July 2011 Newsletter

Social Market Foundation | Newsletter July 2011 | Page 1

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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

http://www.smf.co.uk/a-confidence-crisis.html

http://www.smf.co.uk/a-confidence-crisis.html



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

http://www.smf.co.uk/savings-on-a-shoestring.html

http://www.smf.co.uk/chalk-and-talk.html

mailto:[email protected]






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



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



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?

http://www.smf.co.uk/assets/files/publications/SMF%20Wealth%20and%20Assets%20WEB.pdf

http://www.smf.co.uk/assets/files/publications/SMF0287_Trust_in_financial_services_web.pdf



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,



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


• 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


• 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.

https://www.eventbrite.com/event/1922958621


http://www.eventbrite.com/event/1922898441/eorg




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



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

Documents

July 2011 Newsletter