Social Market Foundation | Newsletter July 2011 | Page 1
Newsletter July 2011 Welcome to this edition of the SMF newsletter
In this edition Welcome to this edition
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Director’s note:
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Following in the footsteps of 4 Bevan? Nigel Keohane New publications
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Time to gain to train, John Springford
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Events and SMF Business Forum
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Childcare: Who Pays? Ryan Shorthouse
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SMF Chalk+Talk: Report from 9 NHS event in July 2011
As the Coalition's first full parliamentary year in Government ends, it’s remarkable to reflect on just how much has happened over the past year. Never have we seen such rapid development of radical market-based policy reforms set in train by this government. From the debate over competition in the NHS to the publication of the Higher Education and the Open Public Services white papers, the idea that market mechanisms can improve public service efficiency and deliver social justice goals has proven controversial. Meanwhile at the sharp end of delivery, the launch of the Work Programme has initiated one of the boldest welfare to work reforms in the world, with payment by results at its core. Throughout the past year, the Social Market Foundation has provided clear and insightful commentary and analysis on the emerging debate. Recently our research team have featured in the Guardian, Independent, Daily Mail, The Times, The Financial Times, BBC News, BBC Radio 4, and many more, making the intelligent case for the potential and limits of markets. Research We’re delighted to welcome Nigel Keohane as the SMF’s new Deputy Director. Nigel joins us from his previous role as Head of Research at the New Local Government Network and will be heading up our research team to build on our reputation for rigorous and innovative research. Nigel’s views on the tensions between localism and centralised reform in the NHS form his article on page 4. Nigel is joining us as we are involved in a number of major research projects, including one looking at a future direction for skills policy and another looking at an innovative funding mechanism for childcare. Senior Researcher John Springford, who is leading on our skills project, sets out the main debate on this topical area on page 6, and Ryan Shorthouse, who is leading our childcare project, discusses this on page 8. Since the last newsletter, we have launched two comprehensive research reports exploring different aspects of the consumer financial services market. A Confidence Crisis? Restoring Trust in Financial Services exposes the impact of price competition on
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Social Market Foundation | Newsletter July 2011 | Page 2
The Social Market Foundation is an independent public policy think-tank, developing and advancing innovative solutions across a broad range of economic and social policy. We publish original research, hold seminars and debates in Westminster and beyond, and run a diverse programme of events at the three main party conferences. Since its foundation in 1989, the work of the SMF has been principally devoted to promoting the social market philosophy, which seeks to marry markets and social justice. It neither sees the market as a necessary evil nor as an end in itself but as a means to improve people’s lives. It is underpinned by adherence to two key principles: first, a positive preference for market mechanisms, while recognising that a truly pro-market approach is often not a free-market one; and second, a belief that a sustainable market economy rests on social and political foundations that
trust in retail finance and, drawing on the lessons of past policy failure, calls for a kite– mark system to restore consumer confidence and improve the quality of financial products. Savings on a shoestring: A whole new approach to savings policy presents a suite of radical ideas to boost savings among those groups whom traditional policies have always failed to reach. Both publications are summarised on page 5. Events Promoting high-quality debate about the big issues in public policy is at the heart of the SMF's mission. For that reason we have launched Chalk + Talk, a new series of informal lunchtime discussions that aim to bring the best policy output from the world of academia right into the heart of Westminster. For our first event on 7 July, we welcomed Dr Zack Cooper from LSE to talk about his research into how competition in the NHS can save lives. Our next event is on 11 August and looks at the extent to which the Big Society can deliver public services. More information about this and future Chalk + Talk events - with speakers including Paul Gregg, Nick Barr, Lord Layard and Paul Johnson - is on page 7 and a summary of the July event is on page 9. As well as our Chalk + Talk events programme, we have also held recent debates on payment by results in public health, how to restore trust in financial services and the direction of savings policy. In May we were delighted to welcome Rt Hon David Willetts MP to talk about intergenerational inequity, and on 26 July we are equally delighted to be welcoming Rt Hon John Denham MP to deliver a keynote speech on the business case for the good company. More information is on page 7. Party Conferences
are widely regarded as fair. Our work aims to elucidate these ideas and to explain why the social market is a fruitful source of solutions to public policy problems. For further information please contact Leonora Merry - lmerry@smf.co.uk Social Market Foundation 11 Tufton Street Westminster London SW1P 3QB 020 7222 7060
By the time you read our next newsletter, the party conference season will be just around the corner. Once again we are proud to be running a full programme of interesting, relevant and thought provoking fringe events at all three conferences on topics from public service reform to financial services. We have a handful of slots still remaining and some exciting sponsorship opportunities, so please contact Rachel Baker if you would like to find out more. Support our work The SMF’s important work wouldn’t be possible without the support and encouragement of our funders and partners. We are currently looking for sponsorship both for our autumn and winter policy research programme, and to host topical debates on the emerging policy issues that will dominate once Parliament returns - so get in touch if you are interested in finding out more about how to partner with us. Alternatively, our Business Forum is an excellent way to get involved and stay in touch with our work. More information about that is on page 7.
