Broken Vows

by Tom Bower

  ‘Is this true?’ asked Blair, clearly surprised.

  ‘Yes,’ Le Grand replied. ‘Productivity increased with choice and the internal market.’

  ‘Well, if that’s what the data shows …’ said Blair, unsure about his next step. He knew the Labour Party’s limits. Unlike the Tories, his supporters were not suspicious of the state. He had ostentatiously jettisoned Thatcherism and old Labour’s socialism, but the Third Way had not provided an answer. Nor had discussions with the trade unions. He never mentioned productivity to Nita Clarke, his special adviser liaising with the unions. Aggressive incentives were one solution, but Brown prevented their introduction. Milburn’s answer was five well-funded regulators and the Modernisation Agency, another quango that armed the regulators with ‘targets and terror’ to improve the NHS through rewards and warnings.

  Blair was still searching for a speedier cure. The NHS was absorbing money like a sponge, yet failing to treat the anticipated numbers of additional patients. He invited Le Grand to return to Downing Street. In successive conversations, the professor explained that a better alternative to targets was the market. ‘Markets don’t distort like targets,’ he said. ‘Patients’ pressure through patients’ choice, or patients’ screams, will improve the NHS. Hospitals will have to be nice to patients.’ Blair was not wholly convinced but agreed that Le Grand could stage a PowerPoint presentation in Downing Street.

  Among the seven in attendance, Ed Balls and Ed Miliband challenged the academic scathingly. ‘What are the ideological foundations of choice?’ they asked.

  ‘They tried to intimidate me,’ Le Grand said later, ‘but I could not understand their ideological reasons.’ He did not give up, describing to Blair the solution based on payment by results, which effectively restored GPs as fund-holders.

  ‘How do we know it will work?’ asked Blair. Le Grand resisted the obvious answer: because the scheme had succeeded under the Tories.

  Milburn, however, was a convert. Money and targets alone, he conceded, could not improve the NHS. ‘The simple truth is that the NHS cannot be run from Whitehall.’ The absurdity of such command and control had struck him after he was called upon to dismiss a hospital executive in Bedford for mismanaging a mortuary. In his search for solutions, during a brainstorming session with Loraine Hawkins, an expert on health systems, he was told: ‘Do you realise that in Australia they got 20 per cent more activity in hospitals by using payments by results?’ Milburn liked that idea and another proposal put forward at the same time by Simon Stevens, who was advocating the advantages of the Swedish health-care system, which allowed patients to choose the hospital where they would be treated, using the state’s money. ‘Right, let’s do that,’ Milburn said, without mentioning the resemblance to the Tories’ derided ‘patient voucher’ scheme. ‘Don’t even go there,’ he warned a smiling civil servant who was clearly tempted to make the point.

  In a moment of epiphany, he next told Blair that the answer was to decentralise decision-making to local communities and ‘empower’ individual patients. Choice and a market culture, he said, would cleanse the NHS of the 1948 relics so entrenched within the party, especially the dogmatism of both the trade unions and the NHS staff. Blair liked the sentiment but, as always, disliked the word ‘market’. Labour voters would assume a lurch towards the American system of payment for health treatment, and that would be bad politics. As usual, no one fully understood Blair’s intentions, not least because, despite his enthusiasm, he obviously remained undecided on which direction was best.

  Undeterred, Milburn urged Blair to revive the internal market, but in a more radical manner than the Tories. Blair asked Chris Ham to recruit fifteen people for a new strategy unit, using the code name ‘rainbow project’, to pave the way for another White Paper. To protect the project’s secrecy, civil servants in the Department of Health were excluded. Hostile officials, Blair feared, would tip off Brown and Balls about the plan. The results were delivered in early summer 2001. The project recommended moving the NHS towards the market and choice. ‘A fundamental wake-up moment,’ said John Hutton, the junior health minister.

