The Liberal Democrat approach to public services

Speech by Chris Huhne MEP, (Chair, Public Services Commission) on Thu 23rd Jan 2003

High quality public services will form the core of our party's message on what I suspect will be the biggest issue at the next general election. We need to be saying loud and clear what we believe about public services. Speaking from our experience running some of the biggest budgets in the land – in Liverpool, Islington, Sheffield and now Norwich and Milton Keynes – and running them in a path-breaking way.

And speaking with all the track record of honesty and integrity that we have built up as the only party prepared through three general elections to argue what everyone now agrees – public services need more funding.

Our core criticism of public services in this country is that all too often they do not deliver the quality of service that people expect and deserve. People wait too long for what they need and want. People don't get the standards they deserve.

There are three main reasons for this. Interference. Centralisation. And boom and bust funding.

First, politicians too often interfere with decisions best taken by people like doctors, nurses and teachers who understand how to deliver a service. Of course, there has to be accountability. That's crucial in any well run organisation. There also has to be professional peer review. But there must be responsibility and delegation.

Secondly, Whitehall tries to make decisions for every town and village in the country, rather than letting local people decide on the best services for them. It does this in the name of providing the same level of service everywhere, and of course it fails lamentably as the postcode lottery shows. Health care and education standards vary greatly. It is surely better to have variation that people want than variation that they don't.

Thirdly, central government has failed to provide long-term guaranteed funding for hospitals and schools. You have all heard of boom and bust in the economy. Well we have had boom and bust in public services too. Health spending was squeezed under the Tories, and squeezed again when the Government kept to Tory spending plans. And now there is so much money flooding into the system that it can't all be spent. That's crazy. We need stable long term growth on which professionals can rely and plan.

Let me now turn to the Liberal Democrats' proposed solutions to these problems in outline. First, getting the system right. It is a nonsense when the only way that Rose Addis's relatives can complain about her being left for hours on a trolley in accident and emergency is by having the matter raised at Prime Minister's questions. We need much shorter lines of complaint and control in the public services, so that they are responsive to you and your needs. You must know where the buck stops.

And don't forget just how centralised Britain's public services are. There is no elected politician responsible for any outcome in the health service except the Secretary of State. That, in England, means a service employing nearly a million people to serve 49 million people. The only bigger organisations are the Indian Railways and the old Red Army, neither models of responsiveness.

In the work that we have done in the commission, we were asked to look at experience in other countries, and we came upon a revealing example. The most popular health service in Europe – if you ask the patients – is in Denmark. Yet the Danish system is very similar to ours. It is funded from taxation, but it is better funded. It provides health care to those who need it, when they need it, without charge. The big difference is that Denmark has 5.3 million people, and even then the Danes decentralise their health service into 14 counties and 2 cities. Compare that with our region, here, the South East. We have 8 million people. We are bigger than Finland, Denmark, Ireland, Luxembourg and Austria. And yet we are not responsible for a single penny of our own health spending.

We are unbelievably centralised in England – and now it is England, with Scotland and Wales free to run their own public services. Some 78 per cent of all tax revenue in this country is raised and spent by central government, and we all know that he who pays the piper calls the tune. That compares with 29.4 per cent in Germany, 30 per cent in Switzerland, and even 43.6 per cent in supposedly centralised France. There is no other big developed country anywhere in the world that tries to run so much from the centre as we do.

The consequences are dire. The system is so big that it cannot respond. Experiments are stifled. It is more difficult to learn from the experience of diversity. And when we make mistakes – like the poll tax – they are inflicted the length and breadth of the country. That cannot make sense. The key advantage of decentralisation is that it allows, through competing systems in each part of the country, a process of learning by doing. Of getting better.

One big issue is the adequacy of regional pay weighting. Subsidised mortgages are an elastoplast for the problem. There is mounting evidence that teacher, nurse and doctor shortages are worst in London and the South East. Teacher vacancy rates in London, South East and East England are more than three times North West and Yorkshire and Humberside. There are no regional inflation or price index or cost of living comparisons. Pay is 48 per cent higher in inner London private sector than poorest region, but public sector pay varies by much less. No wonder a doctor prefers to work in Eastwood than Eastleigh, Newcastle rather than Newbury.