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Social Market Foundation | Newsletter July 2011 | Page 3
Director’s Note: Last week saw the launch of the long-awaited white paper on public service reform. As a vision of how to achieve better public services at lower cost there was much to like. But while the Government’s wonkish principles are the right strategy for reform, the air war is being undermined by disorganised retreat in the ground war of practical policy. Open Public Services talked a lot about the virtues of choice. And that’s right. Aside from the empowerment that comes with the right to choose, by allowing individuals to take more control over the public resources that are expended on their behalf, it is possible to reward and propagate good practice and cut out poor services. Evidence suggests it is the poor, not the sharp-elbowed middle classes, who can be best served by this agenda.
Ian Mulheirn, Director, SMF
“While the Government’s wonkish principles are the right strategy for reform, the air war is being undermined by disorganised retreat in the ground war of practical policy”
But choice is a mirage unless policymakers deal with the supply side of the equation. We cannot have better and cheaper public services, nor can we have citizen choice, unless there is flexibility by which new providers can enter and failing ones leave the market, freeing up precious resources. Yet policy on the ground is failing to live up to the rhetoric. Three recent examples demonstrate worrying trends. First, there’s the Napoleonic health reforms. Unfortunately, the cacophony of opposition to the proposed reforms risks undermining the best parts of the Government’s plans: those that foster choice and competition. Last week it emerged that hospital failure procedures – previously planned to be a rigorous and speedy commercial-style regime – are to be relaxed at a cost of £500m per year, protecting poor performers at the expense of patients, and restricting choice. Second, the reforms to Higher Education have caused the Government a lot of pain without delivering the full benefits of a market. While the Government has given universities freedom to charge much higher fees, quotas on student numbers heavily curtail the freedom for students to decide where to go. The dead hand of the quota, even under BIS’s proposed reforms to make it more flexible, will prevent the HE ‘market’ from delivering for students. A third example is Michael Gove’s Free School insurgency. The Government’s unwillingness to take on opposition to the involvement of private capital means that the scale of the reforms looks set to be limited. It is impossible, in the current fiscal climate – or indeed the post-2015 fiscal climate if the OBR’s fiscal sustainability report is considered – to imagine that school capacity will be sufficient to allow choice to operate without private finance. On each front the pro-market agenda is being thwarted. It’s not an argument for unfettered free markets to recognise that liberalising the demand side without similar reforms to the supply side will result in few, if any, of the benefits that choice and competition can deliver. Despite the welcome sentiments of the Open Public Services White Paper, it’s easy for the strategy to get derailed by tactical or political necessity. That’s what we’re now seeing happen. The Government needs to get a grip on these reversals if its reform programme is to be as effective as hoped. If it doesn’t, it won’t be just the reform programme that’s in full retreat, but the deficit strategy too.
