Leading Article: Vouchers are a good idea on paper, but...

When the Tories took office 17 years ago vouchers were a secret code. The word was whispered in think-tank seminars, an idea of daring radicalism. Vouchers for parents of schoolchildren, vouchers for students - at the Adam Smith Institute they talked of little else. Labour's snarling response helped to pump up the idea, made it a kind of policy fetish. An interesting theory became an article of faith. An idea worth a spin, needing to be elaborated, worth a trial under controlled conditions, became a touchstone of partisan identity. Tory ideology explains why the voucher experiment in nursery provision is failing.

Vouchers are, in principle, a way of mobilising competition. Competition is, in principle, a necessary ingredient in public service provision. Thanks to the Thatcherite enthusiasm for driving down the costs of the public sector - an achievement for which Tony Blair rightly credits her - the idea of tendering contracts for the provision of social, health and educational services has become commonplace. Provided contracts can be specified, monitored and re-tendered after a due period, they can be a way of securing public services at less cost than a producer-dominated old-style public authority. Neither local authorities nor health trusts should lack the weapon of contracting out. Vouchers are a way of getting consumers to challenge public providers. Rather than funnel support for a public service top down through a council's budget, giving consumers a ticket allows them to choose and keep providers on their toes. Vouchers are an opportunity, but likely to work only where a range of providers (schools, universities) already exists.

The problem with nursery vouchers was not the theory, it was the terrain. In parts of the country, schooling effectively begins at four-plus; elsewhere there is a rich mixture of play school, private nurseries, reception classes; in others provision is still sketchy. Mrs Thatcher herself, in an earlier incarnation as a caring education minister anxious to dispel her milk- snatcher tag, had promised to expand nursery provision. Since then, the Tories have had a fit of family fright. It is now very unclear whether as a party they actually want women to leave home to work; if they do, it is not clear whether they believe there ought to be a public responsibility to ensure children are given that peculiar mix of education, entertainment and care which characterises the best pre-school provision.

Confusion notwithstanding, the Major government determined to go ahead with vouchers. But it made two critical errors. One, it assumed the prospect of getting money from parents would encourage voluntary sector and private companies to invest capital in buildings. It also made an error of judgement in neglecting the consequences for pre-schoolers of its own policy of encouraging local management of schools and parental choice of primary schools. Desirable primaries would inevitably seek to maximise their income and their enrolments by themselves expanding into pre-school provision, even if it meant (as it has) attaching hammocks to the rafters and tents in the playground to accommodate the four-year-olds.

Predictions aside, the Government was at first prepared to do something which British social policy has fatally lacked - local experimentation. The refusal of Labour-controlled councils to take part in this was deplorable, but inadvertently they set up a fascinating case study; if vouchers were not going to work in the favourable Tory surroundings of Kensington and Wandsworth, they were not going anywhere. Well, they haven't worked. But, in spite of negative evidence, in spite of the fact that the experiments had not run their course, a dogmatic government ruled that vouchers were to be extended nationally.

Now the Tories on the House of Commons Education Committee have let light dawn: vouchers may even be forcing private schools out of business. So far from increasing the number of places, the viability of some schools is being threatened, and the total number of available places may be dropping. In a world in which public policy was conducted with some semblance of rationality, the pilot schemes would have been carried to their conclusion, the evidence coolly evaluated and efforts made to repair the gaps. Instead, the evidence has been ignored.

The failure of nursery vouchers does not mean that "market principles" cannot or should not be applied in the public sector. It does not stamp vouchers with the mark of Cain. It does, however, give two pointers which Stephen Dorrell should pick up before he gives any further thought to his (suspiciously sketchy) plans for the future of social services. One is about basic supply. In ageing Britain, residential care for the elderly will need to grow - vouchers may be an ineffective way of securing adequate provision. There is a conceptual confusion here, too. Mr Dorrell's sensible insistence that most care is now and will continue to be provided by family and out of people's own resources implies that public resources ought to be targeted on those who are in need. But the prospect of such support ought not to be a disincentive to personal savings for old age. In such circumstances, vouchers do not seem to fit at all - vouchers are best conceived as a way of distributing funds universally.

The other pointer is to the emerging role of a public sector which itself provides fewer and fewer services directly. The gap in the nursery formula which is in danger of being repeated in the Government's thinking about social services is the importance of the tasks of inspection, monitoring and regulation. Deregulation is yesterday's cry. In the new "mixed economy" of social policy the role of the state as the enforcer and guarantor of standards needs, if anything, to grow.