Missing link

Ed Miliband

‘Milibandism’ is largely silent on Labour’s approach to public service reform. It should not be, says Nick Pearce

Dominating any discussion about Labour’s approach to public services is the overwhelming, undeniably brute reality of the fiscal context it will face if elected in 2015. As it stands, the party is likely to match the coalition’s fiscal framework for current spending in the next parliament. It will signal an increase in capital investment, particularly for housebuilding, but constrain other pledges to commitments which can be funded by switches in spending or targeted tax rises. The implication of this stance is that there will be further significant cuts – of the order of £25bn – in departmental budgets. Even if the balance of deficit reduction between tax rises and spending cuts can be shifted, there will still be enormous fiscal pressures on public services, doubly so if Labour does not want to follow George Osborne down the path of further discretionary cuts to social security entitlements. Buoyant economic growth could ease the pain, particularly if coupled with a more optimistic account of the underlying structural deficit, but otherwise this is simply the basic arithmetic that follows from first order choices about fiscal policy.

This is not just a technocratic challenge, however. Put more starkly, it is existential: how viable is modern social democracy when you cannot spend your way to the good society? Hitherto, Ed Miliband’s answer to this challenge has been to recast Labour’s political economy, focusing on reforms to British capitalism that will generate better wages, a fairer distribution of rewards, and stronger, more sustainable growth. These ‘predistributive’ reforms, it is argued, will lessen the burden on the state to redistribute through income transfers and public services entitlements. If anything constitutes the authentic core – political and personal – of ‘Milibandism’, it is in this account of economic reform. He has set his stall out for a different kind of capitalism in Britain – one that is more coordinated and continental, if not Teutonic.

But what of the other side of the equation – how to get more from less in public services? On the issue of public service reform, Labour has been largely quiescent. In part, this is because austerity concentrates voters’ minds on jobs, wages and household budgets; public service reform slips down the hierarchy of concerns. Nor does the configuration of public services speak to anxieties about culture and identity, the shape of communities and the future of the nation. These expressive dimensions of politics are hard to capture in the arid language of public administration textbooks.

There are political reasons for Labour’s relative silence too. Raising public service reform threatens to disinter corpses from the battlefields of the Blair-Brown era. Yet caution on this score is misplaced. For all its rhetoric of ‘no more tax and spend’, and the undeniable differences between its leading players, the New Labour government was united in an essentially Croslandite strategy for advancing social justice. It invested heavily in education and health, and redistributed the proceeds of growth in order to reduce poverty and constrain the rise in inequality. Hence, while third way revisionism reshaped Labour’s thinking about how to reform public services, it provides little by way of guidance today of how to govern in the absence of spending increases.

There are, of course, obvious risks to Labour’s current approach. The first is that the party will rapidly disillusion its own supporters when it starts to implement spending cuts and insists on public sector wage restraint. Pushing painful decisions through parliament without a large majority will present significant political management challenges. More substantively, the NHS will also reach the limits of its ability to absorb further efficiencies in the next parliament: ‘protection’ of the NHS budget currently means a decade of no real-terms increases, compared to a historic average of four per cent a year, at a time when chronic conditions and demographic changes are pushing up spending pressures. The NHS will be a major fiscal headache for the next government, but coming to its rescue will put further strain on unprotected departmental budgets, just as it has done in this parliament, unless a way can be found to raise taxes for it.

Intellectual and political challenges of this magnitude cannot be solved through the device of a zero-based spending review, however extensive an exercise. Indeed, thus far, Labour’s thinking on that score offers little ground for optimism; the framework document for the review is a stale piece of work, replete with the standard invocations of back office efficiencies, mergers and the like, but almost nothing in the way of real vision and guiding principles. Instead, these challenges go to the heart of what it means to renew modern social democracy. What kind of state does Labour believe in? Which services will it prioritise, and how will it fund them? How will power be exercised in the state and outside it, in civil society? What kind of statecraft should characterise its approach?

On these bigger questions there is a lot of fertile thinking in Labour’s circles and on its frontbench, but it has to be pieced together from different sources. To begin with, there is an emerging consensus on giving strategic priority to caring services – particularly childcare and care of older people – over the competing claims of ‘schools and hospitals first’.  Universal childcare underpins high female employment rates, which in turn boosts tax revenues, while strengthening child development and reducing child poverty. It is the linchpin of the continued success of Nordic models of social democracy and their fiscal resilience. Similarly, collective financing of social care pools risks and secures more efficient services, while preventing middle-aged women from being drawn out of the labour market to care for their loved ones. Integrating social care and NHS services also has the potential to achieve expenditure savings, particularly on expensive hospital stays. For these reasons care will be central to the social democracy of the future.

Second, a strong strand of localism infuses the thinking of Labour’s policy review, and a major push on devolution of powers to local authorities and city-regions over a raft of issues, from economic development, skills and apprenticeships funding and welfare-to-work services, to schools commissioning and house building, is likely to result from different independent studies that are currently under way to inform Labour’s manifesto. If properly developed and coordinated, these localist ambitions could mark a fundamental change in Labour’s approach to the (English) state, particularly if they are implemented without excessive targets, indicators and delivery plans. Critically, a big devolution of power and responsibility could also be accompanied by a shift to long-term budgets: giving local areas pooled resources over a five-year period would allow for real efficiencies to be made from integrating services and shifting resources to preventative activities, rather than further service-by-service cuts, year to year.

These approaches also imply a different kind of statecraft – one that is more relational than transactional. Too airily dismissed by its critics, relational state thinking captures important intellectual currents in public administration and political thinking, in particular a recognition of the limits of the thin liberalism of new public management and choice markets. A relational state offers a fuller, more realistically social and robust account of how people use public services and what they want from them than standard rational choice theory. It values institutions and the relationships they embody and nurture, not to exempt these from reform, but to recognise their centrality to human flourishing and their strength in garnering political commitment to public services (imagine, as a thought-experiment to test this point, that Aneurin Bevan had created a social insurance or tax credit scheme for healthcare in 1948 rather than the NHS). Relational reform also promises better outcomes for dealing with complex problems like long-term unemployment and antisocial behaviour, by giving people consistent, coordinated support, rather than passing them between caseworkers and service providers. A relational state would also better house the voluntary and community sector and secure its role in service provision than the architecture of payment by results and corporate contracting. Private sector players will always have a role in the provision of public services, but recent scandals have punctured any residual naïvety about their superiority.

These are the elements of a renewed Labour approach to public service reform. As yet, they do not constitute a programme. Whether they are brought together into a transformative, coherent and fiscally credible agenda in 2014 will be a key test of Labour’s preparedness to govern.

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Nick Pearce is director of IPPR

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