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Social Market Foundation | Newsletter July 2011 | Page 4
Following in the footsteps of Bevan? It is not often that Conservative or Lib Dem Ministers can wish they could have followed on where the Labour politician Aneurin Bevan started off. But, health reforms may be just such a case. The Government’s reforms seek to decentralise power and control to frontline professionals and choice to citizens. This represents a fundamental shift from where the health service has been for the past sixty-five years. After the war, as the NHS took form in the minds of ministers and civil servants, there was sympathy for elements of the health service (such as hospitals) to be locally-administered. But, Bevan was urged by the medical profession that this would be unacceptable.
Nigel Keohane Deputy Director, SMF
“As we reform healthcare, yes, we need clear mechanisms to regulate, monitor and negotiate across the system, but we also need the stimulus of patient choice to make them necessary in the first place.”
The ‘national’ component of the NHS has subsequently become a cornerstone of state welfare. Under the last Labour Government, national targets for waiting lists drove standards. Indeed, the health secretary Andy Burnham suggested in 2009 that ‘it all comes down to defending the N in NHS’. Both the Ministry of Health and the NHS were borne out of world wars, a strong collective national identity and a universal entitlement. Given this backdrop, the ‘pause’ on the health reforms was perhaps unsurprising and many of the suggestions of Professor Stephen Field’s NHS Future Forum review offer food for thought. The key question is, as the Government once again hits play, how can the right balance be struck between citizen choice, local responses and a national, freeto-access NHS? These tensions manifest themselves in a number of ways. First, while the previous administration could point to specific national targets and levels of funding to demonstrate attainment, how can reformers ever prove their critics wrong? Part of it is to re-emphasise national guarantees in the NHS Constitution as the Government is doing. But, it should also mean designing a system which pivots around responsiveness to patients. Second, to guard against charges of failure or postcode lottery, models of accountability need to be clear, coherent and meaningful. But, accountability to whom and by whom? From a rational standpoint, few could disagree with Professor Field that the location of services and hospitals must be clinically-led – but decisions on the closure of existing hospitals are also highly political (indeed emotional) local decisions. Limiting the scope of the central NHS Commissioning Board and expanding membership of clinical commissioning groups are the right moves. But strong democratic threads need to emerge at the local level. Finally, many critics have suggested that the forces of competition need to be tightly restrained. This is a mistake. Subsequent to the review, the principle of competition has been softened; ‘integration’ promoted (as though competition will not encourage services that fit around the patient); and the introduction of new providers slowed down. Monitor will emerge as a regulator than a promoter of competition – which appears strange in a system in which there is only limited competition to contain. It is refreshing then to hear that the review and the Government’s response hinge on a renewed focus on the patient: “no decision about me without me”. And to go beyond the founders’ localist ambitions, this principle needs to be followed through. As we reform healthcare, yes, we need clear mechanisms to regulate, monitor and negotiate across the system, but we also need the stimulus of patient choice to make them necessary in the first place.
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Social Market Foundation | Newsletter July 2011 | Page 5
Publications Savings on a shoestring: a whole new approach to savings policy Authors: Jeff Masters and Emily Farchy Saving is difficult. It goes against the immediacy of our impulses and the messages of our culture. But what is difficult for us as individuals is a problem for us all as a society. The financial crisis showed how vulnerable we are both as individuals and as a society to shocks. Too few of us are saving at all. More than one fifth of households have more debts than savings. Even fewer of us are saving enough for our longer term needs. Traditional approaches to savings policy try to make us into a nation of habitual savers. These should be continued and improved. But changing our behaviour is difficult. Based on new empirical analysis of the Wealth and Assets Survey 2006/08 and data from the Child Trust Fund, this paper argues for a whole new approach to savings policy.
• Download Savings on a
shoestring
Saving would be much easier if it was easier to do. With ideas from a No Lose Lottery to a Savings Smartcard, the call is for creativity from policy makers, banks and businesses - working within a framework that has solid empirical foundations. This is saving for people who don’t much like to save. Given the scale of the challenge, a radical rethink of savings policy is needed. This report is the beginning of that task.