  By then, Blair was admitting that his appointment of Frank Dobson had shown ‘how little I understood’ about the modern world. He was ready to think about a health ‘market’, but the appropriate cosmetics were vital. He had come to accept that patients’ treatment could only improve if the NHS embraced the private sector. The money should follow a patient to a hospital. He liked the artificial distinction made by Stevens between the ‘patient’s passport’ or ‘voucher’, a Tory idea, and the unlabelled ‘patient’s right to choose’. Similarly, he nodded through Milburn’s proposed foundation hospitals, which would be independent and free from Whitehall control, even though they were a development of the Tories’ hospital trusts, which Labour had opposed.

  The battle lines were drawn, only Blair was hazy about the implications. ‘He wasn’t an economist,’ noted Le Grand, ‘so he didn’t understand markets. He didn’t know where he was heading.’ His plight was not helped by the lack of a senior economist as an adviser at No. 10. Unlike Ken Clarke, who had delighted in challenging vested interests, Blair sidestepped conflict. He ignored one of Peter Mandelson’s rules: ‘If a government policy cannot be presented in a simple and attractive way, it is more likely than not to contain fundamental flaws and prove to be the wrong policy.’ A new plan was only workable if it could be sold.

  To test the Labour Party, in July 2001 Blair spoke at the Royal Free Hospital in north London, advocating the privatisation of some services. The NHS, he said, should employ the private sector to perform non-emergency surgery, hire foreign surgeons and allow NHS patients to be treated in France. Sixteen months earlier, he had made the same suggestions but had been ignored. This time, he was attacked instantly by the trade unions and Labour MPs. ‘If the unions want a fight,’ he countered, ‘they can have one.’ One moment he recoiled from confrontation, and the next he threatened battle. The inconsistency reflected his vacillation, unlike Milburn: ‘I welcomed a fight,’ the minister recalled, ‘but I wanted to win. I didn’t want to do fifteen rounds in one round. I needed to stretch the elastic to move on.’

  One principal adversary was Nigel Crisp. In an unexpected blast of criticism, the NHS’s chief executive opposed the private sector receiving public money. Blair knew that too many NHS executives were institutionalised, but he had not expected fossilisation to encroach at the very summit. Crisp, he discovered, typified the conviction within the profession that the NHS Plan 2000 was the Bible and, beyond spending additional billions, nothing should undermine the sanctity of the national monopoly. The problem, as Neil McKay, the Richmond House official, observed, was that Crisp was not managing the disbursement of the money. ‘There was a sense that Crisp had no grip on the finances,’ thought McKay, but nothing was said to Milburn – or to Blair.

  With the prime minister’s blessing, Milburn presented a White Paper entitled ‘Shifting the Balance of Power in the NHS’. Ostensibly, he was replacing the top-down command system with local groups. In reality, a flurry of contradictory changes reflected his indecision about who should manage the NHS. First, the eight regional health authorities were cut to four. Soon after, these four were demolished and resurrected as twenty-eight strategic health authorities and a hundred health authorities. The differences were imperceptible. To remove dud managers, Milburn started a carousel of executives being dismissed from one post only to be re-employed by another health authority, and that continued when those authorities delegated their power to 481 primary-care groups, heralded as ‘the front line’, under new directors. In the process, over 30,000 administrators were shunted around, reflecting the disagreement between Crisp, Milburn and Blair about the ideal size and structure of the NHS’s management. Should it be big or small? Dictated from Whitehall or devolved?

  Over the summer, Blair’s talk about the market continued to inflame the opponents. Milburn fed the dispute by speaking about ‘a self
-improving culture’ at local levels, but no ministers or civil servants understood his plans. The dilemma was not surprising: other than advocating ‘choice’, Blair was no more certain about the principles on which the NHS should be reconstructed than he had been when he first took office. Resolving the conundrum required a leap of political conviction – that competition could reduce waiting times – and he was reluctant to make that jump.

