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Social Market Foundation | Newsletter July 2011 | Page 1
www.smf.co.uk | www.twitter.com/_SMF_
Newsletter July 2011
Welcome to this edition of the SMF newsletter 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
In this edition
Welcome to this edition
Director’s note:
Following in the footsteps of
Bevan? Nigel Keohane
New publications
Time to gain to train, John
Springford
Events and SMF Business
Forum
Childcare: Who Pays? Ryan
Shorthouse
SMF Chalk+Talk: Report from
NHS event in July 2011
1
3
4
5
6
7
8
9
Social Market Foundation | Newsletter July 2011 | Page 2
www.smf.co.uk | www.twitter.com/_SMF_
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
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.
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
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 - [email protected]
Social Market Foundation
11 Tufton Street
Westminster
London
SW1P 3QB
020 7222 7060
Social Market Foundation | Newsletter July 2011 | Page 3
www.smf.co.uk | www.twitter.com/_SMF_
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.
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.
“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”
Ian Mulheirn, Director, SMF
Social Market Foundation | Newsletter July 2011 | Page 4
www.smf.co.uk | www.twitter.com/_SMF_
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.
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, free-
to-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.
“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.”
Nigel Keohane Deputy Director, SMF
Social Market Foundation | Newsletter July 2011 | Page 5
www.smf.co.uk | www.twitter.com/_SMF_
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. 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:
• 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
• Download Savings on a
shoestring
• Download A Confidence
Crisis?
Social Market Foundation | Newsletter July 2011 | Page 6
www.smf.co.uk | www.twitter.com/_SMF_
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 top-down 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.
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
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.
“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”
John Springford, Senior Researcher, SMF
to gain to train: providers that are good at training productive workers should gain,
Social Market Foundation | Newsletter July 2011 | Page 7
www.smf.co.uk | www.twitter.com/_SMF_
Events
The business case: good companies, future success
A keynote speech from Rt Hon John Denham MP
• Tuesday 26 July 2011, 4pm
• Venue: SMF, 11 Tufton St, Westminster, SW1P 3QB
• Register online here
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?
• 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
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:
• 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.
• 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 [email protected] or telephone 0207 227 4401.
Social Market Foundation | Newsletter July 2011 | Page 8
www.smf.co.uk | www.twitter.com/_SMF_
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.
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 much-needed 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 income-contingent 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.
“Similar to student
loans, parents would
be able to access
public loans to cover
the high costs of
childcare”
Ryan Shorthouse,
Researcher, SMF
Social Market Foundation | Newsletter July 2011 | Page 9
www.smf.co.uk | www.twitter.com/_SMF_
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".
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.
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.
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.
Chalk + Talk on 11 August: Can the Big Society deliver public services?
(See page 7 for details)
Chalk + Talk on 1 September: How do we solve the higher education funding puzzle?
(See page 7 for details)
Upcoming Chalk + Talk
events