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Commission impossible? Government should slow the creation of public service markets to avoid costly mistakes

Last week, Justice Secretary Chris Grayling attacked G4S and Serco for allegedly overcharging the Government for tagging criminals and criticised his own department’s commercial skills. But the problems are far more widespread. Today, the Institute for Government’s report Making Public Service Markets Work reveals deep-seated problems in contracting, market design and oversight.

The report shows weaknesses in government’s ability to design and manage effective markets in public service provision, following examinations of the Work Programme, social care for older people, probation commissioning and the emerging ‘quasi market’ in secondary education. We argue that there needs to be genuine competition for public service markets to work. Users – or commissioners choosing on their behalf – need to be able to spot which providers are doing well or badly. And contracts need to be designed to ensure that providers don’t ‘hit the targets but miss the point’. But these conditions are met far too rarely – suggesting outsourcing and commissioning reforms may be too vast and rapid for government to handle. Competition is not sufficiently prioritised. As academy chains expand across the school system, many are focusing on specific parts of the country. Will this really boost parental choice? Does DfE have clear plans for what they will do in the event of the failure of one of these chains? It’s noticeable too that the same providers are operating in many different sectors – for example, there is a very high degree of overlap in the providers of justice and employment services. The Independent’s front page story on our report today quoted a civil servant concerned that “big outsourcing companies were monopolising services in some parts of the country”. We argue that the real concern is that no one in government can provide facts and figures on whether this is happening or not. Information on performance is clearly essential for markets to operate well. But judging the performance of complex services isn’t easy for either users or commissioners. The Department for Education’s school league tables have been really helpful for parents choosing schools – but there is still little data (and hardly any publicly available) to help governors of failing schools choose which academy chains should take over their school. In social care, our research showed that abolishing the Care Quality Commission’s system of star ratings to inform users on care home quality was, on balance, a mistake. We therefore welcome the Department of Health’s commitment to reintroduce them in some form. Incentives are hard to design appropriately and we found clear evidence of ‘gaming’ – in public, private and voluntary sector organisations. We have always had ‘teaching to the test’ and exclusions of tough to teach pupils but we found that schools under threat of closure were the most likely to engage in this behaviour. Our report is not, however, a counsel of despair. Outsourcing can work well in many services and there are effective practices spread across government. DWP has introduced ways of penalising underperformance in the Work Programme – specifying in contracts that severe underperformance will lead to reduced workload or contract removal. Probation trusts, meanwhile, have been able to work with local partners to co-commission services that deal with offenders reoffending but also any health, mental health or employment needs. The Department for Health, meanwhile, following the collapse of Southern Cross healthcare, are putting in place what appears to be a proportionate approach to anticipating and managing failure of large care providers. But we do think that these problems need to be addressed before the Government’s drive towards public service markets accelerates. We argue that: •The Treasury or the Cabinet Office should conduct an urgent cross-government review to ensure public service markets are truly competitive – and not dominated by a few providers. •Government should introduce a statutory obligation to publish a compulsory ‘competition impact assessment’ to be conducted by the OfT (or similar body) before implementing outsourcing programmes worth more than £100million. •There should be full transparency on the contracts, income, performance and sub-contracting arrangements of all private, voluntary and public sector service providers. We are pursuing this recommendation with the Information Commissioner. •A lead official (Senior Responsible Owner) to be placed in charge of each public service market worth over £100 million per annum – using new ‘pivotal role allowance’ to keep these individuals in post for at least 3-5 years. •There should be more thorough advance testing of new market models, using high-powered commercial advisory boards [excluding those with a specific commercial interest] and scenario and simulation exercises to predict potential pitfalls. •Contracts need to be made more flexible – for example, through introducing performance-related break clauses, relative performance rewards and pre-agreed change processes Pushing on without addressing sector-specific problems or these wider issues will, we believe, undermine the government’s drive towards public service markets. Public support for outsourcing remains relatively fragile. Most people care more about the quality of their services than who providers them but a Populus survey published in July 2012 showed that only 50% agreed with the statement that ‘public services have more to gain than lose from making use of the expertise of private and voluntary sector organisations’. Labour, meanwhile, are beginning to wonder whether this agenda is attractive – both practically and politically – meaning the recent cross-party consensus on the value of public service markets may be at risk. And providers themselves may also withdraw their support. Fed up of being targeted for isolated failures, they may decide to sell their services elsewhere – further reducing levels of competition.

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