a better paid job elsewhere (perhaps in a another part of public service…). The particular needs of particular services in particular places is lost. With high staff turnover generating lots of additional cost, as well as staff shortages affecting performance, the actual value for money of this approach is very much open to question, never mind the strikes. Economy defeats Efficiency and Effectiveness.

To make real progress on value for money, you really have to get to grips with that first E. But there are a number of problems. One of the bigger ones is that we have divided public services up into so many fiefdoms that the issues aren’t being seen in the round. Mental health, physical health, housing, benefits and criminal justice are very clearly bound up with each other – but they are usually the responsibility of separate agencies and strategic cooperation between them is beyond anybody’s pay grade. The further up the chain of need you can define effectiveness, the more impact you are likely to have. The best way to secure value for money in many services is to find ways of preventing people getting into trouble, and so keeping them out of hospitals, police stations, courts and so on. But that’s nobody’s job, and so the question doesn’t get asked. It’s easier to try to keep pay down and order surgical gloves in packs of 50.

I can think of two attempts to break this deadlock. In the last years of the last Labour government it was decided that multiple agencies should get to together to focus on the needs of individual children who were at risk. It was called “Team Around a Child”. Alas it wasn’t clear who was accountable, and it often meant lots of unproductive meetings – though I suspect this was still worth doing. The Conservative-Liberal Democrat coalition that replaced Labour swept the system away as part of their austerity policies. But the new Prime Minister, David Cameron, was struck by a particular insight that a small number of individuals (a few hundred, I think) were driving an utterly disproportionate amount of work as they kept circling the various agencies. What if somebody was to focus on their individual cases and try to resolve the issues instead of passing the parcel? He managed to get an initiative going on this, but it soon collapsed amid wrangles over accountability and measuring performance.

The Coalition, in fact, was chasing up a blind alley in its attempt to radically improve value for money. What it tried to do was redefine what needed to be done, split it into digestible chunks and put these out to tender to social enterprises and private businesses, linked to clear performance measures, with, in some cases, incentives to improve measured efficiency. This led to a big drive towards the third E, with rapid de-skilling in many areas, such as probation services and social work. The first E quickly collapsed. The system could not deal with complexity, and multi-agency coordination (which was a lot of what those sacked highly-skilled workers had been doing) went out of the window. Only the consultants won out.

There is a very important lesson to be drawn from this. Public sector work is very different from that of the private sector, and often needs to be approached in a very different way. The private sector can walk away from the hard cases, and often that is a critical business strategy. If the costs of dealing with a particular customer are too high, you tell them to go somewhere else. It is the other way round with public services. For them, if you deal with the difficult cases well, the rest falls into place. Walking away might solve a problem in the short term, but it creates a bigger one later. This requires a completely different way of looking at the problem.

I have had the opportunity of seeing this first hand as a school governor in primary schools – and English primary schools are one of the most effective and efficient public sector institutions around. There is a growing issue of dealing with children with special needs – arising from autism or dyslexia, for example. This does attract additional funding – after succeeding in an arduous hurdle race to document the needs and interventions required. Some schools (and it’s been a big issue here in rural East Sussex) deal with this by trying to avoid special needs children. Head teachers develop skills in identifying such children and encouraging them to go elsewhere. Sometimes the schools that took a stronger ethical line were overwhelmed with pupils discouraged elsewhere, suffered a deterioration in their reputation and were eventually forced to close, as parents took their children elsewhere. But the three headteachers it has been my privilege to work with (two of them in Lambeth, not here) have taken an entirely different attitude. They see it as their duty to help all the children that come to them, if they can, whatever their needs. It is very hard, but they get a huge amount of satisfaction from it. Indeed they feel that it helps all the children if multiple needs can be dealt with in the same class. These headteachers and the teams they lead could do so much more if they had more resources to play with.

The reason why state primary schools do so well is because they operate with the right balance of focus on effectiveness, accountability and high professional and ethical standards. This was not always so, and it has been a long journey over the last thirty years or so. It helps enormously that they are relatively small and self-contained. It also helps that it is self-evident that the service needs to focus on the needs of particular children, rather than the ever-changing cast of characters that pass through hospitals, law courts and so on. There is plenty more work to do, but the progress has been huge.

How to progress? I think you have to start with accountability. The problem currently is that people are often not accountable for the right things. I think it would help greatly if accountability was more focused on smaller geographical units, with political leaders in these smaller units being empowered to set the agendas of the various agencies in their areas. Of itself this does not guarantee progress: indeed the record of Britain’s devolved institutions is patchy at best. But it is hard to see how things can improve without it. We need to get used to the idea that effectiveness is about solving problems for people – rather than simply improving the throughput of particular services.

But the public service ethos is there, waiting to be tapped and directed constructively. New technological tools are available to help. I detect a lot of pessimism amongst political commentators that public services are doomed to gradually fail. That need not be the case – we just need to encourage and empower the right sort of leadership.

The Post Office scandal shows the limits of nationalisation

More fun from the Bing image creator. Post Office management about to conduct a branch audit. Actually I told Bing to portray gangsters…

The big British political news of 2024 so far has been the scandal of the Post Office’s persecution of sub-postmasters from the late 1990s on, based on erroneous reports from its Horizon system. The scandal itself wasn’t news; it had been making a number of people’s blood boil for years (including mine), but no politician in government felt the need to deal with it with any urgency, and all tried to manage it through the organisation’s dysfunctional management. An inquiry had been set up – the classic British method for kicking institutional problems into the long grass. But a television drama over the Christmas holiday caught the public imagination, and at last pushed it to the level of public attention it has deserved for years.

I personally still don’t understand what went wrong. As an accountant who has had quite a bit of experience unravelling knotty problems, I have not been able to get any sort of clarity. The drama did help a bit here – as the previous press reporting was extremely uninformative as to what the problem with the system actually was. Just what were the deficits that the sub-postmasters were being asked to fund? Usually these should fall into one of three categories: missing sales, false expenses, or missing assets. This doesn’t seem to be any of these – but just muddle. The Horizon system doesn’t seem to have been properly integrated with the accounting systems, and appears to have lacked basic accounting controls. This is not so uncommon with systems designed by computer programmers rather than accountants. But the system does not appear to have been adequately managed or audited by the Post Office’s accountants. The suggestion made by one of the characters in the drama was that the differences were parked in a suspense account, which was then not properly interrogated or investigated. That may not make much sense to my readers, but it does to me. As an auditor most of the big errors I have found arise from pulling apart suspense accounts.

Meanwhile responsibility for managing the problem seems to have been split between senior managers unable to grasp the detail, and junior auditors not given a wide enough scope to explore what the problems actually were – they were just hired bullies. There was a missing middle. But the senior managers should have asked questions as problems started to emerge; as should the investigators. Instead they swept the problems under the carpet, assuming that people raising concerns were just trouble-makers. People have a natural tendency to compartmentalise their lives, and set boundaries to the sort of things they worry about. This is one of the leading causes of organisational dysfunction as those boundaries always leave gaps (as well as overlaps). Still, senior managers should be alive to those sorts of risks and much of the Post Office managers’ behaviour was clearly unethical. Injustice to individuals should not be sacrificed to maintaining an organisation’s reputation. The propagation of untruths is not quite the black and white issue we might like to think – but the Post Office managers clearly went into the black zone far too often.

But such a lack of ethics in senior management is extremely common. This transcends time (think of the Dreyfus scandal in the 19th Century), and culture (problems are at least as bad in China and India, for example; would you believe what an Iranian government spokesman said?). It affects all types of organisation: government, commercial and religious (think of child abuse scandals in various churches). Having said that, I haven’t seen it, or not in extreme, in any of the commercial, public or political organisations I have worked with. There is always a defensive first reaction to bad news; but what happens next is more telling, and here things were better. But those organisations have almost all been relatively small; I have worked in two multinational groups, however, although in one of there were ethical questions haunting senior executives, they didn’t last long. That’s not to say these organisations were perfect – it’s just to say that I didn’t witness the extremes evident in the Post Office, and often witnessed its opposite – the owning up to problems and mistakes.

