Get radical: remodel public services

Even John Redwood lacked the bottle. But without an overhaul of state provision, we cannot restore pride in it

Right, Mr Waldegrave, welcome to the job of chief secretary at the Treasury. As the chap in charge of public spending, why not make a serious fist of the job which your predecessor, Jonathan Aitken, and your boss's unsuccessful challenger, John Redwood, both failed to tackle?

Even before the excitement of this week, public spending under Mr Aitken was not sufficiently tightly controlled to have room for significant tax cuts before the next election - much to the dismay of the Tory right.

With the emergence of John Redwood's alternative manifesto, there was a tantalising moment between the first and second veils, when it looked as though he might have a credible plan for cutting public spending, and accordingly delivering the promised pounds 5bn of tax cuts.

But then he bottled out. Instead of real cuts in public spending, he resorted to the sad old charge that there was a vast amount of waste in Whitehall bureaucracy which with steely determination, ministers could chop away.

It didn't work, and that was the moment the Redwood campaign lost credibility. Yet he touched a nerve. The notion that better management of public finances could cut the tax bill was one of the few resonant messages from the last fortnight's dispiriting leadership battle.

In fact, Mr Redwood's savings target of pounds 5bn is tiny - less than 2 per cent of the Government's total spending of pounds 300bn a year and the equivalent of a fiver a week out of a family budget. To pretend it can simply come from central administrative savings is a cheap shot. The idea that governments take money from taxpayers by force, waste much of it on bureaucracy, and then provide only substandard services with what's left is deeply corrosive.

Look, for instance, at how this Government is repeatedly attacked for supposedly making "cuts", when public spending in real terms has risen by more than 30 per cent since 1979.

At the moment, this might affect only our perception of the Tories, but it is corrosive in the long run to our perceptions of the state as a whole. Public services seem shabby and under pressure, and we blame this on the Government. But changing the Government and making some modest increase in resources would still leave them under pressure. The radical agenda must be to restore the concept of excellence to our state services - by dramatically improving their performance and pruning those where the state has no need to be the direct provider.

I thought for a few seconds that the scrapping of the Department of Employment was one such radical move. It would save pounds 3.5bn - a long way to Mr Redwood's modest target. But of course, the truth is more boring. The money, civil servants, and even the offices are not being chopped, but merely reallocated.

So what should be the task? Public spending falls into two groups, each requiring a different approach. For services directly provided by the public sector, the need is to improve performance; where the state is merely recycling money from one person to another, there is a need for a complete rethink.

Performance first. We have seen a sort of revolution taking place in many public sector services, where there has been a genuine attempt to improve service standards - evident in this week's publication of hospital league tables. But this is only a crude, initial stab at performance measurement.And even the most enthusiastic supporters of the "agency" system of reorganising the public sector would be pushed to claim that this has been an overall success.

I suspect three reasons for this. The first is political: in any service industry, the response of the workforce is crucial to improved performance. By putting political populism ahead of the need to bring staff on side, this Government created large constituencies, often of skilled professionals, who felt threatened and wanted the reforms to fail. It was a case of too much stick and not enough carrot.

The second is organisational. Because change was imposed from the top, with virtually no scope left for individual initiative or modification of the plan, the various parts of the public sector were unable to learn from each other. A car company continually compares the efficiency of each of its plants with each other as well as with that of competitors. The best-run plants almost invariably have a high level of worker involvement in fine-tuning the manufacturing process. What is seen to work at the best plants can then be taught to the others. That whole process does not happen in the public sector.

The third is cultural. It is very hard to turn any organisation from a producer-driven culture to a consumer-driven one, but particularly difficult in the public sector. Lip service is paid to the concept, but changing hearts and minds is extraordinarily difficult.

There is no magic formula (no "device", to borrow Mr Redwood's phrase) which will suddenly lead to a radical improvement in the performance of the public sector. Greater efficiency can come from the introduction of labour-saving technology, but in the main, it is the product of a series of small incremental changes to work practice which would over time contribute to the needed change of culture.

What about the other half of the public sector, the giant recycling operation? People who question whether it is appropriate for the state to provide, say, a pension or unemployment insurance, are open to the charge of seeking to reverse all the social progress of the past 50 years. The difficult thing is to distinguish between the overriding duty of the state to ensure that these services are available for everyone and the more mechanical decision as to whether the state itself should be the providing body. A pension is a financial service. Does the state have a comparative advantage in the financial services industry?

This is the "should we be doing this at all?" question. Ideas as to the appropriate functions of the public sector cannot be fixed in time, if only because needs change with different generations, and technology affects the range of goods and services that can be provided.

If the leadership debate had had a strategic purpose rather than simply an electoral one, it would have started to raise this sort of issue. It almost backed into this by acknowledging the dissatisfaction which many people feel about the state sector. But it never quite got there. I suspect the new Cabinet, for all the bombast, hasn't got there, either. For Mr Waldegrave, that is a political embarrassment - he is lumbered with the job of holding down spending without the basis to deliver. And for anyone who wants to see respect in the public sector restored, it is a crying shame.