Much Noise, Little Progress: The UK Experience of Privatisation

Since the 1970s, UK governments in common with those of other welfare states have faced a dilemma: pressure on social spending due to population ageing and a changing labor market, and at the same time, strong pressures to contain taxation as international competition intensifies, capital becomes more mobile and electorates resist a greater tax-take. The UK stands out in its use of the private sector and introduction of market forces. Under the Thatcher (1979-1990) and Major (1990-1997) governments, the ‘marketization’ of welfare involved two strands. One was encouraging individuals to finance their own welfare, for example, by saving for their own pension or taking out private health insurance. The other concerned the promotion of ‘quasi-markets’ linking ‘public’ and ‘private’ in the welfare field (Deakin and Walsh 1996). This involved a new form of welfare state organization: private commercial or voluntary providers alongside public providers. The assumption was that this process would use competitive pressure to promote greater efficiency and responsiveness to the needs of those using the services, most notably in the area of health (Le Grand 1990; Le Grand and Bartlett 1993). Services from social housing to refuse collection, from social care to running prisons were contracted out to private and voluntary sector agencies (Vincent-Jones 2006).When Tony Blair became Labour leader he rejected both right-wing pro-market approaches and traditional left support for public ownership of state services in favour of a Third Way, between the state and the market (Blair 1998). Consequently, the party was renamed New Labour. Since coming to power in 1997 the New Labour governments have not taken apart the reforms of their Conservative predecessors, but have built on them. A 1999 policy document Modernising Government explained their approach:

This Government will adopt a pragmatic approach, using competition to deliver improvements. This means looking hard but not dogmatically at what services government can best provide itself, what should be contracted to the private sector, and what should be done in partnership (Prime Minister and Minister for the Cabinet Office 1999).

Central government typically retains regulatory powers and sets performance targets for public services which are delivered by a range of separate providers, often operating in competition. The assumption is that this will widen choice and drive down costs. In this chapter we examine recent policies in health care and pensions in the UK to see what lessons can be drawn from this experiment in welfare privatization and quasi-markets.