But what tilts an organisation towards ethical conduct? Prevailing culture in society clearly helps. Most developed countries have a bit of a head start there. I don’t think there is anything special about Western culture here, even though it generally prevails there. All cultures know what strong ethical standards are (think of Confucianism in China, for example). The more ethical conduct becomes the expected norm in a society, the better. Accountability is clearly critical. If it is easy to sweep things under the carpet, and if you are confident that you will never be scrutinised aggressively, then the temptation to do so is often irresistible. It is easy to persuade yourself that you are protecting something more important, and that it is all for the greater good. But accountability comes with a certain precariousness amongst senior leadership; the more entrenched, the less accountable. That precariousness was visible in all the organisations I have worked for. But in the Post Office it seems to have been lacking. It was a publicly owned organisation, accountable to, in theory, everybody but in fact nobody. It had extraordinary control over the information required to make judgements. The politicians to whom they were nominally accountable are good at some types of scrutiny, but not the oversight of large, complex organisations, and still less the operation of their IT and accounting systems.

This is a huge problem with all nationalised industries. Being accountable is to a large extent a choice made by the people running those organisations. I have witnessed this at first hand as a school governor. Fortunately all the headteachers I have worked with thought accountability was a good thing, and accepted scrutiny, even when it got annoying. But I have seen cases of schools where this is not the case, and where the governors were bypassed and flanneled – and looked woefully ineffective. This is less of problem with commercial entities, because they are judged on commercial success, which is hard to fake, or not for long. Public organisations seem to have a degree of political protection that most commercial organisations do not.

This is a problem for the sort of left-wing narrative that suggests that capitalism has failed, and that the solution to any given market failure, especially in public utilities, is nationalisation. They are often right to point out the failures of commercial organisations, such as Britain’s water or rail companies. They are wrong if they think that nationalised organisations will be any better. They are often worse. Water companies are accused of milking their assets to pay fat dividends to investors instead of investing in infrastructure. And yet tight public Treasury management has a similar practical effect, with holders of public debt being the beneficiaries. Perhaps the division of the spoils would be fairer, but it won’t stop the under-investment. The nationalisation of the water companies was undertaken in the first place to increase the level of investment – which it did.

There is no easy answer. Public services are usually natural monopolies, which often bring out the worst in capitalism. But there is no fool-proof way to make public organisations properly accountable.The answer is surely some sort of messy mix private contracts, regulation and intelligent structure.

Meanwhile, Post Office culture looks so rotten that it surely needs to be wound up and replaced by something with better organisational design and stronger governance.

Lower immigration means paying more for public services

“A sensible politcal debate” is surely an oxymoron. Politics is a battle of personal ambitions in which popular prejudices provide the most useable ammunition. If you catch two politicians having a sensible debate, it is away from public attention, about an issue with no real salience. Immigration is an issue of high political salience – and always has been, so we shouldn’t wonder that so little of what is said by politicians makes any sense in the round. But in the end effective policy needs to be based on reality, and a sensible debate is needed to tease that out. Immigration is a case in point.

Immigration is currently moving up the political agenda. This is in spite of the fact that the leaders of none of the major political parties would rather talk about other things, and opinion polling shows that it is relatively low on the list of public concerns. That is because a group of conservative politicians see it as an opportunity to create mischief and further their political careers. The proximate cause are statistics that show immigration at record levels – though these statistics are highly unreliable as data collection is weak. The numbers have been driven up Ukrainian and Hong Kong refugees, the need for universities (and the country at large) to extract money from foreign students, and widespread labour shortages. Each of these causes seems to be understood by most of the public. So what’s the fuss?

There seem to be two main, mutually supporting strands raised by conservative politicians (with Labour leaders happy to echo them in their bid to show their conservative side): cultural and economic. Immigrants are usually culturally distinct (we can argue whether this is true of Australians…) – with different languages, religions and customs, and often maintain distinct communities. This is blamed for corroding traditional British culture. There is more than a tinge of racism here, though it is notable that many of the the leading public conservatives are themselves from ethnic minorities, and these ideas resonate with settled ethnic minority communities. There is plenty of irony here. Immigrants are keeping the churches full and often have conservative social values. One leading conservative politician claimed that immigration was leading to the declining number of people professing to be Christian, when the opposite is true. Of course this person (Nigel Farage) was seeking to exploit the trope that Western countries were being taken over by Muslims. It is easy for cosmopolitan liberals to laugh at all this, so many are the inconsistencies, but the message resonates well with older and less-educated people. There is a real conflict here between the cosmopolitans, typical of larger and more successful cities, and nativists, typical of more rural areas (though my own rural abode of Sussex is pretty cosmopolitan, it needs to be said) and smaller towns. If you take the Brexit referendum as an indictor of how the two outlooks divide (and it is more complicated than that) – then the country is split fairly much 50/50. It currently helps that, apart from the Ukrainains perhaps, the bulk of existing migrants tack onto communities that are already well established here – Indian, Chinese and Nigerian in particular.

Because of the clash of cultural attitudes, and the need to draw support from both sides, perhaps, most politicians choose to make their main arguments on immigration in terms of economics. It is said that excessive immigration is causing public services to be overstretched, exacerbating housing shortages pushing up property and rental costs, and pushing natives out of decent jobs, or at least pushing the level of pay down. The public services argument is the least serious. Public services are often amongst the most dependent on immigrant labour, and would be under even more strain if immigration was reduced. But a local influx can cause problems, and the system can be slower than it should be to adapt.

The argument on housing is more convincing. Pretty much everybody agrees that the supply of housing is failing to keep up with supply – though new housing developments seem to be popping up everywhere I travel to. After that vested interests take over, and it is very hard to get an objective take on things. One group of people blames restrictive planning laws which stop new homes being built, especially on rural and green belt land. The other side says that this would simply give developers carte-blanche to build lots of poor quality houses in ecologically vulnerable beauty spots, together with some high-end properties to act as stores of financial value for footloose foreigners. Clearly high levels of immigration make the problem worse – but the middle ground between developers’ search for an easy profit and nimbies trying to protect the value of their existing properties is largely uninhabited – and draws little serious, well-funded research. Economists tend to side unthinkingly with the developer lobby. Politicians may talk as if they are in the middle ground, but lack well thought-out policies that might do any good, and I’m practice end up at one of the extremes. Arguments over immigration just add grist to the mill. It is very hard to understand the implications of immigration strategies for housing without having a clearer idea of about housing strategy. But it clearly doesn’t help.

What about immigration and jobs? Recently changes as a result of Brexit caused a shortage of lorry drivers. Their pay shot up as a result; training schemes were upgraded, and more locals are now taking up the work. This is exactly how conservatives arguing for lower immigration say things should work. Using immigrant labour is an easy shortcut – but we would be better off we raised pay and brought more locals in to do the jobs. This is the vision conjured up by the Tory former leader Boris Johnson at the last election. But there’s a problem. This should mean that public sector wages need to be raised to help draw more people into the workforce. And yet the government wants to do the opposite: to use inflation to reduce real levels of public pay, and use the resulting surplus to fund tax cuts. They do this in the name of reducing inflation – but offer no long term solution to the problem of public sector pay. In fact a rebalancing of the economy in favour lower paid jobs will surely result in a degree of of inflation. It may also require taxes to be raised. The issues are quite complicated here, but a limited supply of labour creates something of a zero-sum game. Raising wages for the lower-paid is going to hurt somewhere.