So our proposals are for a radical decentralisation of power and responsibility from the mandarins in Whitehall to the regions, cities, towns and villages of England. Health should become a regional responsibility. Education should be decided at county level. Regional assemblies should have the power to vary taxes, and be held to account for their spending.

Secondly, funding, There clearly is a funding problem, which is why the 2002 budget announced such big increases for health, essentially putting forward arguments which we have made for years. You can't duck it. Britain has 1.7 physicians per 1000 population against 2.9 in France and 3.4 in Germany. Britain does badly on pupil-teacher ratios. For primary schools, we are worse than Austria, Belgium, Denmark, Finland, France, Germany, Greece, Hungary, Ireland, Italy, the Netherlands, Norway, Spain, Sweden and Switzerland.

Funding does not always help. The USA has 2.6 doctors per 1000 population, but worse infant mortality and life expectancy than Britain. But funding is part of the problem, and it is crucially related to both quality and choice. Without spare capacity, choice does not matter. Without spare places in the school you want your child to attend, the school chooses you, and you do not choose the school.

We are persuaded in principle that we should explicitly earmark tax to the health service to avoid the boom and bust that it has experienced in the past, and recognising the unusual nature of the public service. The demand for health care – like the demand for foreign holidays and restaurant meals – increases even more sharply than income. We want more of it, the richer we get. Having a separate tax that can be varied regionally will allow us to exercise a closer control over the level of spending – and the value for money – for health care. We would earmark the existing National Insurance contributions for health. You would know that every penny raised in NICs went to the health service. Employers' NICs would remain fixed at national level, but employees' NICs could be varied regionally.

Our third main theme is diversity. For each region, clearly their own solutions to particular problems should be up to them. The role of national government is to continue to hold the ring, to collect and analyse information, to inform regional and local authorities of best practice, and to ensure equity through transfer of resources to those areas that need them. But it should not discourage diversity. It should not through rigging the Private Finance Initiative rules encourage one type of provision rather than another. There should be genuine choice and competition on a level playing field.

That does not just mean using the traditional public sector provision, together with sub-contracting to the private sector. There is also a third sector which in our view needs greater encouragement in providing services, which is the voluntary and the cooperative and mutual sector. The Non-profit distributing sector can perform crucial roles in innovation and service delivery, not least because of the ability to mobilise the commitment of its workforce. And in services – whether private or public – the attitude and morale of employees is usually what makes the difference for the patient, pupil or passenger.

These, then, are our main themes. Quality services through local control, stability of funding, and diversity.

Is this programme left wing or right wing? I'm afraid I think this is a fatuous question. It is like asking whether breakfast cereal is left-wing or right-wing, which rather depends on whether it is feeding a Paraguayan dictator or Ken Livingstone. Clearly, decentralisation can be a right-wing theme as we have seen repeatedly in the states' rights debate in the United States. It is a way of whipping federal government, and getting the state out of certain responsibilities. But equally clearly, many northern European countries such as Germany and Scandinavia have much more decentralised systems than ours with higher levels of equity. This is mainly because of redistributive funding systems – through the redistributive mechanism between the German Laender for example.

As we have seen from the taxation figures, Germany is much more decentralised than we are. The laender or regions (like Bavaria and Saxony) are responsible for education, policing and a whole range of other public services. And yet Germany is clearly a more egalitarian, inclusive society than Britain: the Gini coefficient is 30 compared with 36.8 in Britain and 40.8 in the United States. France is more centralised than Germany, but it is less equal at 32. And if we take the share of income of consumption enjoyed by the poorest 10 per cent of the population, it is highest in Germany at 3.3 per cent against 2.3 per cent in Britain and 1.8 per cent in the United States.

Decentralisation will not promote equality: I think it is frankly neutral. But I am totally convinced that it will promote quality of public services. Indeed, I don't believe there is any other way to improve public services except through the new localism. After all, public services are far more varied and complex than they were in the forties, and the rationing 'one size fits all' system no longer satisfies consumers with public services any more than it does with holidays or cars. So we must have more responsive public services, and that must mean more local choices.