A Confidence Crisis? Restoring trust in financial services Edited by John Springford How does trust interact with financial services markets? What impact did the financial crisis really have on trust? And what more long-term, endemic problems in the market have driven distrust? With a major Social Market Foundation analysis of financial services markets combined with expert essays, A Confidence Crisis? Restoring Trust in Financial Services answers these questions and proposes a set of radical policy solutions to correct market failures. The report recommends government intervention to improve the quality of financial services, shifting competition onto the price of improved services, while maintaining consumer choice. It lays down a challenge to policymakers: stop tinkering at the fringes of the financial market, and make the market work better across the board by cutting through the inherent and unavoidable information asymmetries between consumers and firms, and by making shopping around easier. Only then will consumer trust in the consumer finance market be rebuilt, to the benefit of all. A Confidence Crisis? features contributions from:
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Download A Confidence Crisis?
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Chris Pond, Head of Consumer Affairs, FSA Brian Pomeroy, former Chair, Financial Inclusion Taskforce Michael Skapinker, Financial Times Lord David Lipsey, former Political Editor, The Economist Peter Vicary-Smith, Chief Executive, Which? Adam Phillips, Chair, Financial Services Consumer Panel Professor Jonathan Michie, University of Oxford
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Social Market Foundation | Newsletter July 2011 | Page 6
Time to gain to train The past year has seen a flurry of policy initiatives which make use of markets to deliver better public services. From reoffending to welfare, the Government has embraced payment by results, which ensures successful providers are rewarded. This is welcome – determined to get bang for its buck, the Government is rightly looking to the market to drive up quality. But in another area of policy – skills – the Government is at risk of repeating the topdown mistakes of the previous administration. It has scrapped Labour’s iconic £1 billion skills initiative, Train to Gain, and put some of the money back into apprenticeships. Scrapping Train to Gain was the right move: it either spent money on training the labour market didn’t demand; or it provided poor quality training; or employers received training they would have paid for anyway without government subsidy.
John Springford, Senior Researcher, SMF
“Colleges and other training providers should be paid on results. Do they help someone into work? Does their training lead to increased pay? If so, the government should offer them a significant payment”
But deciding that the workforce needs 100,000 new apprenticeships isn’t the right approach either. While apprenticeships might work in many cases, peoples’ needs vary hugely – an apprenticeship might be the perfect opportunity for one person, whereas the opportunity to study and gain a Maths GCSE might be just what’s needed for someone else to find work. A more flexible policy approach to skills is needed. It’s time to gain to train: providers that are good at training productive workers should gain, allowing them to expand and train more people. Colleges and other training providers should be paid on results. Do they help someone into work? Does their training lead to increased pay? If so, the Government should offer them a significant payment. This will allow providers to gain, in the sense that they will be able to train more people to do the work that the labour market demands. They can expand – or other providers can copy them – and the system as a whole will far more nimbly react to the vacillations of the labour market, and would reward productive training. But this approach is not without problems, which the SMF is trying to resolve. First up, measurement. Can Government measure accurately how well providers do? Some providers are small, and only provide a course in, say, telephone engineering, to 10 people a year. Their classes might have a randomly large number of less hard working people, or they might all subsequently move into less well paid work, through no fault of the provider. Or a recession might make the employment rate drop in their area. All of these things could make a provider look like they’re doing a bad job, when in fact they aren’t. The second problem is cream-skimming. Providers could park trainees they thought were unproductive, and concentrate on the top 50%. This suggests that an ‘escalator’ would have to be applied, with payments increasing the better the provider does at training. Success with the hardest-to-employ would attract a considerable sum. The third problem is how to encourage pay rises and employment at the same time. Economic productivity is increased by cutting unemployment and getting people to work in more valuable ways. But if incentives for providers emphasised employment, accountants may end up as baristas, and being paid less for it. The SMF is therefore considering two mechanisms. One will pay for good outcomes for those unemployed for several months, which could work alongside the Work Programme and which will pay by employment outcomes. The other will pay for success in raising the incomes of in-work trainees. Once these issues have been ironed out, the SMF’s research will be the first attempt to design a genuinely flexible, labour market-integrated skills system. Watch this space.