Politicians sometimes talk about the need to improve training so that more locals can do jobs where we currently need immigrant labour. This clearly won’t work for things like fruit-picking, but is more convincing for doctors, nurses and social care workers. The problem here, as Stephen Bush of the FT points out, is that skilled labour is mobile, and the freshly trained workers will simply gravitate to where the best paid jobs are – which are often not in the UK. It is putting the cart before the horse. As the case with lorry drivers shows, if you fix the pay issue first, training is a much easier problem to solve.

The big, unspoken issue lying behind the fuss, is the country’s demographic development, with retired people taking up an increasing share of the population, while at the same time driving up demand for public services. Immigration is the obvious answer to this problem, though not in the long term, as the immigrants themselves will retire. If immigration is not the answer, then what is? Politicians place hope on increased productivity – but for a number of reasons this will not cut the mustard. The areas where productivity needs to advance to make the sort of impact required – in health care and social care services – seem to be those with the fewest practical proposals. Indeed, health and safety worries tend to push them in the opposite direction. Big investments in hi-tech factories may be a very good idea, but they will make little difference to economic growth overall, and impact the labour market even less.

The idea that the country should limit immigration is a perfectly respectable one. But it has a cost – we must pay more for critical services that are subject to labour shortages. That will involve a rebalancing of the economy and some painful economic adjustments. It would help if more people would talk about what this, exactly, means.

Only higher taxes can save the NHS. That will require serious political reform

Dr Chris Morris on the picket line. Picture: BMA

For once it is not the usual journalistic hyperbole to suggest that Britain’s National Health Service is failing. Waiting lists mount as the service is racked by strikes. With little sign of an end to these severe workforce issues, it is hard to see how the service is going to recover from the stresses placed on it by the covid pandemic. Indeed, things just seem to be getting worse. But Britain’s politicians are not being honest with the public about what is required to bring the service back to an even keel.

Just how bad are things? Workers and their union representatives have an interest in painting a bleak picture to support their pay claims; journalists suffer their normal bias towards the sensational and the bad; so it is hard to get a clear objective picture. Parts of the service appear to be operating reasonably well. Recently my household, in East Sussex, has had cause to use local primary care services, and cancer treatment. Neither service has been up to where we wanted it to be: it very hard to get a face-to-face appointment with a general practitioner, and the 8am scramble to get an appointment of any sort is both farcical and painful; there are delays of weeks in the cancer service. But neither service has fallen below the acceptable – and when you get the it, the service is excellent. We are not signing up for private services yet – though we have done this for dentistry and optometry. But there are places – such as apparently to the east in Kent – where things are more desperate. Reported waiting times for ambulances and at Accident & Emergency in hospitals are starting to alarm. The unions paint a picture of a workforce crisis – with high vacancy rates, and staff leaving the service either through burnout, or to better opportunities outside the NHS, including in Australia. Statistics back these claims up, and nobody is seriously challenging this narrative, not even the government. For that reason I largely accept it – though I suspect that in some parts the country NHS staff may be paid generously by local standards – though this is unlikely to apply to doctors, who are much more mobile.

It is the strikes that are the greatest cause for concern. High inflation comes on top of many years in which real levels of pay have been squeezed. Nurses, ambulance operatives and other more junior staff may be arm-wrestled into accepting pay that does not meet their longer term concerns. But the doctors are only getting started in their campaign, and are taking a very aggressive line indeed. There are no settlement talks. Throughout these disputes both sides seem to be talking at cross-purposes. The unions are trying to address a workforce crisis that has been building up over years; the government talks about a year of temporary hardship in order to combat inflation and meet government financial targets. This mismatch goes to the heart of the issue.

The main problem is that the NHS has an effective monopoly on employment for the key medical skills – what economists call a monopsony. This allows them to frequently get away with paying below what should be a market rate for the job. The Treasury ruthlessly exploits this market power in its annual attempt to make its budgeting work. Longer term issues are always tomorrow’s problem. The NHS as an institution is very popular with trade unions, but the dirty secret is that a privatised system would almost certainly pay its workers more, at least in most parts of the country. The government suggests that higher rates of pay can be contemplated if workers become more efficient. It’s generally not hard to find inefficiencies – but much harder to address them in such a complex environment, There is no evidence that I am aware of to suggest that the NHS is inefficient by international standards – the opposite in fact, although greater “efficiency” may be a function of low pay. Besides, efficiency gains are overwhelmed by rising demand and medical inflation. Meanwhile high staff turnover only makes the financial squeeze tighter.

But what about affordability? Here again it is very easy to get caught in a cross-purposes argument. The NHS budget is a major headache for the government, as it is almost entirely funded from taxation. But health care is a major priority for people, and given the ability to choose, people would spend a lot of money on it. More money, almost certainly that the country now pays for its health services. And since it does not require much in the way of imports, there is no good reason that the country can’t spend a lot more on the NHS, and less on nonsense and luxuries. That doesn’t help the government, as its budget does not cover nonsenses and luxuries, which are for private choice. It can only square the circle by raising taxes. To spend more without raising taxes would be inflationary, the last thing the economy needs right now. The Chancellor of the Exchequer, Jeremy Hunt, is quite right about that, though he somehow fails to explain that it wouldn’t be inflationary if he raised taxes.

What is needed is a long-term workforce strategy for the NHS, covering both pay and recruitment, showing how the country intends to sustain the workforce required. I have heard that the government is working on such a strategy, but somehow it keeps being delayed. That would not be surprising, as surely there is hole in the heart of it. The government is adamant that it wants to cut rather than raise taxes. Labour is no better. It is terrified of being painted as the party of high taxes, especially as inflation has put many people under financial pressure. It comes up with a few tax-raising gimmicks (taxing non-domiciled residents more; taxing private schools; and so on). These aren’t enough to do the necessary heavy-lifting. Besides, in order for extra spending on staff not to be inflationary it is necessary for any tax rises to reduce consumption. The sorts of tax gimmick Labour are proposing are more likely to affect the savings rates of the wealthy, and not have much impact on domestic consumption; it would help public debt, which is just a statistic, but do little for inflation. Other opposition parties (the Lib Dems, the Greens, the SNP, etc.) are no more convincing.

What happens if the NHS is not given more funding? People will spend more on private health care. This would create a doom loop, as the private sector competes with the NHS for staff, making its workforce problems and waiting lists worse. This is what has happened to dentistry. And a growing a private sector creates a whole variety of inequities and inefficiencies, with the system as it now is.

There are perhaps three ways that the circle might be squared, and the pressure on taxes reduced: economic growth, reducing demand, and private/public integration. Economic growth is, of course, every politician’s favourite answer. Readers of this blog will know that I am growth sceptic – the demographics and deeper economic dynamics are against it. Still, Britain has some particular issues that might allow the country to be more economically efficient: more affordable housing; trade integration with the European Union; looser immigration rules. For various reasons these are all politically unacceptable. Liz Truss has shown how politically unpopular a growth agenda can be – though her biggest ideas about achieving this (tax cuts, for example) were laughable. Meanwhile deteriorating health is acting as a brake on growth – though it is hard to tell how much the NHS workforce problems are part of this.

Could we reduce stress on the NHS by moving to healthier lifestyles? Reducing consumption of processed foods; healthier relationships with drugs and alcohol; better approaches to mental health? Good luck with that.

My third suggestion is more integration between the NHS and private care. That would mean things like hospitals accepting “co-payments” – supplementary payments for higher standards of care or non-essential treatments. But that would undermine the egalitarian ethos of the NHS, which is again considered politically toxic.