  To help resolve matters, a few Blairite ministers were invited to Chequers on the eve of the summer holidays. In unusually nonchalant mood, Blair urged his supporters to praise choice for both parents and patients. Their response was not enthusiastic. Educating his party to somersault and embrace choice as ‘progressive’ required proof of his sincerity. ‘It’s going to be hell for a large part of the time,’ he told Michael Barber. ‘But I don’t see any point in being prime minister unless we take risks.’

  The issue was still not resolved when he left for a holiday at the Mexican seaside, where he and Cherie underwent a ‘rebirthing experience’, which involved covering themselves with watermelon, papaya and mud and screaming loudly to signal the pain of birth. They travelled on to Egypt, where the proposition of bowing to Brown’s new demand for his resignation before the next election disappeared. ‘I’m not going to be pushed out,’ he told Mandelson on his return. He also decided that Anji Hunter should finally leave. Her continued presence was aggravating his relationship with Cherie, and he could no longer resist Hunter’s own insistence that she resign in order to take a senior post at oil giant BP. Relations between the two old friends appeared to have deteriorated to such an extent that Blair would fail to attend her farewell party.

  Enjoying the September sunshine at Chequers, he redrafted his conference speech about – yet again – modernising Britain. He also handwrote a note advocating more cash for schools and hospitals. His target was Brown. Before Blair’s summer holiday, the chancellor had reasserted his refusal to advance additional money for either ministry. Instead, he sidelined Blair’s priorities to highlight his own flagship scheme: means-tested tax credits that would capture most of Britain’s population as recipients of state benefits.

  The idea of such credits had been introduced to Brown by Ed Balls. The scheme, designed by Larry Summers, a Harvard professor, was aimed at helping the poor and accelerating social engineering. Blair had discovered that the introductory cost was over £2 billion, four times higher than Brown’s original estimate. ‘They basically lied to me about it,’ he complained. In reality, Brown’s tax credits were costing £4 billion a year and, financed by loans, were rising remorselessly (by 2015, they would cost £30 billion a year). And because the programme was unsupervised, the payments had become chaotic.

  Dithering and meddling as usual, Brown had become the unsuspecting victim of incompetent computer programmers. He had also not understood that many poor people were incapable of completing the application forms for credits, leaving thousands of genuine claimants penniless. Nor did he grasp that the Inland Revenue was not set up to administer a welfare scheme. To Blair’s misfortune, none of his own advisers realised that the scheme, organised by the Treasury without consultation, was turning into a debacle.

  On that Sunday night in Chequers, he ordered that a copy of his memorandum about the NHS be sent to his chancellor. ‘We thought he was crazy to think that Brown would be converted by his note,’ recalled a Downing Street adviser. Regardless, Blair summoned a meeting on 6 September. At the outset, the discussion was about the gap between rhetoric and policy, and the huge cost of more change in the NHS. Blair waved the objections aside. His message was ‘deliverology’, a new word heralding a new vocabulary for the structural reforms to health, schools and universities. The agent for change would be targets administered by Michael Barber.

  Flattered by the spotlight and Blair’s trust, Barber did not offer complete reassurance. The civil service, he explained, required clarity, leadership and a sense of urgency, and without being told any plans, officials lacked confidence in the government. He did not complete his indictment. In his unsuccessful search for ‘coherence at the centre of government’, he blamed Blair for creating the problem by establishing competing quangos and targets.

  Nearly two years after his commitment on David Frost’s TV show to increase spending and change the NHS, Blair was still floundering.

  TWENTY-ONE

  Instinct and Belief

  * * *

  For many, the appointment of Estelle Morris as education minister was a surprise. Morris had failed her A-levels and, although she was a popular teacher, her nail-biting and shyness suggested a lack of self-confidence. During a brief conversation in Downing Street after her appointment, Blair did not discuss his expectations, while Morris did not mention her concern over his shift towards choice and diversity for schools. ‘Market mechanisms to accommodate choice don’t work with education,’ she believed. She also disputed Andrew Adonis’s bold assertion that he had contributed to the expansion of good schools. Blair was unconcerned. As ever, he gave little weight to what Cabinet ministers said.

