Public sector reform may be the only route left for Labour

Times

2 days ago

It is more than a quarter of a century since Tony Blair complained about the 'scars on my back' from two years of trying to reform the public sector. As the Cabinet Office supremo, Pat McFadden, noted in a speech on the same subject in December, Blockbuster Video and Toys R Us were still in operation at the time of Blair's comments, while Airbnb, WhatsApp and Spotify had yet to be born. Twenty-six years later, creative destruction has reshaped the private sector, in some ways unrecognisably, but the same old arguments swirl about modernising government.
The case for public sector reform has become more urgent after the reversals of the past few weeks. A partial U-turn on cuts to winter fuel payments, at a cost of almost £1.3 billion, turned out to be a mere appetiser for a near-total capitulation on attempts to cut welfare by nearly £5 billion. Those surrenders, plus a possible downgrade of the independent fiscal watchdog's productivity forecasts and other revisions, could blow a £30 billion hole in the public finances.
After £40 billion of tax rises in October's budget — which put the UK on course for a record postwar haul of 37.7 per cent of GDP — the drums are beating to the rhythm of more taxes this autumn. Breaking a manifesto promise not to increase the burden on 'working people' could cost the chancellor her job. Cranking up taxes even further on businesses — which have swallowed £25 billion of extra national insurance contributions — and on capital gains, carried interest and inheritances would place another drag on already sluggish growth. Labour may have been handed an ugly fiscal picture by the Conservatives last year, but it is getting worse.
Much valid criticism has been made of Rachel Reeves, Sir Keir Starmer and ­senior colleagues for their failure to persuade a recalcitrant parliamentary party of the need for realism in spending cuts. Although the winter fuel business was handled badly politically, reducing payments was right in principle, and £5 billion should have been just the start in controlling a benefits bill that is predicted to swell to £378 billion by 2030. The simple fact is that Labour is showing itself incap­able of getting the nation's costs down, and higher taxes would stifle the eco­nomy. Sharpening public sector productivity is the only plausible third way.
Three articles we carry today offer a way forward.
Sir Mark Rowley, the Metropolitan Police commissioner, argues that the present model of 43 county-based forces has not been fit for purpose 'for at least two decades' and should be replaced by 12 to 15 regional forces. He says this would reduce back-office duplication and allow the enlarged groups to make better use of technology. Rowley also makes the point that creaking social services are frequently forcing police officers to take on the role of social workers, especially in cases of children missing from local authority care.
Penny Dash, the new chairwoman of NHS England, says the health service's dysfunctional bureaucracy makes her 'just want to cry'. There are examples of brand-new scanners lying idle, unused buildings on the NHS estate, operating theatre times routinely slipping and appointment letters being sent out to patients after they were due to be seen. Dash wants to open up data on NHS performance, including on individual doctors and teams, saying the institution should go 'really big on transparency'.
Today we also report on the scandal of HS2, a rail project that could end up costing more than £100 billion despite suffering repeated delays. We reveal how contracts were struck with the private sector, on behalf of the taxpayer, that contained no element of risk. This meant that there was no incentive for many of the contractors to operate efficiently, as they were safe in the knowledge that if the costs over-ran, the taxpayer would pick up the tab. The new boss of HS2 has pledged to re­negotiate the contracts. His approach should be replicated across Whitehall.
In truth Labour has so far taken the easy options for improving public sector performance, awarding workers above-inflation pay rises and increasing capital budgets. Sensible cabinet ministers now accept in private that those pay deals should never have been struck without some kind of union commitment to workplace reform. The next steps will now be harder, involving confronting vested interests, including Starmer's own backbenchers. Blair, with his record landslide in 1997, was prepared to sustain scars in pursuit of reform — and even he made ­limited progress. The big question is whether Starmer and his team are up for and up to the challenge.