So every way of tackling the NHS crisis hits a political roadblock. It is at this point that I could suggest that this is not the fault of our politicians, but the public itself. It refuses to confront the tough choices required. But that isn’t fair on the public. Many suspect that tax rises are on the way – and there is widespread sympathy for NHS staff. But our political system forces politicians to concentrate on narrow groups of marginal voters, who dictate the political weather. All parties have concluded from this that it is suicidal to have an honest debate on tax and the NHS. No party can, say, try to make a case for higher taxes, which convinces, say, 25% of the electorate to create a substantial block in parliament, which would in turn force other parties to deal with it to form a government.

Instead our politicians throw insults at each other in the hope of influencing a minority of voters in a minority of parliamentary seats. And there is no momentum for serious reform.

Britain’s failing public services need a new management approach

British public services are flagging – even without the wave of strikes provoked by the government’s attempt to force below-inflation payrises. Many are assailed by staff shortages – health services in particular. Backlogs mount in health, the courts and the processing of immigrants. The police seem to be dealing with a diminishing proportion of crimes. The government seems to have little idea how to address this.

What is the cause? There are three obvious ones. The first is the austerity policies in place since the great financial crash of 2008/09, ratcheted up by the coalition government of 2010-2015, and intensified by the Conservatives alone from 2015 to 2017. The second is more demand for services from an increasing population of elderly. On top of these came the disruption of the covid-19 pandemic, which caused many backlogs. These have all doubtless contributed, but the problems go deeper, and will require a new mindset to fix. Take the issue in hospitals of patients who cannot be released back into the community, causing a shortage of beds. This problem goes back a very long way. I remember people talking about “bed-blocking” thirty or more years ago. Or the bullying, racism and misogyny that are rife in the police and fire service, and doubtless elsewhere. Most of us thought that these problems were being stamped out after the 1960s – it is shocking to see that they are unchecked in this day and age. This bespeaks generations of weak management, fending off the modern world with defensive strategies, like extra bureaucracy, rather than true problem-solving. Every time that one or other service says that lessons will be learned after some failure (and it happens more than weekly), you can guarantee they mean that some extra rule has been layered onto the existing thicket of unmanageable procedures.

A lack of leadership, from senior politicians down, is clearly part of the problem – though more in some services than in others – in fact there are many pockets of excellence. But this problem results from institutions being trapped by a system that constrains initiative and crushes rather than rewards enterprise. This arises from how the work is organised – which leads to two related problems. First of all the system is heavily biased to fixing problems rather than preventing them. The best way of stopping health service backlogs is for people to be healthier, after all. Secondly almost all the difficult problems, and especially those that focus on prevention, require multiple agencies to cooperate without adequate structures to ensure that cooperation is effective. Somebody on the radio recently listed all the agencies that had to come together in a criminal trial (courts, police, prosecutors, defenders, the prison service, the probation service, and so on); it’s no wonder that they don’t work efficiently. No wonder, but also nobody’s responsibility.

Problems with public services are nothing new. People have been wrestling with it for as long as I can remember. The Thatcher government of 1979-1990 had the big idea of privatising large swathes of services, which then included many public utilities. In many cases this was very successful – in telecoms and energy, especially. But it soon became clear that there were limits. Privatising prisons, for example, may have solved some problems, but created many others. The next major push came from the Blair/Brown government that took power in 1997. They had two main ideas: establishing quasi-independent agencies in a sort quasi-market economy (academy schools and NHS Foundation Trusts, for example), an idea more closely associated with Tony Blair; and close performance management, with the use an array of performance targets, and managers being disciplined if they were not met, an approach more closely associated with Gordon Brown. For convenience I will call these the Blair and Brown approaches, though both men supported both approaches to some extent. We can learn much from what became of them.

The Blair approach had easily the best press – praised by many right-leaning think tanks and journals like The Economist. They were picked up, and in places turbo-charged, by the coalition government that followed Labour. They had one important success: university education in England. This was linked to a dramatic increase in student fees, linked to a student loan system that works like a graduate tax. This gave the universities a degree of operational independence. Problems continue, but Britain’s university system remains world-class; rationing of university places, as required by Scotland’s directly-funded system, has not been required, with the result that a higher proportion of the population can attend. Elsewhere the reforms are being quietly buried. Much success has been claimed for academy schools, and there have been success stories – but the main thing that can be said for them is that they have not made things much worse. They have been linked to the waste of public money, however, with senior management overpaying themselves. In the NHS the system is being quietly dropped, as it entails much bureaucracy, while doing little to address fundamental performance issues, like integration of care or patient safety. In both health and education, the services were linked to massively complicated and prescriptive funding models, which failed to work like commercial tariffs in the way the designers hoped. This is one way in which it differed from the university reform.

The Brown model, on the other hand, received a much worse press. People complained of complex targets, misaligned incentives, and macho sackings of senior managers – creating a climate of fear that undermined creative problem-solving. All of these criticisms were well-founded, but the system had some notable successes. The Labour government oversaw a dramatic improvement in the quality of teaching in schools, and especially in London. The new academies were part of this success, but local authority schools did just as well, if not better. As a primary school governor, and chair of governors, I saw this improvement happen at close quarters. There was some rather crude top-down management from the ministry, but the professionalism of school and local authority leaders by and large rose above this – and pushed through dramatic improvements. I have seen a quality of management that easily matches what happens in the private sector. Four things stand behind this success. Firstly, schools already had a huge amount management autonomy compared to other public agencies, as their services are relatively self-contained; second standards were enforced by an independent standards agency, Ofsted, which carried out regular inspections of schools and local authorities, and used well-designed metrics to act as benchmarks; third, local authorities proved effective intermediaries between central government and the schools; finally funding was increased, which gave managers more ability to achieve change. Interestingly the coalition government, while pushing the largely irrelevant academies initiative, picked up were Labour left off, by sharpening the focus on quality of teaching, and dramatically improving the funding system with the (Liberal Democrat) pupil premium system, and its attendant focus on disadvantaged pupils. Since the coalition, the focus has been somewhat lost, and funding squeezed; Ofsted went off the boil (doubtless thanks to funding cuts) by easing pressure on top-rated schools.

The Brown model was applied to the NHS too, and the quality of NHS services drastically improved over the Labour years. But this is mainly attributed to an equally dramatic increase in funding. The easiest thing to say about this is that the combination of extra funding and close scrutiny of results achieved much more than either of these would have alone. The Brown government, towards the end of the Labour period, did try to address some of the problems with the performance management system. I remember a new system called “team around a child” which aimed to bring multiple agencies together to address issues around individual cases. But it wasn’t clear whose job it was to knock heads together. Most of this was swept away when the Labour government ended.

Over the last decade or so, the Conservatives have adapted rather than overturned the previous Labour government’s approach, with the important difference that they have squeezed funding relative to demand. They have revived and extended an older idea too: tendering and outsourcing to outside agencies, be they non-profit enterprises or commercial providers. This has been disastrous. The aim has been to save money, and this has meant redefining the services as a skeleton of what they should be to play a fully functional role. The outsourcers then duly cut the service back, by, for example, replacing skilled professionals with less skilled recruits following standard scripts, and who are unable to to make proactive interventions or prevent difficult cases becoming “frequent flyers”.

The problem is that none of the various things that governments have tried in the last forty years have addressed the fundamental organisational problem – which is that responsibility is divided among so many agencies, which in turn are managed at national level. The system is centred around specialist service provision, and not people. Crime, housing, mental health, physical health and family dysfunction are all closely linked together. We may find all these contributing in a particular serial offender, say, who causes multiple agencies to commit resources. But instead of the agencies coming together to find a solution, the system encourages them to continually pass the parcel.