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Social Market Foundation | Newsletter July 2011 | Page 7
Join the SMF Business Forum Critical to our ability to deliver the innovative and creative policy reports and events for which we are known is the close partnership we enjoy with organisations in the private sector through our Business Forum. SMF Business Forum partners benefit from the opportunity to deepen their understanding of the policy agenda and to help shape it through attendance at exclusive events and by being kept in regular touch with the SMF’s research programme. Particular benefits include:
Events The business case: good companies, future success A keynote speech from Rt Hon John Denham MP • • •
Drawing on emerging thinking from Labour’s Business and Enterprise Review, John Denham’s keynote speech will explore the vision for the future economy - how we ensure competitiveness abroad and fairness at home. John Denham’s speech will look at why more ‘good companies’ are not simply desirable but essential for meeting the challenges ahead and securing our future success - companies doing right by their consumers, their employees, and local and global communities. He will outline the role of active, intelligent government in achieving this.
SMF Chalk + Talk: Can the Big Society deliver public services? • •
• Places at our thrice-yearly
Business Forum lunches where a guest speaker makes a short speech and those present have the opportunity to ask questions and exchange views. • This bi-monthly e-newsletter
and a new tailored Business Forum e-newsletter summarising recent research reports.
Tuesday 26 July 2011, 4pm Venue: SMF, 11 Tufton St, Westminster, SW1P 3QB Register online here
•
Thursday 11 August 2011, 12.30pm Venue: SMF, 11 Tufton St, Westminster, SW1P 3QB This event has now sold out! But please click here to be put on the waiting list.
SMF Chalk + Talk: Can we solve the HE funding puzzle? • • • •
Thursday 1 September, 12.30pm Venue: SMF, 11 Tufton St, Westminster, SW1P 3QB Speaker: Professor Nicholas Barr Register online here
• Copies of all our new research
reports and policy essays. • The opportunity to request
briefings from SMF staff on their areas of expertise. • Invitations to SMF events. • The opportunity to partner
with us at the three annual party conferences at a reduced rate. For more information or to join the Business Forum, contact Leonora Merry at lmerry@smf.co.uk or telephone 0207 227 4401.
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Social Market Foundation | Newsletter July 2011 | Page 8
Childcare: who pays? Amidst the chaos of phone-hacking, the Government is trucking on with its reform to public services, making them more accountable and responsive to the public. Take formal childcare. The Department of Education recently announced that families could access their free entitlement – 15 hours of free childcare a week at any formal childcare provider for families with children aged between two and four – during more atypical hours. Families will now be able to use their free entitlement an hour earlier in the morning and an hour later in the evening. Alongside this, families could access their entitlement over two days, rather than a minimum of three. Good news. In today’s modern labour market, 87% of working parents work atypical hours: night and weekend shifts, as well as overtime. In fact, it is parents in more deprived areas who are expected to work more atypical hours.
