Public sector workers need 'discipline and fear', says Oliver Letwin

Oliver Letwin says he is determined to 'instil' fear among public sector workers to push productivity. Photograph: David Levene

Oliver Letwin, the coalition's policy minister, has revealed the government's determination to instil "fear" among those working in the public sector, who he claimed had failed for the past 20 years to improve their productivity.

Letwin, architect of the coalition's plans to reform public services, told a meeting at the offices of a leading consultancy firm that the public sector had atrophied over the past two decades.

In controversial comments angering teachers, nurses and doctors, he warned that it was only through "some real discipline and some fear" of job losses that excellence would be achieved in the public sector.

Letwin added that some of those running schools and hospitals would not survive the process and that it was an "inevitable and intended" consequence of government policy.

"You can't have room for innovation and the pressure for excellence without having some real discipline and some fear on the part of the providers that things may go wrong if they don't live up to the aims that society as a whole is demanding of them," he said.

"If you have diversity of provision and personal choice and power, some providers will be better and some worse. Inevitably, some will not, whether it's because they can't attract the patient or the pupil, for example, or because they can't get results and hence can't get paid. Some will not survive. It is an inevitable and intended consequence of what we are talking about."

Mark Serwotka, general secretary of the Public and Commercial Services Union (PCSU), reacted angrily to Letwin's comments, describing them as "nonsense".

He added: "Public sector workers are already working in fear – fear of cuts to their job, pension, living standards and of privatisation. Far from improving productivity, the cuts are creating chaos in vital public services."

Letwin was speaking at the launch of a liberal thinktank's report at the London headquarters of KPMG, one of the biggest recipients of government cash, which won the first contract for NHS commissioning following the decision to scrap primary care trusts and further open the health service to private companies.

Letwin's recent white paper on public sector reform had been dismissed as watered down earlier this month amid speculation that the Liberal Democrats had vetoed radical change. But Letwin said on Wednesday that he believed he was prosecuting "the most ambitious set of public service reforms that any government in modern Britain has undertaken", adding that productivity had improved across the economy except in the public sector in the past 20 years.

A spokesman for the Office for National Statistics (ONS) said he did not know where Letwin had sourced his figures. However, an ONS analysis that works back to 1997, shows that productivity in public services fell on average by 0.3% a year between 1997 and 2008 because the level of inputs, such as staff and equipment, increased faster than the output, such as operations performed and numbers of pupils taught.

Harriet Harman, Labour's deputy leader, said last night that she did not recognise Letwin's portrayal of the public sector. "Death rates in hospitals have been falling, satisfaction levels have been rising," she said. "What hasn't changed is the Tories' antipathy to public services. And the idea that the way to improve public services is to put fear into those who provide them is absolutely grotesque."

A Cabinet Office spokesperson said: "It is widely acknowledged that there is a problem with productivity in public services. The government's policy is to improve it and provide the best value for the taxpayer."

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Public sector workers 'frogmarched' into strike action over pensions

Unions say public sector workers are being forced into further strike action after the details of pension contribution increases were announced. Photograph: Sang Tan/AP

Leaders of teachers, nurses, civil servants, firefighters and other public sector workers claimed they were being "frogmarched" into co-ordinated strike action after the Treasury took the surprise step of setting out in detail how much individuals will have to pay in contributions to their pension schemes from next April.

The overall cost of ?1.2bn is broadly as expected, but senior union sources said "we had no warning of this co-ordinated announcement for each scheme, or that it would be leaked to the Telegraph and the Sun laced with the usual rhetoric about 'gold-plated pensions'."

Union leaders said they were convinced some ministers, including Cabinet Office minister Francis Maude and health secretary Andrew Lansley, remain committed to a negotiated settlement before the new regime is introduced next April, but they questioned whether Treasury ministers were only interested in cash savings.

There was frustration at a recent Liberal Democrat away day for MPs that the party, including Treasury chief secretary Danny Alexander, had found themselves cast in the role of bearer of bad news to the public.