So how to progress? Public services need to be more focused on their users, and services intermediated by professionals empowered to bring different elements of service together. This means more localised control of services, so that those intermediaries don’t have to escalate issues far up the chain of command in order to resolve blockages. It means a local political leadership able to focus on the needs of particular people, and accountable for the overall results in a particular locality. That, inter-alia, means substantial devolution of political power to regions and local authority areas. That is necessary but not sufficient. Scotland and Wales have just as disappointing record on public services as England, in spite of substantial devolution. We need more specific policy reform ideas.

Interestingly Labour’s recent proposals on constitutional reform (proposed by Mr Brown) show that there is a political consensus around further devolution. However the narrative is based more transport infrastructure and economic growth, rather than making public services more effective. I’m not sure if many politicians grasp what is needed to improve public services. Still, in the dying days of the coalition a deal was done make a more substantial devolution of public services to the Greater Manchester Mayor, including some NHS and social care services. As I recollect this was criticised by Labour at the time. According to this study, it has been a modest success, with a slight improvement to life expectancy.

Still the forces of conservatism are powerful. It is always tempting to try and make the current, departmentally bound and centralised system work, rather than undertaking risky reforms – especially ones designed to give credit to regional and local politicians. But politicians need to improve the effectiveness of public services urgently – and through the extra effectiveness reduce demand by solving problems. This needs a huge change in political culture, but once one area starts leading the way, that should generate momentum. With Scotland distracted by the debate on independence, the most promising place to start looks like Greater Manchester. we will probably have to wait for the next government, though.

The British Left needs to moderate its obsession with austerity

I’m not reviewing this book, but title reveal the left’s attitude to austerity

As a Liberal Democrat I’m often described as being on the political left. One word shows that this is far from true: “austerity”. To people on the left, especially in Britain, this word brings up a visceral reaction. To them austerity is the quintessence of evil: the crushing of all attempts to promote the public good, perpetrated by a brutal government out to protect the interests of the rich. But to me austerity is a government policy that is often necessary – and is part of a healthy tension that keeps the state efficient. Still, I always like to understand the arguments of people I disagree with, and when I saw a link on my New Statesman email to an article by William Davies entitled Fascism’s liberal admirers, I thought I’d take look. The sub-title was Austerity is a fiction designed to uphold capitalism – and it has a dark history. The pretext (I would not call the article a review) for the was a book by Clara Mattei called The Capital Order – How economists invented austerity and paved the way to Fascism. The subheadings demonstrate what I mean about the left’s attitude.

Which is why I was expecting a lot of nonsense – and by and large that is where the article ended up. But along the way it constructed a narrative that was fr from nonsense. The book is about the rise of Fascism, and how the pre-Fascist government in Italy in the 1920s was being pressured by Britain (as a creditor nation) to adopt austerity policies. The British ruling establishment had taken on the austerity narrative after the First World War, and was delighted when the Fascists in Italy followed through with these policies after they took power. Ms Mattei’s and Mr Davies’s point is that this narrative came about as a reaction to a socialist narrative that the success of war economies showed that there was an alternative to market capitalism, with economies led by, and substantially owned by, the state. Revolution was in the air. The capitalists needed to stamp this thinking out, and they aggressively promoted pro-market policies and a rolling back of state intervention. It was not a narrative based on economic necessity, but one developed to protect vested interests. It is but a short step for Mr Davies to suggest that this is what has been happening in the 21st century, following the financial crash of 2008, and now – with the fall of the Liz Truss government. That, historically, support for austerity led capitalists to embrace Fascism shows how they will turn on democracy to protect their interests, and economics is just camouflage. The fight against austerity is the fight to preserve democracy.

There’s something in this. Pretty much all economic policy, whether capitalist, socialist or anything else, is a conspiracy of vested interests: people try to persuade the public at large that their ideas are for the public good, using any argument that they think might gain traction, spurious or otherwise. That is how large, complex societies get anything done. Truth is incidental. And, though I’m not an expert, I think that the British ruling establishment over-reacted to the prospect of more socialist ways of working in the 1920s, and their arguments in support of the package of policies that Mr Davies calls “austerity” do not stand the test of time (though economies in the 1920s swiftly moved to growth after austerity – and it was not until the depression of the 1930s that the narrative seriously came to be questioned). After all they did something quite different after the next war, and capitalism (and wider society too) has never flourished more. It is a stretch to say that the same applies to 21st century episodes of austerity in Britain and the Eurozone, but there is a case to answer. Many of the justifications put up by the supporters of austerity policies were nonsense. So if you want to believe that austerity is always and everywhere economic nonsense promoted by self-interest, you will always find plenty of evidence. That is the insight I gained by the article. Evidence, but not proof.

The resources required to make an economy work are always limited. The bottom line is that economic policy will always be limited by resources, and that the more efficiently those resources are used, the more successful an economy will be. There are times when it pays a government to spend money to do things that are useless. Keynes wrote of getting people to dig holes and fill them in again; Hitler ramped up spending on armaments. That is when the economy is running slack and needs pump-priming. The people digging holes or making tanks spend their wages buying other things, creating a virtuous circle of job creation. Austerity is a bad idea at such times. But when the economy is running at close to capacity, or overheating (as is the case in most developed economies in 2022) then that logic disappears. If anybody, anywhere is employed doing things that don’t enhance society, it is means that the economy is running less efficiently than it should. If the government is running inefficiently, then austerity policies can be justified to cut waste, and move people from doing useless things in the public sector to being more useful in the private one. That is the basic intellectual case for austerity. And it is why governments of all economic stripes, capitalist and otherwise, will often carry out austerity policies. For example, Cuba’s socialist government after Soviet subsidies were withdrawn in the 1990s.

It goes deeper. All human organisations have a tendency to become complacent, and settle into inefficient ways of working to minimise internal conflict. In private enterprise this tendency is tempered by the need to compete, and by downturns in the business cycle. I well remember this from my work days. Things would seem to be going well, and then there would be a crisis. Savings had to be made, usually, eventually, entailing job losses. Workers were disappointed and often angry; but the overall effect of this stop-start was a more healthy, efficient and focused organisation. Some good things might be lost in the process, but that was outweighed by the reduction in waste and follies curtailed. The public sector is generally insulated from such commercial pressures, and so has an even greater tendency to become inefficient. Bouts of austerity act as a check on this, and force managers to focus on what needs to be done – though they won’t thank you for it.

But the timing is often difficult to decide. It is not always easy to tell if an economy is running slack or close to capacity. There is an argument to be had about that in Britain in the 2010s. But the real problems happen over resources transferred between countries. Economies are often sustained by using resources provided by other countries. But this creates international obligations – as well as the temptation to profligacy. If people in one country supply resources to people in another one, they do so because they expect to be repaid in some shape or form, usually profitably. If it turns out that poor economic management (or any other problem) puts the repayment in jeopardy, then the creditor countries will often insist on austerity. This is not always the right thing to do, but the basic premise that the debtor country is consuming more resources than it is producing, and needs to adjust to something more sustainable. This can be a capitalist conspiracy, but it doesn’t have to be. The politics around it get messy with truth, as usual, a casualty; creditors accuse debtors of profligacy – debtors accuse creditors of gratuitous cruelty. Some governments practice austerity simply to prevent getting into this sort of situation – the socialist president of Mexico, Andrés Manuel López Obrador, is an exemplar of this.

