Decentralisation – actions speak louder than words

The government talks a good decentralisation game and, no doubt, there are some good things happening. However, we need more coherence across this field of policy.

There are ‘easy hits’ that the government is missing. By easy hits, I mean policies that could dramatically increase economic efficiency and competition but which arise from relatively small changes to government policy that would come in under the radar. One such easy hit would be to give the Office of Fair Trading a remit in public services. That would be a simple measure by the government that could lead to some profound consequences. Instead, the government intends to roll the OFT into the Competition Commission to create a monopoly of competition bodies.

A different field is the freedom to set terms and conditions of employment at local level for any public sector organisation that holds its own budget (specifically, schools and hospitals). This could have profound consequences and relates directly to TaxPayers’ Alliance research published this week. The TPA found, firstly, that there was huge variation in the per-pupil budgets for schools even before the government’s pupil premium is introduced. It appears that the pupil premium will be an additional budget to help schools with poor children. This runs counter to David Law’s sensible suggestion in Economic Affairs in 2008 that the pupil premium would be an explicit way of providing school funding for certain groups which would be a replacement for all the opaque funding mechanisms that we have at the moment. Currently, some schools in inner-London already have more than twice the budgets that, for example, schools in some areas of Merseyside have. Thus the pupil premium simply adds complexity to a complex situation when it could be used as the only additional funding mechanism as we scythed through existing bureaucracy.

The TPA also found that schools with the most difficult pupils had the most supply teachers. At first sight, this might be obvious – recruitment and retention is bound to be harder in such environments. But given the huge funding advantage that schools with difficult pupils have (even before the pupil premium) this should be reflected in the terms and conditions of employment that teachers in such schools are given. Schools in tough areas have the money to employ the right people to do the job. Unfortunately, they do not have the freedom to vary conditions of employment to recruit and retain the right sort of people.

Other research has suggested that the absence of regional labour markets within the NHS is literally killing patients. In the north east, for example, employees will be paid above the market rates and there will be fewer nurses etc than there otherwise could be. In London, on the other hand, there are constant staff vacancies that are filled by agency workers at great expense and with a loss of continuity and loyalty that might well be important. Overall, resources are being allocated extremely inefficiently.

As it happens, it appears that free schools and academies can set their own terms and conditions of employment (though I am not sure how much real freedom they have). It was interesting, though, that, when Michael Gove suggested that cooperatives should be set up in the public sector, he was insisting that they would have to accept national terms and conditions of employment.

This is a problem that has a relatively simple solution. Foundation Hospitals and schools should have freedom with regard to terms and conditions of employment. Like many universities, they may not use that freedom very well at first but this, combined with competition from free schools and NHS reform, could be an important hole in the dam of centralised manpower planning which, as the TPA shows, is damaging those who need the most help.

Philip Booth is Senior Academic Fellow at the Institute of Economic Affairs. He is also Director of the Vinson Centre and Professor of Economics at the University of Buckingham and Professor of Finance, Public Policy and Ethics at St. Mary’s University, Twickenham. He also holds the position of (interim) Director of Catholic Mission at St. Mary’s having previously been Director of Research and Public Engagement and Dean of the Faculty of Education, Humanities and Social Sciences. From 2002-2016, Philip was Academic and Research Director (previously, Editorial and Programme Director) at the IEA. From 2002-2015 he was Professor of Insurance and Risk Management at Cass Business School. He is a Senior Research Fellow in the Centre for Federal Studies at the University of Kent and Adjunct Professor in the School of Law, University of Notre Dame, Australia. Previously, Philip Booth worked for the Bank of England as an adviser on financial stability issues and he was also Associate Dean of Cass Business School and held various other academic positions at City University. He has written widely, including a number of books, on investment, finance, social insurance and pensions as well as on the relationship between Catholic social teaching and economics. He is Deputy Editor of Economic Affairs. Philip is a Fellow of the Royal Statistical Society, a Fellow of the Institute of Actuaries and an honorary member of the Society of Actuaries of Poland. He has previously worked in the investment department of Axa Equity and Law and was been involved in a number of projects to help develop actuarial professions and actuarial, finance and investment professional teaching programmes in Central and Eastern Europe. Philip has a BA in Economics from the University of Durham and a PhD from City University.

2 thoughts on “Decentralisation – actions speak louder than words”

  1. Posted 25/02/2011 at 13:49 | Permalink

    The changes being suggested here represent a sort of ‘investment’. They may not immediately improve efficiency and/or effectiveness; but in the medium-term they are quite likely to do so. It seems to be difficult for politicians to look beyond the very short term, but the coalition government, not due to face a general election until May 2015, is well placed to do so. If you are only prepared to contemplate changes which promise immediate improvement, you are automatically ruling out many potential improvements which could be brought about by ’roundabout’ methods of production. And part of the ‘investment’ comprises the cost of learning about the pros and cons of different ways of behaving, which naturally takes time.

  2. Posted 25/02/2011 at 14:08 | Permalink

    On a similar note I’ve just read an article in today’s Times with a quotation from David Bennet (I think) who’s in charge of Monitor something like ‘I want NHS procurement to run like defence procurement’!! Of course, what he means is that he wants decentralisation and competition, but the palpable abursdity of wanting something like defence procurement – which we all know is a rotten mess, neither cheap nor effective – is clear to all.
    I don’t mean to say that decentralisation and competition within government provision is necessarily a bad thing, in fact it’s usually for the best. But these pseudo-markets will never be efficient because they still have to obey bureaucratic rules and are not motivated by profit. While merging the OFT instead of using it to introduce ‘competition’ into the public sector may not be great, why not scrap the OFT and the Competition Commission altogether and rid ourselves of the fallacious idea (which I’m sure that Dr Booth does not hold for a moment of course) that government intervention can somehow create competition – whereas what is really happening is government is destroying competition by intervention then attempting to reintroduce it by further intervention!!

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