How vouchers could enhance efficiencies in the delivery of public services.

Nigel Holder is a management consultant, quondam RAF fighter pilot and a supporter of the TaxPayers' Alliance

Just because there is a public interest in funding a service from tax revenue, it does not follow that the state should operate and run that service. Where the state controls a service it forms a monopoly which dominates the market, resists innovation and succumbs to “producer capture”. Wherever it is feasible to do so, publicly-owned and operated services should therefore be privatised.

Whilst I would not suggest applying this principle to matters such as defence or the intelligence services, it would be entirely appropriate and perfectly feasible to privatise health, education, police, fire and ambulance services. Private sector companies could then compete to gain contracts to deliver these frontline services.

Indeed, we should acknowledge that the majority of these frontline services already rely on private contractors for their back-office support functions, such as maintenance, catering, cleaning and security. The privatisation of those support functions vying for contracts in a competitive marketplace has already brought very significant efficiencies to these public services. Competition for contracts, mediated by bureaucrats, is certainly better than state-controlled monopoly provision. But competition is most effective when mediated by the service user, able to choose from within a diversified marketplace that particular combination of price, convenience, timeliness and service which best matches their immediate needs.

Much has been said and written approvingly by ministers about “Localism” these last few years. But if localism means anything, then it should surely involve devolving decision-making about the spending of taxpayers’ funds to the lowest level commensurate with the efficient use of those funds. So, whilst defence and foreign policy are best exercised at the national level, rubbish collection is most efficiently organised at a very local level.

And where the interest of the individual can best be served by devolving purchasing power right down to the citizen, then that is surely the ideal level for devolution.

Putting that into practice would best be done by the allocation of electronic vouchers to the citizen. Such vouchers would be redeemable at any organisations licensed to provide the publicly-funded services nominated on the vouchers.

I propose that there would need to be four types of voucher:

  • “Type One” would cover the full cost of the service that the state wished to subsidise. Competition would therefore exclude price as a consideration for the citizen when choosing a provider.

  • “Type Two” would cover the essential basic cost of a service as determined by the state and this type of voucher could be topped up by the citizen to purchase improved service levels.

  • “Type Three” would cover only a percentage of the full service cost and would require citizen top-up to buy the service.

  • “Type Four” would be of a value determined by means testing. This type of voucher would be used for services that are required over a long period of time and which would be unaffordable by the state if they attracted full state subsidy, except for those citizens who had inadequate means to self-fund over significant periods of time. Means testing would be simply determined for all citizens by an algorithm that assessed annual income and realisable wealth in combination. 

So what would be the practicalities of such a system? 

Every adult citizen would need to have an individual electronic national account. This would record:

• Citizen identifying data including name, N.I. number and an index to summary medical records

• Current universal credit and other state benefit receipts

• Current income tax status

• Current voucher entitlement and record of past usage

Variations to voucher value, entitlement and usage would be recorded electronically. Fraud would be minimised by a combination of two factor encryption and the use of DNA prints. Voucher data would be accessible through open-source algorithms to allow for the use of smartphones now and future emerging platforms.

Whilst the data architecture would conform to a national standard, the data would be held by a large number of competing “National Data Warehouses”. These NDWs would contract to provide data accuracy, precision, currency, validity and accessibility to strict performance standards with bonuses for meeting performance standards and penalties for failures.

Taking my proposed different types of voucher, here’s how you could apply them to various different areas of public service delivery

Type One Education Voucher

Parents of pupils eligible for state-funded education would receive a fully funded voucher that covered the cost of the delivery of the National Curriculum by any institution licensed by OFSTED to deliver. Parents would be permitted to top up these vouchers to enable them to send their children to any school that wished to charge more than the value of the state funding. This would create a marketplace in school provision that offered a continuum ranging from those requiring only the state voucher through to the most elite independent schools charging a significant top-up. This would significantly diminish the damaging social divide between state-educated and independently educated children.

The type one voucher could be varied in value to allow a pupil premium for children of disadvantaged parents. It could also be varied to allow a pupil premium for gifted children that showed significant potential aptitude in specific areas of study. 

All schools would be free of state control. They could be profit seeking, charitable or mutual. Regulation would be limited to ensuring that schools were safe places of education, and that outcomes met national standards. 

Type One Health and Social Care Voucher

All citizens would automatically receive a type one voucher to cover the cost of Accident and Emergency Care. The provision of Accident and Emergency care would be by privatised or mutualised organisations contracted locally to provide services. Where real-time competition existed between ambulance services, independent control centres would allocate according to immediate patient need combined with ambulance proximity data, and the voucher value would flow to the provider chosen by the control centre. Similarly, the receiving A & E department would receive the voucher value. 

All citizens would receive a type one voucher for diagnostic and urgent care services, redeemable at any place licensed by the CQC to provide diagnostic and urgent care services.

All citizens would receive a type one voucher for all acute care. Therefore, for example, the complete pathway for cancer care, from diagnosis to cure would be fully covered. 

Type Two Legal Aid Voucher

All citizens would receive a voucher to cover the basic cost of legal aid. Citizens could redeem these vouchers at law firms that required no top-up, a minimum top-up or a significant top-up.

Type Three Transport Voucher

All subsidy would be removed from the providers of transport services. All citizens would receive a type three transport voucher that they could top-up in order to redeem at a transport provider. The percentage of the fare cost covered by the voucher would vary dynamically to maximise service utilisation, in the same way that low cost airlines vary pricing to maximise utilisation.

Type Four Health and Social Care Voucher

All citizens would be eligible to receive a type four Health and Social Care voucher that they could top up in order to purchase care for long-term conditions. The amount of top-up required would be regularly determined by means-testing. For example, the costs of care of type 2 diabetes could be shared by the state and the patient.

With Her Majesty’s Opposition in a state of utter shambles, many commentators are beginning again to talk about Labour being out of power for another generation. This should focus the minds of Conservative ministers – and the wider Conservative Party – about how productively to use what could be a decade of power. 

A debate needs to take place about reshaping the nature of the state and its relationship with citizens in a way that would create better value for taxpayers through a more productive allocation of resources.

I hope that exploring this kind of voucher scheme can form part of that discussion.