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.