All this is common sense. Austerity – and this is best understood as cuts to government spending, rather than raising taxes – can simply be about the management of finite resources in a changeable environment, and doesn’t have to be ideological. So why do the British left react so violently to the idea? I’m not sure how deep the history goes. The New Labour of Tony Blair and Gordon Brown of the mid-1990s embraced austerity, but they were hardly of the left – but the left seemed happy enough to keep in tow. I think the issue originated from the coalition government of 2010. In the five or so years before this, the state payroll, direct and indirect, had expanded considerably. Many parts of the state had become very inefficient. At the time I could see this in both education (I was a school governor) and health (I was following health affairs closely, as I was looking for a job there). In both areas I could see over-complicated management structures and performance grids, and lightweight policies implemented to placate some lobbyist or other. Capital funding was tied to a bidding process that required the use of consultants on both sides. The bidding process was a matter of verbiage – the trick being to find the right trigger phrases. I read my borough’s bid for primary school expansion (which was successful), and it seemed to carefully saying nothing at all – but it was the work of many senior people, with external advice. In the NHS, funding was driven by something called “World Class Commissioning” – a vastly over-engineered superstructure designed to provide employment to consultants and middle managers. I could go on. The writing was already on the wall before Labour lost the election of 2010, as the crash put government finances under strain, but the government had been slow to apply austerity. Not so the incoming Conservative-Lib Dem coalition. They put in place a vicious programme of spending cuts. Suddenly a whole class of public sector employee found their livelihood at risk – and worse, political leaders were suggesting that their endeavours had all been a waste of time. That triggered an angry backlash. And just as the right tends to be controlled by the interests of capitalists, the left tends to be controlled by the interests of state employees.

By and large the angry people were university graduates trained to look for abstract principles to make sense of events. So instead of just protesting against the concrete adverse effects of particular cuts, they spied an abstract idea to focus their anger on: austerity. Austerity was evil; the cuts were not necessary but ideological. Many economists criticised the cuts as excessive, causing a needless recession and economic wasted resources – and this was seized on as evidence of the evils of austerity. As this line of thinking developed in the usual echo-chambers of social media and friendly journals, it morphed into the idea that austerity is always and everywhere evil. Mr Davies’s article shows how entrenched that thinking remains.

And that is a problem. The left seeks to achieve political power, and to do so democratically they must persuade people that they can be trusted. But most people’s attitude to austerity is pragmatic: sometimes it is required. Most people probably have their own hobby horse of perceived government waste that austerity could be used to sort out – though there will be no general agreement on what these actually are. A class of politicians that cannot let the idea that austerity can ever be justified pass their lips are going to find it very hard to win that trust. And yet it is more than easy to campaign convincingly against specific cuts – at a time when so many public services are wilting under pressure, and the public safety net is obviously inadequate in many places. The politically sensible thing to do is to allow for austerity in theory, but oppose it in the here and now: or to follow the example of Gordon Brown who advocated austerity in the mid 1990s, but once in power and having established public trust, launched the expansion of the British state.

The left are part of the Labour Party, but do not control it. The Labour leadership understand well enough the politics of all this. Polls show that they are maintaining credibility on economic management. The left’s obsession with austerity in the abstract undermines their political influence. Which means the advocacy of any good ideas they have is weakened. In a world when many long-held beliefs are being challenged, the left should challenge this shibboleth.

NHS failure is hurting the economy. Only higher taxes will break the cycle.

Last Friday I read a rather shocking article in the FT by John Burn-Murdoch pointing out that, uniquely amongst major economies, the number of inactive people of working age in Britain is still rising even as covid subsides. In the EU the number of inactive people has already returned to below the pre-pandemic trend line; in the US the number of inactive people is still above this trend line, but it is falling. About 300,000 people are missing from the UK workforce. The author draws a connection with NHS waiting lists, where a similar number of people have been waiting for more than a year for an NHS operation to deal with a chronic condition. You don’t have to accept the exact causal link between between these figures to understand that a poorly functioning health system affects the size of the economy. The scale of pain implied by the backlogs in NHS care, and the difficulty people have in accessing it, including primary care and mental health services, should make this enough of political priority. But even those who say the economy trumps all else should be taking notice.

Two important insights about the current British economy seem to elude many commentators. The first is that the dominant factor affecting the size of the economy, and hence economic growth, is the number of people that are in work. As I discussed in my recent post on Dietrich Wallrath’s book Fully Grown, this factor trumps all others, and in particularlar changes in productivity. It follows that anybody who cares about growth should focus on this factor above all else. It is why childcare policies are so important, to say nothing of immigration and retirement. It follows that the persistent shrinkage in the UK workforce through the covid pandemic must be an important contributor to the country’s lack of economic performance. The second insight is that Britain is facing a supply side crunch, which is why unemployment is low at the same time as inflation is becoming widespread through the economy, and not just focused on things like energy costs. And following Brexit, international trade (and migration) is much less of a safety valve for imbalances between supply and demand. This means that anything reducing the size of the workforce really matters. And that makes the state of the nation’s health doubly important.

It is evident that Britain is experiencing a health crisis. The NHS is failing to deal with the pressures it is under, and as for policies to stop people getting ill in the first place, that gets scarcely any attention at all. The surge in demand, combined with pressure on supply, arising from the pandemic has broken a system that was already under stress. The direct effect of the pandemic – in terms people getting ill – does not seem to differ all that much from many other countries. The issue is that other country’s health systems seem to be more resilient.

Why should this be the case? The main reason is surely that the country does not spend as much on health care as other developed countries. In an ONS study on comparative health spending based on 2017 data, only Italy spent less per head among the G7 countries. This study also pointed out that the proportion of the spend that was publicly financed (about 80%) was amongst the highest – though in the Nordic countries and Japan it was higher. The two countries in the OECD with the highest overall health spend per capita, Switzerland (about 40% higher than the UK) and the US (about double) had amongst the lowest public contributions. This points to the central paradox of the NHS: the arrangement of care being free at the point of use, combined with an effective monopoly of state provision, causes the country to spend less on health rather than more – because it makes private contribution harder. Why would you pay for treatment that you can get free? You aren’t allowed to top up NHS care with your own money to get better treatment or priority. But if people are driven to use private care because the NHS is inadequate, private care infrastructure starts to undermine the public one – and the universal consent that is the basis of the NHS starts to break down. This has already happened to dentistry and optometry. A recent BBC study has shown that more and more people are going private out of frustration with NHS waiting times, in many cases causing significant financial hardship. So this is a growing threat.

Britain probably took a wrong turning with the design of its health system in the 1940s. Other countries have found a better balance between public and private finance, and deliver better health outcomes overall – though the US shows that you should not equate health spend with health outcomes. But that is a useless insight. It is inconceivable that the country moves to one of the public insurance-based systems (Netherlands and Australia are often spoken of as exemplars) that seem work better. There is only one way to solve the problem and that is to expand the public budget to take up a higher share of the national income. This was the solution hit upon by Tony Blair when he was prime minister in the early 2000s – which it must be said was one of his most successful insights, even though it went against political orthodoxy – he had to outmanoeuvre his chancellor Gordon Brown bring it about. The problem, of course, is how to fund it (or, if you are a follower of Modern Monetary Theory – how to prevent the policy being inflationary). When Mr Blair pushed the policy through, the country was going through a largely illusory period of economic growth, and no hard choices were required as tax revenues were buoyant. But a big problem arose when the bubble popped in the Great Financial Crisis, and much of the government’s tax revenues vanished. Since then governments have sought to protect the size of the NHS budget, but without letting it reflecting increased demand arising from the higher proportion of older people. Meanwhile other public services that affect demand for the NHS, like social care and public health, were squeezed. Meanwhile the country’s growth prospects were dented by those same demographics, to say nothing of the ending of cheap Chinese imports and Brexit, and various other headwinds. The inescapable conclusion is that core taxes (Income Tax, National Insurance, and VAT) must go up to provide health services with the resources they need to meet public demand.

