It has been reported that:
HM Revenue & Customs (HMRC) has named private equity executive Mike Clasper as its new chairman.
He replaces Paul Gray, who quit after an embarrassing scandal that saw the HMRC lose the personal details of 25 million child benefit claimants.
Taking up the post on 1 August, he will be responsible for overseeing HMRC's corporate governance. He will also help select the first chief executive.
He will join from Terra Firma, which recently bought record label EMI.
Mr Clasper was formerly chief executive of BAA, the airports operator, until July 2006.
I wish Mr Clasper well with his new job. I just wish that I could be confident that he was the right man to do it.
I am not being personal in saying that. I presume that he has all the characteristics that were looked for by the selection panel. What I seriously doubt is whether that selection panel was wise in determining what they wanted based upon the evidence of the person they selected.
Let me explain this. The private sector works on a model where failure is accepted as a possible outcome from a venture. It is assumed that if failure occurs it is either because the public do not require the service that the enterprise set out to supply or because it was not good enough at supplying it and the public chose a better alternative to meet their needs. In either case failure is acceptable because it reduces the burden of misallocated resources. I cannot imagine an economic activity where this is better demonstrated than in private equity, from which Mr Clasper has come.
This management approach is wholly unacceptable in the public sector. There are two reasons why an activity is undertaken in the public sector. It is either, as is the case with HM Revenue & Customs that the service is one inextricably linked to the state and only the state can undertake it, or as is the case with the health service, for example, that the state must supply the service because society at large cannot afford the creation of the excess capacity that would allow for the existence of meaningful choice for all in the supply of that service.
Whichever is true this means that a fundamentally different management approach has to be adopted in the management of these state supplied services. A culture of failure cannot be tolerated in their supply. In these cases failure has a real cost to society. In the case of HM Revenue & Customs, for example, if cash is not collected then cost is imposed upon society at large and the likelihood of dissent in society is increased. In the case of the health service failure to supply, even at a local level, causes a real hardship for people. The option of walking away does not exist therefore. The only acceptable level of outcome is success.
I am not convinced that most private sector managers understand this. That is why we have talk of cost efficiency when in practice this is very often in conflict with the supply of the level of service that is required if success is the only acceptable outcome. That is why we have talk of schools closing when this is obviously nonsense: children will still need to be taught even if their school closes. What closure actually means in this case is the replacement of unsuccessful management with those who might supply the acceptable level of service. So why can't we talk about that?
I really do hope that Mr Clasper understands that whilst in the private sector the lowest level of service that can be tolerated in exchange for the maximum revenue that can be charged is a valid management model this is simply untrue in the public sector where the economics of supply are fundamentally different. Marginal costs in the public sector are very often negligible. Marginal revenues are usually non-existent. Total fixed costs are enormous. None of this fits with the conventional model of economic management that the private sector users. That is why a different technique is necessary.
I hope that he can get his head round this. His background does not give me cause for optimism. And in the meantime, if he does not the damaging round of Revenue office closures, untested computerisation, and withdrawal of essential service that the public need to ensure that they can pay their tax and get help from people they can understand will continue. Those are the big issues he has to address if this organisation is to restore its credibility, its morale and its effectiveness.
I wish him luck.
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can’t think of any compelling reason why tax collection could not be privatised. It is certainly true that HMRC has demonstrated incompetence on a massive scale – you might say failure!
Your contention re public private sector management differences is very flawed. There is only one reason why an activity is done in the public sector – because it is. There are very few public sector organisations that would not benefit hugely from exposure to the pressures of the private sector – and not least exposure to a competitive market. If you don’t believe me then try reading Adam Smith!
I can assure you, I have
That’s why I can assure you: you’re wrong
if 10 years of socialism does not convince you you are wrong then take a look at the relatively recent effects of communism in Russia.
Alastair
Respectfully, I prefer to debate with those who seek to understand the issues with which they are engaging
If you really think that we have had ten years of socialism your grasp of both economics and politics are really very limited indeed
Richard
“This management approach is wholly unacceptable in the public sector. There are two reasons why an activity is undertaken in the public sector. It is either, as is the case with HM Revenue & Customs that the service is one inextricably linked to the state and only the state can undertake it, or as is the case with the health service, for example, that the state must supply the service because society at large cannot afford the creation of the excess capacity that would allow for the existence of meaningful choice for all in the supply of that service.”
I’d accept that this is how it ought to work: the State needs to do the things which only the State can do (and which also need to be done) and that failure in those isn’t an acceptable option.
But I think there’s an error in trying to state that all of the things currently attempted by the State are indeed of such a nature. We found out a number of years ago, to many’s surprise, that telecoms didn’t need to be State run, we could look around the world and ponder whether freight rail needs to be so (the US system is privately owned and run and highly efficient) and so on.
It might also be true that some of the things the State tries to do simply are not possible: I would argue that the current attempts to impose an ID card system with biometrics, one that is both reasonably priced and also sufficiently secure, isn’t with the current level of technology, actually possible. Whoever is running it, private or State. Failure there is not just an option, it’s a certainty.
But with those very broad caveats, yes, your distinction is useful. We cannot simply abandon defense, tax collection, the legal system, as you say, failure is not an option here, not in the same way that we could abandon a project to make flavoured ice creams for dogs.