  Morris’s department was suffering ideological turmoil when she arrived. Under Blair’s new agenda, nearly a third of all comprehensives had been converted into specialist schools and, since he was persuaded that faith schools ‘add to the inclusiveness and diversity of the system’, more of that kind were expected. Labour MPs opposed to this mentioned the recent riots by Asian youths in northern England. In his report about the disturbances, Sir Herman Ouseley would identify Muslim-populated schools in the inner cities, which effectively had a single culture, as potential breeding grounds for intolerance and racism. Under the Tories, faith schools had been integrated into the state system but were empowered with state funds to develop a distinctive ethos, morality and curriculum.

  Blair was unimpressed, and approved a £12 million grant to build a secondary school for Muslim girls in Birmingham. Forty-five Labour MPs revolted against the legislation backing faith schools, forcing the government to accept that such schools would have to admit 25 per cent of non-faith children. Blair blamed left-wing ideologues and not fears about Islamic extremists for the opposition. The same critics rejected his decision to privatise more state schools. Opinion polls showed that two-thirds of the public wanted only the state to provide education. Blair’s ideas encouraged trade-union leaders to conjure up images of greedy capitalists charging parents and the sick for schools and medical care. ‘I feel my persuasiveness is slipping,’ Blair told Peter Mandelson ‘For the first time, I felt they were not buying into what I’m saying. They are listening and rejecting.’

  At a dinner for his ‘delivery ministers’, Blair was noticeably depressed by his party’s criticism. Coming so soon after he had delivered a second landslide victory, he was barely consoled by the jolly mood and the loyal people he had placed in key departments. Gordon Brown, he realised, was telling his supporters that the prime minister was stumbling, losing his touch and planning Thatcher-style privatisation. The dissenters were encouraged to sabotage his ambition for public-service reforms. Brown was personally insisting that every department abide by public-service agreements imposed by the Treasury. Blair despaired. ‘It’s intimidation in order to dislodge me,’ he complained. ‘I asked him all the right questions about the 1998 Comprehensive Spending Review,’ he told a confidant, ‘but I was lied to. I’m ready this time.’

  His new armoury consisted of three divisions based in Downing Street: Michael Barber’s Delivery Unit; a Strategic Unit under Geoff Mulgan to advise on future policies; and the Office of Public Sector Reform under Wendy Thompson to transform Whitehall into a centre for entrepreneurs. Thompson was delegated with pioneering ‘choice and diversity’ and overcoming the civil servants’ uncertainty about Blair’s intentions. In the exuberant language favoured within No. 10, Mulgan was asked to produce ‘strategic policy challenges’ that would make society work better by ‘enhancing the individual, the market and the society with security and a stable s
ense of being’. The elaborate wording was adopted to disguise the reality of government.

  A major fissure appeared during the summer. Morris was hesitant about the contents of her new White Paper and asked for a delay. ‘Flaky,’ Alastair Campbell noted. Sensitive about Morris’s hesitancy, Blair realised how many in the party disliked New Labour. Even the Blairites were split. Morris’s White Paper, ‘Schools: Building on Success’, did not resolve the disagreements.

  Brown continued to create problems. First, he had seized control of Sure Start and, without waiting for proof of success, announced that the number of centres would double to 500, with the annual budget increased from £184 million in 2000/1 to £499 million in 2003/4. Although Naomi Eisenstadt, the director, protested that confusion, acrimony and disputes between constantly changing ministers and officials made it too early to evaluate the programme, Brown demanded the creation of a sticker declaring ‘success’.

  Such haste troubled Eisenstadt. In an unexpected turf war, Sure Start found itself contending with a glut of other big-budget government programmes, announced with great fanfare, to cure poverty, including Health Action Zones and the ‘New Deal for Communities’. All those armies of social workers would produce limited benefits. Then Eisenstadt discovered that the teenage single mothers targeted by Sure Start were uninterested in the programme, which as a result could not find sufficient children to rescue from poverty. Instead, middle-class mothers were taking millions of pounds to finance their own niche groups.