Only shadows of this awkward political choice seem to be affecting the Conservative leadership debate. Rishi Sunak defends the recent rise in NI on the basis that it is needed to fund the NHS to help overcome its covid backlog, and then to improve social care. But this extra funding is inadequate. Liz Truss persists in suggesting that taxes should come down immediately, and stay down, as this will unleash growth and higher tax revenues overall. Though she doesn’t suggest cutting spending, it is not hard to see that this is where that path leads. Both place hope in productivity miracles in the health system to square the circle. Neither want to touch the idea of intrusive regulation to help the country avoid health hazards such as junk food. This position is not necessarily incoherent. Many conservatives think we should push health choices and their consequences out of the public realm and into that of individual responsibility. Such people would not be unhappy with the rise of a two-tier health system with the rise of private care increasingly dealing with the requirements of the better off. It is, of course, a policy that dare not speak its name.

And yet Labour, and the Lib Dems for that matter, are no better. They may accept the ethos of an effective and properly funded public health system, including preventative health interventions (though tastes for this vary) – but they will not say that this requires core taxes to go up. It is easy to blame devious politicians, right, left and centre for this failure to confront the hard choices about the national health. But the problem clearly goes deeper. Conservatives don’t talk about strangling the NHS in the name of individual agency, and Labour doesn’t talk about serious tax rises to boost health funding, because each of these policies would be politically suicidal. The political system crushes minority political views, which both of these are, in the all-or-nothing electoral system. The public has no apetite for political straight talking of this sort. It’s been hard enough to get people used to the idea that stopping climate change means changing our way of life. Health policy, or the awkward choices it entails, does not get anything like this attention. Initially leadership on this kind of issue is required from outside the main political parties. But I hear nothing.

And so we face the prospect of a vicious circle, with the health system and the economy bringing each other down.

Levelling up from a government that won’t let go of centralised power

Last week Michael Gove, Britain’s cabinet minister for “levelling up”, published a white paper to set out government strategy, building on what had hitherto been not much more than a slogan. It attracted predictable howls of derision, not all of which were deserved. If it is disappointing it is because it presents no real sign of challenge to Britain’s highly centralised political culture.

The good points about the strategy are its ambition, and is aim to make levelling up, or equalising geographic opportunities, a central priority across all government departments. There are two main areas of public criticism. Firstly that there is not much public money attached to the transformation process. Secondly that it advances the idea of political devolution within England only a fraction. I have some sympathy with the government on the first count. It is clear that the problem of regional inequalities has deep causes, and it is not just a question spreading public investment more equally. And yet this all most people want to talk about. We need to move the conversation on. The second criticism is much more pertinent. The Economist suggests that the policy is reminiscent of the Labour government led by Tony Blair and Gordon Brown from 1997 to 2010: the introduction of regional mayors to provide a new, more local focus for policy coordination, combined with a lot of centrally designed targets and centrally controlled pots of money for local bodies to bid for. Serious devolution would entail local revenue-raising powers, something that is clearly still as much anathema to Whitehall now as it was back then.

I will come back to why I think that matters. But first I want to take issue with the way that government policymakers, and many of those that critique them, like the journalists at The Economist, are thinking about regional development. And that centres around productivity. To them the central problem is low productivity in English regions outside the South East, and Wales – the picture is a bit more complicated in Scotland. By this they mean a concentration of better-paid jobs and profitable businesses in the South East. That is fine as far as it goes, but their suggestion is that this needs to be corrected by making regional businesses more efficient and productive. But what if the main problem is that more productive businesses (i.e. the most profitable ones, or those with best-paid employees) are attracted to the South East. If you improve the productivity of a business in Yorkshire, say, you may find that all that happens is that it moves to near London, or outside the UK altogether, or at least the more profitable elements of it. Often this happens through the business selling out, especially hi-tech businesses.

Regular readers of this blog will know that I have huge reservations about the way most economists think about productivity. They are guilty of a fallacy of composition, by assuming that the way you manage an individual business is analogous to the way you run the whole productive side of an economy. This is ironic because economists love to complain that the public suffer from a similar fallacy about household budgets and the national budget. An economy contains a wide variety of businesses with different rates of productivity, as economists measure it. Some are more susceptible to productivity improvement than others. Some are positively inimical to productivity (consider status goods, for example). As productive businesses become yet more productive the resources released tend to move to less productive businesses. This is well-known to economists as the Baumol Effect (or Baumol’s Cost Disease), which doesn’t stop them from ignoring it.

So the key question to me is not why regional businesses are relatively unproductive, but why well-paid jobs tend to gravitate to London and its environs. Political connections are surely part of the answer. Decisions over the allocation of vast public resources are made there, to say nothing of decisions on laws and regulations, and taxes. Physical proximity makes a big difference to the political influence you can wield. That is why countries with more devolved decision-making (my favourite example is Switzerland – but the same applies to Germany) have more equal regional productivity, and why small, independent countries often perform better than non-central regions in large countries. Yorkshire isn’t physically or culturally very far from Denmark or the Netherlands after all, but income per head does not bear comparison. The Irish Republic has overtaken the initially more developed Northern Ireland. The government’s proposed reforms will do very little to change London’s gravitational pull. Regional politicians still will have to travel there to bid for the new funds on offer, employing London consultants to hone their bids to match the fashionable ideas and buzz words that hold sway there.

Still, that can’t be everything. The British regions have suffered enormously from the collapse of old industries, devastated by the march of technology and globalisation. There may be interventions that can push back against this tide. Universities are amongst the few bright spots of regional development. The South East has very strong universities, especially if you include Oxford and Cambridge, which are on the edge of the Midlands, but no monopoly. Perhaps more regional centres can be established for medical research, surely a promising avenue for the country, based on these universities and local NHS institutions. Better intra-regional transport would surely help. Better transport links to London, on the other hand, are more ambiguous in their impact. But such initiatives would be easier to get off the ground if local leaders were not constantly having to appeal to London for permission to proceed, but something could still be done.

An interesting question is whether the green economy can be used to promote regional development. Renewable energy has a strong regional element, but its impact on jobs looks quite limited, especially compared to the old fossil fuel industries. Can a change in focus in agriculture, to turn the land into a carbon sink, generate a healthier rural economy? This must surely be a critical part of any zero carbon strategy. This is interesting because it might entail a reversal of agricultural productivity, as conventionally measured anyway, as some of the interventions could be more labour intensive. Agricultural productivity has always been a prime driver of economic development, as workers are released from the land to work in factories. But we are now appreciating its huge hidden costs. There would be a rather wonderful symmetry if the development of a more sustainable post-industrial economy involved reducing nominal agricultural productivity. It is not incompatible with improving wellbeing, though attitudes to the consumption of “stuff” and, indeed, meat, would have to change. It entails placing a financial value on environmental assets.

Such ideas seem far away from current government thinking, though some ideas on agricultural finance are starting to move in that direction, and have also been promoted by Mr Gove. It is one of the few positive possibilities arising from Brexit, as agricultural reform in the EU proceeds at a snail’s pace.

Meanwhile some good-old fashioned “levelling-down” should not be ruled out. This means taxing excess wealth and high incomes harder, and using this to make investments in regional infrastructure. That, at least, is something Britain’s highly centralised government infrastructure is well-designed for.

British policing needs to learn from the Army

At long last London’s Mayor, Sadiq Khan, forced out Dame Cressida Dick, the Commissioner of the Metropolitan Police. I called on him to do so some time ago – but that doesn’t stop it looking like an act of political grandstanding.The important bit comes next.

