Offering real choice on public services

ONE of the remarkable aspects of Tony Blair’s second term has been the government’s conversion to voucher schemes. Yet the idea that citizens should decide where to take the government money allocated to them has been around since at least the 1960s.

The parallel concept that government should therefore act as a funder, but not a provider, of public services is well established on the continent. But until a few years ago, Labour had always insisted on monopolies in health and education, giving people no choice over their hospital or school.

The Prime Minister’s conversion has been well documented, not least by Fraser Nelson in this newspaper. But it is still widely disbelieved, or ignored, even in his own party.

In a 2002 pamphlet for the Fabian Society Blair said: "Choice is crucial both to individual empowerment and - by enabling the consumer to move to an alternative provider where dissatisfied - to quality of service." But don’t just take his word for it. Look at his actions.

Foundation hospitals are designed to be independent of government. They will be paid according to how many patients they treat, and patients in England will soon be able to choose which hospital to use (they already can for some operations in London).

More dramatically, Blair has encouraged private companies to set up their own hospitals to bid for custom along the same lines. These are currently limited in the operations they can offer, but that could be broadened in the future.

Meanwhile similar changes are underway in education in England. Gordon Brown announced funding for a further 1,000 "specialist" schools in his Budget this month.

Worryingly, there is no sign of the Scottish Executive following suit. We could be left with the last state-owned monopoly health and education systems in the West - a disaster for our healthcare and schooling.

But this tardiness does offer Scotland an opportunity to improve what vouchers offer. For voucher schemes of the Blair kind have a very serious flaw: while they offer the benefits of competition on quality, they do not allow competition on price. The state will still have to decide how much to spend on health and education.

Take utility deregulation as an example. Imagine that we had introduced competition into the gas, telecoms and electricity industries, but fixed the amount they could charge customers for their services.

We might have benefited from improved service, but would never have enjoyed the dramatic falls in our bills over the last two decades. Nor would they have been able to charge us extra to exploit new technologies such as the internet.

So how can the Scottish Executive reform health and education so that we benefit from competition both on quality and price? In a paper just published by the Policy Institute, Beyond the New Consensus, I suggest that Scots should each be given a cash allowance with which to buy health and education in an open market.

There is no need to privatise everything - the crucial thing is to get schools and hospitals competing, though private providers should be allowed to join in as well.

We could then shop around for the best value health and education to suit our needs - and keep the change if we found a bargain. The state would no longer fund schools and hospitals directly, though it could insist on certain minimum standards to begin with.

A good analogy is the existing SERPS arrangements, where we can take our state pension money and invest it with a private provider of our choice.

Eventually, as the market provided better quality, and people got used to making responsible choices, the state could regulate less and less, though it would continue to set the overall level of the allowance in our "Public Service Account".

But even this allowance could be calculated automatically on the basis of average costs in the market. So overall public spending would fall, as providers became more efficient - or rise if they discovered new technologies to sell to their customers.

The Scottish Parliament has full powers over health and education under devolution. The overall level of funding for these services is some 20 per cent higher than in the rest of the UK, yet both services are falling behind as reform atrophies.

The Executive should use its power and money to put Scotland back at the forefront of health and education provision by moving beyond the new consensus.

• Tom Miers is executive director of the Policy Institute. Beyond the New Consensus is available in full on www.policyinstitute.info.