Enterprise in the public sector is the way to end austerity

6th July 2017

The shock of seeing Jeremy Corbyn successfully reap the benefit of a woeful election campaign has triggered a lot of soul searching amongst Conservatives. Rightly so. I believe we need to take a long hard look at why the campaign went so wrong, and the real reasons we lost a number of key voter groups at this election.

But we must be careful not to draw the wrong conclusions. While it’s clear that Jeremy Corbyn’s anti-capitalist Momentum movement outmanoeuvred us on social media and activist recruitment, it also harnessed three big policy grievances: first, a roar from the millennial (under 40) voter cohort at a deepening economic and political alienation; second, a growing sense in the public sector that we are seemingly committed to ongoing underfunding of frontline public services; and, third, a pushback on Brexit from the majority of EU realists who are reconciled to a sensible business-like Brexit, but reject what they perceive to be the narrow divisive tone and hardline vision and language of some hard Brexiteers.

The Conservative Party in government needs to show we have heard the grievances and set out a coherent and responsible response. The call for ending austerity is the hardest of all to respond to. The truth is “austerity” is a catch-all for a range of factors hitting people’s spending power: below-inflation pay increases in the private and public sector, rising inflation fuelled by the collapse of the pound post-Brexit, the impact of tighter public spending in the aftermath of the debt crisis after the great crash.

It would be political folly to say our approach in 2010-17 to reducing the annual deficit was wrong. It wasn’t. We inherited a situation from Labour where we were borrowing one pound of every £4 we spent. That is not sustainable. It would be foolish to simply embrace the “money tree” tax- and-spend of Corbynomics. The electorate would probably vote for the real thing. And it would be disastrous - for the poorest most of all. It would be economically unwise to turn on the taps and release billions for a blanket public sector pay rise which would fuel inflation and interest rates, compounding the Brexit inflation already apparent, and risk a recession.

No. We need a more incentivising approach to repairing the public finances, and public sector funding, based on a more business-like approach to funding and rewarding success. As an ageing western European service economy, with rising healthcare costs and an unsustainable model of over-reliance on booms in retail, housing, immigration and the City to power our economy, we urgently need to unlock a new model of growth based on unleashing our leadership in innovation and exporting more to the fastest growing emerging global markets.

Our science and innovation sectors have enormous potential to help support sustainable development in the fastest emerging markets by exporting our world class life science, agri tech, digital health, smart energy and advanced construction, engineering and professional services expertise. This alone could unlock a new cycle of global growth of inward R&D investment and exports. It should be at the heart of a long-term business plan for post- Brexit Britain.

But we also need to tackle our woeful public sector productivity and drive innovation in our public sector too. The two are linked. We won’t unlock our leadership in transformative technologies like digital health, advanced medicines, autonomous transport or e-learning unless our public sector is actively supportive through procurement and partnership with industry.

Our approach to public sector pay needs to mirror this urgent need for innovation. First, we need flexibility. The 1 per cent pay cap is too blunt and regressive. We need to embrace a more diverse approach based on rewarding those heroic public servants who go the extra mile and deliver more for less.

Second, we must prioritise the frontline over the back office. There is a difference between the fireman, policeman, nurse and soldier on the frontline, who should be rewarded for doing a heroic job, and those in the back office who should be rewarded on management performance which needs to be better measured and published.

Third, we must look at productivity performance. We need the public sector to deliver more for less. ONS public sector productivity data for 1997-2010 shows that while private sector productivity grew at 2 per cent, public sector productivity actually fell by 0.2 per cent.

Fourth, leadership. Public sector leadership isn’t easy. Running a major NHS Hospital is equivalent to a FTSE 100 company. Yet we let people with almost no proper management training run them, alongside some utterly brilliant but unrecognised leaders. Why don’t we invest in a 21st-century public sector leadership academy, and commercialise the training internationally?

Above all, we must find ways to incentivise innovation and productivity. Whitehall traditionally punishes the hospital or school which delivers more for less by taking back their “underspend” and giving it to someone else. We should create the ultimate missing incentive: allow public sector leaders who come together, whether in a city or county or a sector such as healthcare, and deliver more for less, to keep some of the saving to reinvest in their service.

It isn’t turning on the taps. It isn’t a U-turn, or the end of fiscal responsibility. It’s properly self-funding productivity. I call it public sector enterprise. It’s the key to ending the real cause of public sector “austerity”. It’s time we did it.

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