My main criticism of the Met (and many other of Britain’s police forces) is bad management, which has led to the organisation being “institutionally stupid”, as I put it. In other words an organisation composed of perfectly intelligent people who somehow keep doing stupid things. Institutional stupidity is, of course, very common. It is marked by an over-emphasis on procedure over initiative, and a strong desire to protect the institution’s reputation at all costs. It often goes alongside a culture of bullying and excessive centralisation of decision-making. Examples of stupidity at the Met are legion. The two that stand out to me are the Operation Midland investigation into child sex abuse, and the Met’s response to the Morgan enquiry into the serial failures of an old murder investigation. In Operation Midland vast resources were expended following up the allegations of a very shaky witness, which damaged the reputations of several highly respectable people. A few simple enquiries could have ended the whole thing very quickly. The Morgan enquiry accused the Met of “institutional corruption” because of its continual obstruction right up to senior level. “Corruption” was probably the wrong word to use, but the obstructionism was no less shameful for that – and it remains unacknowledged by police management. Redolent as these episodes are of management failure, they were not enough to do for Dame Cressida: her term was extended last year.

In the end the shocking results of an enquiry into police behaviour at Charing Cross police station were too much. It revealed a flourishing culture of racist, homophobic and misogynistic banter that the more naive of us thought had been stamped on ages ago. Many were shocked that nine of the fourteen officers involved are still serving. Personally I wasn’t particularly upset by that – corrective action needs to focus first and foremost on management. Junior police officers landed in the middle of a rampant canteen culture tolerated by management are in a very difficult position, and it should not be up to them to bring it to a halt. While the incident itself may not be as serious as some of the other failures – on the basis that this could have been a rogue clique – I can appreciate its role as a last straw. Like the killing of George Floyd in America two years ago, the deeply shocking thing about it is how little attitudes have changed amongst many policemen even after decades of kerfuffle and reform. It serves to show just how ineffective our attempts to deal with the problem have been.

The Mayor has focused on police culture, and especially discriminatory attitudes. That is important, but, in my view, secondary to changing the management culture. The discrimination culture is much easier to fix if the management is respected and effective. If you focus too much on discrimination at the expense of proper management, the whole process can be discredited as the police fall down on the task of protecting people. Ordinary policemen will simply suggest that effectiveness is being sacrificed to political correctness. This seems to have happened in at least some places in America following the Floyd outrage.

Is it possible to change the culture of such a large organisation with such strong internal bonds among its members? It’s easy to see how policemen feel an “us against them” attitude. They are expected to deal with things the rest of society won’t touch; they put their lives in danger – and all they get for this is abuse, most often. Change is clearly difficult, but not impossible. An example where change has been successful is in the British Army. The Army used by notorious for institutional stupidity. Discipline and orders were considered more important than responding to situations intelligently. But the demands of modern warfare forced change. Army leaders were chastened to see how much more effective the German Army was at “middle management” level than their own in World War Two, especially in the early years – and they started to pick up on German doctrines that encouraged initiative at junior levels, and learning from mistakes. The Army is far from perfect – bullying remains a problem – but its transformation over the years has been dramatic.

A lot hangs on Dame Cressida’s replacement. The new leader has to understand the management problem – something I don’t think Dame Cressida ever did – but also inspire respect amongst members of the force. There is an enormous amount to be said for appointing an outsider – though there are risks to this. Somebody from outside the UK has been suggested – though problems of management in policing are hardly confined to Britain. My suggestion would be to look for an inspirational leader in the Army.

The choice rests with the Home Secretary, Priti Patel, in consultation with Mr Khan. Neither individual has shown much understanding of effective management and leadership. Ms Patel has been dogged by accusations of bullying, and makes promises that can’t be delivered. Mr Khan showed impressive focus in his political career, right up to his election as Mayor, but has practically sunk without trace once he got there. Still, they both have a strong incentive to get this right: let us hope they make a good choice.

Why won’t Britain’s politicians take police reform seriously?

I have written a number of times about the British police, and been highly critical of its senior management – “institutionally stupid” being my verdict. The specific cases that have provoked me were Operation Midland, the Daniel Morgan affair, the harassment of a female back police officer and, most recently, the Plymouth shootings (which, unlike the others, did not involve the Metropolitan Police, the country’s top force). Now the Met is being heavily criticised after one if its officers was sentenced for raping and killing a member of the public, Sarah Everard, after arresting her. And yet on each of these occasions the police respond with nothing much more than “stuff happens” and “lessons will be learned”, and carried on much as before. And Labour and Conservative politicians have backed them up. We have to ask why.

The Everard case is particularly chilling to me as the false arrest took place very near where I used to live, on a stretch of road that I often used, by car, bus and on foot. It is almost always busy, and it is well-lit at night. It was another attack perpetrated by a man on a woman, simply because of her sex. It is an extreme example of a serious societal problem, that does not seem to be getting better, in spite of more liberal education. At the other end of the scale, a recent study showed that sexual harassment is at epidemic levels at secondary schools and sixth-forms – a problem that seems to be much worse than it was a generation ago. Murders of women by men they don’t know as they go about their daily life are still quite rare – but only after most women are advised to be “sensible” and take precautions over their own safety that men largely don’t bother with.

The response from senior police officers, and the ministers they are accountable to, has been underwhelming in the Everard case. Advice on how people might avoid false arrest by lone officers comes across as victim-blaming. Ms Everard should have been more “streetwise”, it is suggested. Could the perpetrator have been identified as a risk beforehand? Again the response so far has been pretty defensive. Alleged offences of indecent exposure committed by him beforehand were “minor”; vetting procedure had turned up “no evidence”. It’s all just too difficult. The man was a “bad apple” – a lazy way of expressing that it just one of those things that happens once in a while, like rotten apples. Lazy because, as Guardian columnist Marina Hyde points out, the actual proverb is that “one bad apple can spoil the whole barrel” – and there is plenty of evidence of bad apples in the police being left to do just that.

What are the management failures here? The first has been a complete failure to judge the public mood over such an enormity. Something more that the normal institutional defensiveness was surely called for. Beyond that are questions about the vetting of recruits, the management of misogynistic attitudes in the force and the prioritisation of crimes against women. There is also the question of how the police dealt with the indecent exposure incidents. These are all related to each other. Without understanding the evidence more clearly – and which of the various stories floating around are true – I find it hard to form a clear view myself. But it has been known for a long time that there are cultural problems within the force, and nothing much ever appears to be done about it. We are often assured that things are getting better, so reminders that the problems are still rampant are shocking. However it is also clear that police attitudes reflect those of large parts of wider society.

And so to the question I started with. Why don’t the politicians try to take control and act against police deficiencies? So far all the serious ones have rallied round the Met Commissioner, Cressida Dick. That includes Conservative ministers, and also Sir Keir Starmer, the Labour leader, and Sadiq Khan, the Labour Mayor of London, who, unlike Sir Keir, actually has the political authority to act. It seems that, to them taking on the police creates more problems than it solves.

The first question is over the position of Ms Dick. Her fingerprints are on many of the serious management problems that I have written about, if not as Commissioner, then in her earlier career. And yet the politicians have stood behind her, and extended her contract only recently. They may well know something I don’t – that she is, contrary to appearances, the best hope for making progress behind the scenes. She certainly recently had the support of my fellow Lib Dem blogger David Boyle. And the dismal truth is that there probably are few, if any, serving senior officers with the grasp to take on what needs to be done. It is an institutional problem. It clearly calls for an outsider to take charge – and that has been heavily resisted in the past.

Which highlights the wider problem – taking on police culture is likely to make things worse in the short term. This can be seen from the case of George Floyd in the US. His murder last year was in its way even more shocking than the Everard murder. It was in full public view and carried out by a policeman on duty, with the support of his colleagues. The outrage it provoked was extreme, and many politicians did attempt to act. But crime rates rose, and there was a political backlash – fears over changes to policing were among the reasons that Donald Trump and the Republicans did inexpertly well at the presidential and Congressional elections.

The Labour and Conservatives have identified law and order as a central issue in winning over the white, older, working class and lower middle class voters they feel are critical to their success. So they tone done criticism of the police, and trust that the outrage will blow over before the next general election. And the public continues to be let down by institutional failings in our police forces.