Ross Martin: Public sector in dire need of ideas

Published in the Scotsman, 5/7/11

"OUR focus must be on new funding models to deliver higher quality, more localised public services. Then London mayor Ken Livingston visited Edinburgh at the time of the congestion charge debate in 2005. If the Capital had gone down the "Red Ken" route and simply imposed the charge, it could have funded the trams Picture: Neil Hanna

When it comes to tax, Scotland has a strange sense of priorities. We are happy to pay tax when performing the most basic of bodily functions - 30p entry to the public toilets in Auchterarder - but we don't need to spend even a penny to park our gas guzzler at an out-of-town shopping mall when many of our high streets are struggling to compete.

Similarly, we are used to paying for access to the telephone or rail network, even to the extent of paying peak charges at times of busy traffic, but ask us to pay a small toll to travel the most expensive part of our motorway network, the recently opened M74 extension, and we'd most likely drive the congested few miles alternative back over the Kingston Bridge to avoid it. Our relationship with taxation is quite perverse.

It could have been so different. In 1999, carried along on the wave of devolution optimism, we Scots actually voted to pay more tax; up to 3p in the pound could be raised, or lowered, by our new parliament in Edinburgh. Sadly, our parliamentarians proved to be out of step with public opinion and declined to use the tax powers that we, the people, had graciously granted them. The die was cast.

Just like their Westminster cousins, our MSPs have consistently chosen not to see the headline tax rate as a key part of economic strategy, rather they have sought to vary taxes as a tactic, creating or removing individual, sometimes localised charges instead: abolishing the tolls from the Forth Road Bridge and the Skye Bridge, implementing free prescription charges and eye tests, removing car parking charges at hospitals and granting all pensioners, regardless of personal wealth, free bus travel around Scotland.

This tactic of removing individual charges proved politically popular in times of economic boom, and even as we entered the public expenditure squeeze. However, as budgetary bust begins to bite home in countries all around Europe, from Greece in the East, to Portugal in the West, a more coherent strategy is required here in Scotland, and quickly.

The rise in universalism has limited the options. By removing a range of revenue raising measures that could plug significant parts of the public sector funding gap, our MSPs, of all parties, have boxed themselves into a corner.

Like David Haye, in his fight with Kiltschko, our MSPs talked a good game, but they too could find it impossible to overcome the relentless plodding progress of a colossal opponent that simply refuses to budge - the budgetary black hole.

The funding gap is huge, £39 billion over the next three parliaments, according to last year's Independent Budget Review. In order to get out of this tight fiscal corner, our parliamentarians must look for new ways to raise revenue for public service provision and lever in additional capital investment for much needed infrastructure improvements.

So what is to be done? In England, the Conservative-Lib Dem Government have continued with the privatisation route and market-driven reforms of the public services begun under Thatcher and continued by the Brown Treasury, under Tony Blair.

Here in Scotland, with a body politic which can fairly be described as a kind of "Social Democratic Soup", that is not only unpalatable, but politically unworkable. A different set of ingredients must be mixed if Scotland is to reform its public services in a manner that will prove palatable to the people, especially as the local government elections loom large. The only way forward is to dig deep into the political and civic consciousness of this country, evoking the innovative spirit of the Enlightenment and looking to design new ways to raise revenue and cut costs, enabling the delivery of more efficient and effective public services.

OK, some of these ideas will not be entirely new, while others are still in their wrappers, but all possible forms of taxation must be considered. For both revenue and capital expenditure, our focus must be on new funding models that will enable us to redesign and deliver higher quality, more localised and personalised public services.

Simultaneously, as we look to increase the amount of cash that government, at all levels, can raise to help plug that funding gap, so too must we be brave, and occasionally brutal, in stripping out costs that contribute very little, if anything, to the common weal. This side of the public service reform balance sheet is a story for another day, but suffice to say that the fundamental, root and branch review of every public pound spent, as advocated by the Christie Commission, is indeed urgent.

On taxation, we must get serious about different types of tax, the rates at which they may be levied, who should be responsible for them and, crucially, what impact they have on the quality of Scotland's public services. Each Scottish Parliament has declined to show a lead on innovative tax measures; this one needs to shape up.

A few initial ideas. In transport, congestion charging would have funded the complete construction costs for the Capital's trams, avoiding the need for the UK's best bus company, Lothian Buses, to be dragged to the table.

The marriage of these two key parts of the public transport network in and around Edinburgh should have been based upon operational partnership, not on a dash for cash to fund an expenditure black hole. We are in danger of repeating that strategic mistake on a national scale.

The decision by the city council to put the Congestion Charge to a city-wide ballot was both unnecessary and unlikely ever to succeed. Unnecessary, because "Red Ken" Livingston had shown the way in London. Unlikely to succeed, because the electorate was rightly suspicious of granting politicians another tax-raising power, when they hadn't had the courage, or the vision, to use the last one they were given.

Like many of our other infrastructure projects this national asset will quickly turn a corner in public perception once it is up and running. As soon as passengers feel the benefit of a modern mass transit system, improving the public transport experience beyond all recognition, the Capital's trams will raise the level of expectation, which will in turn raise standards across the network. It's just as well that the subway in Glasgow has secured much needed modernisation funds as the comparison, once operational, would have been stark.

This link between improved quality and increased charges must be the benchmark for public service reform in Scotland. From public toilets to public transport, we either raise revenue to fund these services through general taxation or we introduce user charges that create a revenue stream hypothecated to that project or service. This is essentially the argument over tuition fees, whether the cost is paid for up-front by all or collected through usage, in this case by English and non-European students.

Similar arguments and contradictions apply across the entire public service family. In health, we sanction the operation of private sector practitioners in dental care, working alongside the NHS, whereas to suggest a penalty fee for those serial no-shows at the local GP's surgery is like, well, pulling political teeth. In education, many a teacher makes a nice little, often tax-free, earner from private tuition (sometimes even when striking), but when will a Scottish council integrate that mass, often middle-class activity into its own operation?

On the capital side of the budget, it has been painful watching the political contortions over the alphabet soup of funding mechanisms; PFI, PPP and NPDB - the Private Finance Initiative, Public Private Partnerships and Non Profit Distributing Body, in case you wondered.

Using essentially the same financing vehicle, these variations on a theme are presented as radically different options to an increasingly disinterested public. Next up are TiFs and LABVs - Tax Incremental Financing and Local Asset Backed Vehicles - both forms of a commercial mortgage taken out against the value of a public, or contributing private asset.

An open and honest debate is urgently required. If our MSPs signed up for that, I might even pay an entry fee to watch, listen and learn."

Ross Martin is Policy Director for the Centre.