Tim
You avoid the issue about the need for the state to run services where excess capacity could never be afforded
Richard
” state to run services where excess capacity could never be afforded”
Very seriously unconvinced here. The US health system (for all its other problems) has much greater excess capacity than the NHS does. “never afforded” is thus not true.
Another example, the free market system of trains pre WWI and WWII led to huge excess capacity which was then used under the nationalised railways of the two wars.
Tim
You are pushing this into fantasy land. The US health market is dire. 25% of children have no cover. Health outcomes are worse than anywhere in Europe. The madness is that we are trying to copy their failed system.
As for your argument with regard to railways, here you are straightforwardly wrong. I will admit I have some expertise in this subject. The excess capacity that you refer to in the first world war was so hopelessly uneconomic that even Winston Churchill thought the only solution for the railways was to nationalise them. He could see no other way to rationalise the excess capacity they had which fuelled massive inefficiency because of their incapacity to maintain the network in the 1920s.
That became even more evident in the 1930s. One of our major railway companies in their period, the LNER could only build the new locomotives because it was given direct 100% government subsidies to do so. And again, most of its rolling stock was so antiquated that it was only wartime compensation that allowed it to rationalise that stock with reasonably up-to-date equipment in the immediate pre-nationalisation period. Other companies were little better.
You chose two particularly poor examples
Richard
OK, the French health system then. Rated as number 1 in the world by the WHO. It isn’t a State provided system: certainly not in the way the NHS is. Indeed, the NHS is the only health care system in the OECD that is like the NHS: totally State funded from national taxation and similarly (other than the GPs) totally State owned and provided. The French system has State owned providers, charitable ones, for profit ones, it even has private insurers over and on top of the insurance through the deductions from wages. And the WHO certainly thinks it’s better than the NHS.
This doesn’t lead me to the conclusion that only “the state to run services where excess capacity could never be afforded”.
Richard, are you suggesting that we have had a labour government for the past 10 years that has not followed a socialist agenda? But lets keep to the point, which I think was about the suitability of HMRCs new chairman and your proposition that failure is not an option in the public sector. I think you would be hard pressed to demonstrate HMRC as an exemplar of good management practice. If you were so inclined then I think a short reading of the poynter report would soon disabuse you of that notion. Personally, I would suggest that adopting private sector approaches to many of their practices could only be a good thing.
Tim
But the French system takes 2% more of GDP because it is so hopelessly inefficient because people go to see the wrong doctors as they self diagnose and do not get referred through GPs.
Do you really want that much more GDP dedicated to health so people can make the wrong choices and see the wrong doctors?
Please tell me you don’t
Richard
PS My wife is a GP – I have some insight into this issue
Alastair
We have had 10 years of a neo-liberal government delivering market solutions and the outcome has been inevitable: IT failures as the result of outsourcing and confused lines of responsibility and excessive cost for the same reason.
It’s your model that is bust, not mine
Richard
IT failures are common in the public sector I would agree, but I do not agree with your simplistic analysis. There is not one common theme; there are several. But it is senseless to bunch all the failures together under a common fault – you really do have to look at each one individually. However I would suggest that to take one example, if rather than throw tax credits at HMRC from scratch the Government had outsourced the whole thing, and paid by results, then there would have been no failure – excepting the inevitable issues around the ambiguities in the rules.
BTW I am not suggesting a common model – simply that market forces combined with the private sector is usually always a better solution than the public sector. I would suggest to you that the only time that breaks down is under monopolistic conditions.
Alastair
That are really is quite absurd. I can only presume that you have never studied economics, have spent your whole life in small business and have never noticed the massive failings of our market system
Am I to presume that the credit crunch was entirely the government’s fault, for example, and nothing to do with the sheer incompetence of the market.
Must I also presume that all the reports of data loss by the private sector are wrong?
I really do think you need to open your eyes
Richard
causes of the credit crunch are complex, but I suspect primarily because banks won’t lend to each other.
BTW in answer to your first para – I studied economics at university, and have worked in and with a variety of businesses of all sizes – but you are right that I have never noticed any massive failings in market systems. IMO free market systems are a most effective means of allocating scarce resources. And the logic behind the public sector is to distort the market to achieve a different but politically desirable outcome. I would suggest public sector provision fails because in practice the outcomes never match the desires.
Not sure where you are coming from re data loss? As far as HMRC are concerned systemic failure and management incompetence seem to be descriptors that are being applied. I can’t recall a recent private sector case which has resulted in descriptors like that being used – perhaps you might enlighten us?
Alastair
I have no doubt that you think that the market is a very effective means of allocating resources. it tends to push them rather neatly in the direction of accountants.
I am sure you have not seen the enormous data losses that occur regularly within the private sector reported in the way you describe, although I do link them to this blog when I notice them. There is good reason why they are not described in that way. The private sector press does not report them like that because it is populated by people like yourself who have intrinsic bias against the State.
Richard
shame on you Richard – most markets operate perfectly well without accountants, or lawyers for that matter!
Alastair
Now you are being so ludicrous that unless you can in future relate what you write to the world as it really is I will block your posts.
Richard