The avoidable costs of non-inclusive growth

For ten months now, I have been living and dreaming inclusive growth, and it has been a fascinating insight – not just about economics, but also about the way very complicated systems work.

Or sometimes don’t work. Because one theme which kept on emerging as we travelled across the nation talking to people, was how centralised funding programmes – designed in Whitehall to target resources efficiently – ending up having perverse and expensive effects when applied at local level. As Matthew Taylor, chief executive at the RSA has argued, most government policy fails.

At the high point of the centralisation of public services in the 1990s and 2000s, when reform tended to mean ‘re-engineering’ (to use the buzzword of the day), government began by trying to make services more flexible.  But more often than not, efforts designed to yield more innovation and responsiveness ended up concreting in a new kind of digital Taylorism; ‘one best way’ under the banner of economies of scale.

Reformers have since become sceptical of economies of scale, aware that – once you see the whole system – any efficiencies are usually overtaken rapidly by diseconomies of scale, particularly when we look at national programmes or policy initiatives.

What makes the difference now is that there have been rounds of tentative and experimental city deals and devolution deals. Once you begin to gather the reins of public services locally, it suddenly becomes clear that some of those centralised funding streams can add to costs at local level.

Take skills, for example. A mixture of severe, nationally determined cuts and other financial incentives created by the Skills Funding Agency, Further Education colleges have had to focus on running courses that keep their semi-autonomous institutions alive. These courses have tended to be those which are cheapest to put on, most popular amongst students or both. This has led to a massive oversupply of hairdressers and fitness instructors, while firms struggle to hire enough people with technical skills and qualifications. That is not to say a hairdressing course can’t be a way into lifelong learning, but if more young people were aware of the likelihood of finding a well-paid, stable job after doing some of these courses they might think twice.  The relatively recent Careers and Enterprise Company and National Careers Service have done little to effect change here.

A further disconnect between two government departments (DfE and DWP) compounds the problem when it comes to meeting the skills needs of unemployed people. Too often, the national response is mechanistic, fails to take account of the specific learning needs of individuals, misses the opportunity to join up provision at local level and results in short courses that do little to tackle the literacy and numeracy needs that are critical to securing sustainable employment.  

Now, as the Work Programme gives way to the Work and Health Programme, the same mistakes seem to be repeating themselves. It means that as most of the prime contractors are parachuted into local areas, despite assurances to the contrary, places find it hard to integrate this provision with other local initiatives, particularly where these extend beyond skills and reach into the realm of housing or childcare.

Failure to integrate the array of national and local schemes, each designed to tackle specific problems and issues with good intentions, is one of the reasons why costs have been inflating so fast in recent decades. It is even more expensive if the national contractors refuse to share their information, or start to compete for the easier cases so that their payment-by-results contract is fulfilled faster. 

Sometimes rival providers, delivering contracts to overlapping groups, will agree to share delivery premises. Sometimes they won’t. And when they have contracts to deliver to people with specific health conditions, it gets even more complicated. In Leeds, for example, one of the three CCGs commissioning health services has agreed to commission jointly with the city, while the other two have not. Yet somehow the city has to know that, of 32,000 claimants eligible for employment support, each one is covered by enough provision to meet their needs.

Integration saves money and makes for effectiveness, which in the end lowers costs. It is very difficult to make integration happen from the centre – remember the struggles to make ‘joined up government’ meaningful? Governments don’t join up without an almighty crisis that overcomes inter-departmental rivalries. It is hardly easy at local level either, but that is where the levers and relationships are, so it is at least possible there.

In our most innovative cities there is a change in style of leadership underway, representing a huge effort to bring funding streams, professions and the programmes of different departments together at a local level to make the sum more than the parts. As the Commission argues, only by mobilising the full force of local leaders, business and civil society will we create inclusive growth.

For more examples of how city leaders are working to create inclusive growth, in the UK and internationally, see our report, ‘Inclusive Growth: Principles into Practice’. The Commission’s final recomendations have also now been published, 'Inclusive Growth Commission: Making our economy work for everyone'.