Ryan Shorthouse, Researcher, SMF
“Similar to student loans, parents would be able to access public loans to cover the high costs of childcare”
Especially if informal provision – relatives and friends - is not readily available, affordable formal childcare is necessary if parents are able to juggle family and work. In any case, the literature suggests informal care does not deliver as high returns for children’s development as formal care. For too long, however, day care providers have not been able to accommodate the increased flexibility in working hours. A quarter of all parents say they cannot find childcare after 6pm and three in ten lone parents report they cannot find childcare at the weekends. It is uncertain whether providers will be able to offer the more flexible free entitlement sustainably. Funding via local authorities to deliver the existing free hours is often insubstantial: two thirds of nurseries report they do not receive enough. Delivering the free entitlement at atypical hours will be costlier, since rent and staff costs will increase. With local authorities facing squeezed budgets, it is doubtful whether a satisfactory funding formula can be implemented. Nurseries struggle to offer flexible care more generally because their profitability is limited. Achieving economies of scale is difficult since the market is very fragmented and settings are faced with rigid staff: child ratios. So it is hard for providers, uncertain of the regularity of take-up for atypical childcare, to offer costlier flexible provision. Likewise, it is difficult for them to pay enough to attract and retain high quality staff. A modern public service is characterised by flexibility and high-quality. But revenue – both from local authorities and parents – is currently inadequate to enable this. Demand, which appears to be latent, could be bolstered by making provision more affordable. But, unwisely, the Government reduced childcare support through the tax credit system in April 2011, which will mean parents with two children will have to find up to £30 per week extra to fund childcare. Fiscal austerity means the Government is currently unwilling to contribute muchneeded additional funds for formal childcare. So, the SMF has devised a new model to help parents better afford their private childcare contributions by smoothing this expenditure over time. Similar to student loans, parents would be able to access public loans to cover the high costs of childcare, and repay their loans on an incomecontingent basis at a benign interest rate for a set repayment period. The repayment parameters need to ensure progressivity and fiscal neutrality. A new report, supported by the Esmee Fairbairn Foundation, will be launched in the autumn describing the model in detail. The SMF hopes this policy idea will support families access more affordable, flexible and high-quality formal childcare, which is proven to bring remarkable private and public benefits.
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Social Market Foundation | Newsletter July 2011 | Page 9
Can competition in the NHS save lives? A report from the Chalk + Talk event on 7 July For the first in our new series of Chalk + Talk events, bringing cutting edge research to the heart of Westminster, the SMF welcomed health economist Dr Zack Cooper of the LSE to present evidence from his research paper, "Does Hospital Competition Save Lives? Evidence from the English NHS Patient Choice Reforms".
Upcoming Chalk + Talk events
Before presenting his findings Dr Cooper acknowledged that competition in the NHS is one of the most controversial issues of the moment. He recognised that his own research had been drawn into the debates surrounding the tortuous path of the Coalition’s health white paper. But because of the scale of the challenge facing the UK - to find a way of restraining healthcare spending in real terms in the face of relentlessly growing demand - it is important to set aside the political point scoring and look at the evidence of how competition actually affects the NHS. Dr Cooper made it clear that his research is purely concerned with the impact of fixed price competition within the NHS. He emphasised that it has nothing to say about the impact of price competition. Importantly, he made clear that his results did not necessarily imply any greater role for private provision: what counts is competition, not sector. Dr Cooper kicked off by illustrating of the large and unacceptable variations in health outcomes between the best and worst NHS provision. The scope to improve these outcomes comes from making the poor performers shape up, or close. It’s here where competition can help.
Chalk + Talk on 11 August: Can the Big Society deliver public services? (See page 7 for details)
Our speaker drew on research evaluating the impact of the 2006 choice and competition reforms introduced by the Labour Government. That work exploited the different outcome trajectories for hospitals in competitive areas - i.e. where patients had an alternative local hospital to go to - compared to effective monopoly providers in non-competitive areas that remained untouched by competition. This ‘difference-in -difference’ methodology produced stark results illustrating a significant impact of competition on survival rates for AMI (heart attacks). Crucially, from a social justice perspective, it was the least well-off who benefited most from competitive pressures. Dr Cooper spelt out the implications of his research: that measuring outcomes in every procedure and making the results available to commissioners and patients is the key driver of choice and competition, rather than generic, across the board standard ratings. And if some providers can’t offer a quality service for a specific procedure, then they should not seek to provide one at all. Ultimately poor providers should be closed and must be allowed to do so. Recent developments watering down the Government’s plans for an rigorous hospital failure regime (see page 3) are disappointing in the light of this evidence.
Chalk + Talk on 1 September: How do we solve the higher education funding puzzle?
In his closing remarks, Dr Cooper reminded the audience that competition is woven into the NHS at all levels, even without the planned reforms. Competition can increase the quality of services, which can in fact make them more homogenous, not less as opponents often argue. Competition does not necessitate NHS fragmentation, but can help to join-up delivery systems and reduce the variability of the dreaded postcode lottery.
(See page 7 for details)
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