Brian Strutton, national secretary for public services at the GMB union, and one of the negotiators in recent talks, said Alexander had "spiked" the discussions for the second time in two months. "Is the government trying to negotiate or frogmarch us into a dispute?"

He added: "In the past, if somebody had asked me, it was 50/50 whether we solved this through negotiation or not. That balance has now significantly changed and it is 60/40 against us being able to reach a negotiated outcome, which makes the prospect of industrial action in the autumn much more likely."

Alexander said the proposals protected low-paid workers, and ensured a better balance between what taxpayers and workers contributed. Around 750,000 workers should pay nothing extra and another one million should pay no more than 1.5% extra. Talks on specific schemes, such as those in local government and the NHS, will lead to more proposals by the end of October on how further savings of ?2.3bn in 2013/14 and ?2.8bn in 2014/15 can be made.

Under the proposed changes to be introduced next year, nurses and classroom teachers earning ?25,700 will pay an extra ?10 a month for their pension, an NHS consultant on ?130,000 will pay an extra ?152 a month, while civil servants will see their contributions rise by between ?20 and ?140 a month.

Teachers in the most typical pay band – ?32,000 to ?39,999 a year – will see their contributions rise from 6.4% to 7.6%.

"It has nothing to do with the affordability or sustainability of teachers' pensions, it is a tax on teachers to pay for the mistakes of others," said Russell Hobby, general secretary of the National Association of Head Teachers.

Higher up the income scale, teachers earning ?50,000 would be expected to pay an additional ?696 a year, civil servants ?684 and those working in the NHS would be set for a ?768 hike.

Highest earners would face increases of up to ?284 a month – ?3,400 a year more.

In the ?100,000 bracket, civil servants would pay an extra ?2,100 annually, doctors almost ?2,000 and teachers ?1,752.

In the main firefighter pension scheme members would face rises from 11% to 14%, and to 17% for fire officers. The pension age will also rise to 60. The Fire Brigades Union general secretary Matt Wrack said preliminary arrangements for a strike ballot were being prepared. He said: "This pensions robbery is a crude smash-and-grab raid on firefighter pension rights to help pay for the budget deficit. It is nothing to do with long-term sustainability or affordability."

The greatest savings for the taxpayer will come from the NHS scheme (?530m), followed by the teachers' scheme (?300m) and the civil service (?180m).

Unison leader Dave Prentis accused Alexander of "crude and naive tactics", urging ministers to "stop treating these talks like some kind of playground game".

Cabinet Office minister Francis Maude said: "The unions have absolutely known that this process was going on. The idea that anyone is taken by surprise by this is nonsense."

He said strikes would be "very disappointing" because the government was committed to ensuring that public sector pensions were "among the very best available", adding: "There's still a lot to talk about for the future long-term design of the scheme but there will continue to be, unlike most pension schemes, defined benefit with a guaranteed pension level so no investment risk and they'll be good pensions."

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Open public services: Privatisation or innovation?

Phillip Blond and Brendan Barber. Photograph: Linda Nylind for the Guardian

This week David Cameron released the much-anticipated open public services white paper that declared an end to the "state monopoly" on public services. TUC general secretary Brendan Barber discusses the fine detail with Phillip Blond, architect of the big society. Oliver Laughland listens in.

Brendan Barber: From my point of view, this looks like a pretty frightening prospect. The idea of opening up all of our services to competition is ultimately a route to massive privatisation. Although you might support the idea of other forms of ownership, co-operative mutuals and so on, the reality too often is that it's the private sector that steps in. If you look at the work programme and the big contracts that have just been issued, out of 18, 15 have gone to the private sector. People do not see this marketisation push by government as a move in a genuine spirit of innovation. They see it as another route to cost-cutting and privatisation.

