Smaller, but better loved, public services

MICHAEL PORTILLO's review of public spending might be born of desperation: somehow, the Treasury feels, it must curb social security spending if it is to have any hope of balancing the budget in this Parliament. But behind it is a longer- term philosophical question: is it appropriate for the public sector to provide universal services when a good proportion of people can afford to buy these services for themselves?

We know that the state is not good at running industry, and the privatisation programme of the Eighties, for all its rough edges, has been imitated in countries as diverse as Sri Lanka, Argentina, Poland, Italy and Japan. What is harder to accept, certainly for most Britons, is that the state might pass over a greater part of health care, education or social security to the private sector. Yet that is the issue the Portillo review will raise.

This is a question not just for Britain but for all industrial societies. An ageing population will put enormous strains on their budgets of over the next generation. We are fortunate in that only a quarter of Britain's population will be over the age of 60 in 2020; in Germany and Italy it will be almost a third. Historically, we seem to be one decade into a retreat from the use of the state as distributor of services, which follows an advance lasting more than a century. We regard the famous Liberal budget of Lloyd George in 1909 as marking the key advance of the state: the provision of old age pensions and the creation of labour exchanges. But the process goes back at least 60 years before that.

The whole second half of the last century saw a sustained increase in the things for which the state took responsibility: in Britain there were Robert Peel's police and Rowland Hill's penny post; in Germany, Bismarck's legislation in the 1880s for health and accident insurance, and the introduction of old age pensions in 1889. Throughout the industrial world there were great public projects such as building the sewers of London, New York and Paris.

The vast bulk of that 19th-century structure remains. Some parts of the public sector may have been discarded, but these are mostly functions acquired since about 1947, after the first wave of post-war nationalisation. With the exception of the telephone service, little of what was in the public sector in 1939 has been passed back. The core is intact.

Or so it would seem. There has, however, been a process of creeping privatisation, in which more and more people choose (some would say, are forced) to buy their services from the private sector, even though these services are provided by the state and people pay for them through taxation. We have seen the rapid growth of private health insurance in Britain, and the growth of courier services which supplement the post.

This is not just a British phenomenon: they have courier services in the United States, too. More ominously, there are now more private security guards there than police officers, although Americans still think of law enforcement as a public service. In Japan, basic education is provided by the state, yet parents or guardians contribute between 18 and 27 per cent of the cost of secondary schooling and the entire cost of the private tutorials that children attend after school. In Switzerland, the already thorough system of state education is supported by a growing army of private tutors.

If these trends continue, it could become difficult for the state to maintain universal services. A growing proportion of people will want to buy something more. The dilemma for Mr Portillo, or anyone peering into the future of the public sector, is whether taxpayers' support for services can be maintained if these services are not universal.

Everyone will pay lip-service to the provision of better schools and medical care, higher pensions and unemployment relief. But if they do not see themselves as beneficiaries, they may not be prepared to vote for the necessary funds. A generation from now it is possible that the levels of state provision of social services in the second half of this century will be seen as an aberration, as the industrial world moves back towards late 19th-century ideas of the appropriate size of the state.

My own judgement is that two trends will coexist. The retreat from universal benefits will continue and those who can afford to pay something more towards health care, education and social security will be required to do so. This will happen not just in Britain: it will happen everywhere. At the same time there will be a revival of the public sector's self-confidence and an improvement in its management. People should look to the state to provide order. Hillary Clinton made this point, talking about the US social benefit system. She told Newsweek that it needed to 'offer enough encouragement in real terms . . . but there should also be sanctions so that the message is loud and clear that certain behaviour is no longer going to be tolerated'. Look at the order that Anthony Trollope brought to the chaotic privately run postal service. He introduced the pillar box; bullied people into cutting letter boxes into their front doors so that the postman did not need to wait until the bell was answered, and rode round scattered rural offices, staying in rickety inns, sacking drunken workers and still finding time to write a few thousand words a day about Barchester. If people could look to the public sector to provide the order that the private sector cannot supply, rather than the other way round, then the state sector would once again have an honoured, if smaller, place in our lives.