Phillip Blond: I don't think that's the intention. What's clear in everything that's said in the paper is "diversity of providers". There's explicit recognition of what happened under New Labour where most contracts went to just three companies and there was a transfer from public to private monopoly. But I'm not opposed to competition. Competition is a clear driver of quality. Of course, if you just compete on price, this can deliver the wrong sort of outcomes. So what guards against mass privatisation is the requirement for diversity and the payment on outcome.

BB: But what we've not seen is convincing evidence that the private sector is able to deliver better outcomes. The public accounts committee looked at the performance of providers who'd been contracted to deliver some of the key employment services and came up with a wholly negative view of their performance. In terms of mainstream services that people need in the labour market, the evidence simply isn't there.

PB: The state is already failing. When I look at Britain I think in many ways we're turning class into caste. We're making it harder and harder for people from disadvantaged communities to get ahead. I don't think it's the case that all state is bad or private sector good, but let me quote you an example of one solution I favour. Take the Sandwell Community Care Trust, which was spun out as a mutualised charity caring for the elderly by the local authority in 1997. In 2006 it was analysed. The most telling example of success is that residential care for the elderly had cost the authority ?657 per person per week, whereas the trust reduced it to ?328 per person per week. The staff were happier, the residents were much happier. What we do is strip out all the costs of the old model, of the centralised state delivery that was so damaging, and we create a model where staff are valued .

BB: The government can talk the language of mutuals and innovative social enterprises in which employees and their support is key to the model. But the reality is very different because we've seen a host of PCTs, for example, where when the staff have been given an opportunity to express a view – in Cornwall 81% voted against mutualisation, in Plymouth it was 74%, in mid-Essex it was 97% – was there strong employee support? No, but did that stop them from going ahead? They went ahead anyway. This wasn't about empowering employees, this was about railroading employees into a new structure that they didn't support.

PB: I'm not in favour of anybody being railroaded. But to make the broader philosophical point, unless we break down the distinction between capital and labour we're not going to progress as a country. One of the reasons we're falling so far behind is because we've created a workforce that doesn't have a stake in the outcomes it produces. What sort of innovations would you favour?

BB: We've developed, with a body called the public services forum, a toolkit on employee engagement, looking at examples of good practice, where public service managers have sat down openly with the workforce, their manager, the unions, to look at how they capture their ideas, and we've seen the delivery of services transformed in some areas through that kind of dialogue.

PB: It doesn't sound innovative enough. It seems to me that the trade union movement should be more radically behind the John Lewis type model for public service delivery. The real gains that could be there for workers aren't being pursued because future innovations threaten the current structure of representation.

BB: It's not about flashy ideas, it's about real, nitty-gritty, work together.

PB: It sounds like more of the same.

BB: Look, this debate is all taking place against the background of the biggest cuts in public spending we've seen in our lifetimes that are not only impacting on public services and morale in a massively negative way, but alternative providers, as well. The government say they want to bring them in to the delivery of services ... the reality is that all of those sectors have been massively hit by spending cuts, too. This is about privatisation – that's what people believe and I think all the opinion poll evidence supports that.

PB: The difficulty for the big society is that it's been born in the most difficult of times. It has nothing to do with cuts, it was conceived before cuts, before Lehman Brothers etc. I'd much rather have a debate about how we innovate in the face of austerity. This white paper is profoundly innovative.

BB: But there are huge questions about where public trust lies, aren't there? Look at Southern Cross, for example, with a hugely important social function, out there in the market place. Blackstone step in, they fire up ?160m, then three or four years later, they realise a profit of something like ?600m, they take that out of the business, and disappear heading for the hills, with this massive profit, and leave a business massively struggling. It finishes up with David Cameron saying we'll have to pick up the tab. Where is the accountability?

PB: Let's be clear, Southern Cross is the failure of the old, post-Thatcherite agenda. It's not the failure of the big society or of the new government, and I agree completely with Brendan on his analysis of Southern Cross. But in the white paper it's very clear that when you have risk and failure, it isn't something that is picked up by the government. This is what payment by results means.

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