CASEbrief01 is a detailed summary of CASEpaper 02, 'Boundaries between public and private welfare: a typology and map of services', by Tania Burchard

Burchardt, Tania

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CASEbrief 1     November 1997Boundaries between public and private welfareContinuing debates about appropriate limits to state involvement in welfare have led toa complex mix of public, private and informal activity which can no longer berepresented in a simple purchaser-provider framework. As part of on-going researchinto the private welfare sector, Tania Burchardt has developed a typology of welfareservices to clarify discussions about the privatisation of welfare, and used it to illustratechanges in expenditure on education, housing, health, social security and personalsocial services since 1979/80.Analysing welfare services using three categories - provision, finance and decision -allows us to understand welfare policy under successive Conservative governments asmoving out from the “pure public” sector in different directions: from outrightprivatisation of council housing in the early 1980s, through to attempts to encourageindividuals to use the private sector while retaining public finance, by means ofvouchers and tax reliefs.The “pure public” sector (publicly provided, financed, and decided) remains dominantin four of the five main areas of welfare – education, health, social security andpersonal social services – and still accounts for just under half of all welfareexpenditure. Although important in policy terms, “privatisation” has had relatively littleimpact in terms of expenditure.Private finance has increased slightly, from 28 per cent of all welfare expenditure in1979/80, to 31 per cent by 1995/6.However a greater proportion of welfare expenditure now goes on privately-providedservices: 49 per cent as opposed to 39 per cent in 1979/80.The “pure private” sector increased its share of total welfare expenditure from 25 percent to 29 per cent overall.Further informationA more detailed account of sources and methods can be found in CASEpaper 2,Boundaries between Public and Private Welfare: a typology and map of services, byTania Burchardt, which can be downloaded free from our internet site:http://sticerd.lse.ac.uk/CaseLondon School of EconomicsHoughton StreetLondon WC2A 2AETel: 020 7955 6679A typology of public and private welfare servicesThe state has never been the sole provider of welfare services, and only became a dominantprovider after the War. Since then, the mix of public, private and informal activity has becomeincreasingly complex. The “purchaser-provider” framework distinguishes organisationsproviding services from those buying services: a public body may purchase a contracted-outprivate service, and private individuals may pay for publicly-run services (eg, NHS pay-beds).But this two-way split does not capture recent developments. Parents with children on theAssisted Places Scheme are purchasers in that they choose the school, but they do not pay for theplace. For this reason a third dimension is proposed, dividing “purchase” into “finance” and“decision”. A service is publicly financed if it is tax-funded, and privately financed if paid fordirectly by individuals receiving services. A service is privately decided if it is chosen directly bythe consumer, from alternatives close in terms of quality and cost. These dimensions yield thecategories illustrated in Chart 1.Forms of privatisationAn underlying Conservative policy objective for the welfare state was to minimise theimportance of the “pure public” sector, which represented everything they stood against: state-owned monopolies, large demands on public finances, and lack of consumer choice. The early1980s saw outright privatisation - for example selling council houses under Right-to-Buy. By thelate 1980s, other ways were being explored, with increased emphasis on user charges (retainingpublic provision and decision but privatising finance), and on contracting-out (using privateproviders, but maintaining public finance and decision). Public bodies were also encouraged tomarket their services. Finally in the 1990s, there has been concern with “agency” - directly, bygiving consumers decision-making power through vouchers, grants and tax-reliefs, andindirectly, by encouraging health and social services employees to act on behalf of consumers.Changes in patterns of expenditure 1979/80-1995/96How successful have attempts to change the boundaries between public and private welfaresectors been? Using data from a variety of sources (see CASEpaper 2), welfare expenditure in1979/80 was divided between the eight sectors defined above, and compared to expenditure in1995/96. While expenditure is not a measure of outcome, and a precise allocation is not alwayspossible, changing patterns of welfare spending do indicate the impact “privatisation” policieshave had. Overall patterns are shown in Chart 2; key points for each area are listed below.Education• “Pure public” sector remains dominant, although share of total falls from 66 per cent to 52per cent over the period 1979/80-1995/96.• “Pure private” sector is small, accounting for 8 per cent in 1979/80, but has risen to 18 percent. This is despite proportion of pupils at private schools remaining low.• Assisted Places Scheme, under which low-income parents with children at private schoolhave received financial support, relatively insignificant in expenditure terms: raisingproportion of expenditure in this sector by just 2 percentage points.Chart 1: a typologyInner circle: public decision    “Pure public”: public provision, finance anddecision; for example, child benefit.     Public provision, private finance, publicdecision; for example, rent for council flat.     Private provision, private finance, publicdecision; for example, user charges for contracted-out home care.    Private provision, public finance and decision;for example hospital catering.Outer ring: private decision     “Pure private”: private provision, finance anddecision; for example, unassisted place atindependent school.      Private provision, public finance, privatedecision; for example, mortgage interest tax relief.     Public provision, public finance, privatedecision; for example, SERPS contributions.     Public provision, private finance, privatedecision; for example, NHS pay-beds.Chart 2: Changes in patterns of expenditure on welfare1979/80 1995/964.7%0.1%53.6%2.4%4.0%24.9%0.4%9.9%0.1%0.9%48.7%1.2%8.7% 1.4%9.8%29.2%Health• “Pure public” sector dominant in both years. Introduction of quasi-markets affected internalincentives, but did not alter the boundaries between sectors since decisions made by agentsacting on behalf of consumers rather than by consumers directly.• “Pure private” expenditure grew from 9 per cent of total expenditure in 1979/80  to 15 percent in 1995/96.• Remaining 20 per cent mostly accounted for by public expenditure on contracted-outservices, including GP and dental services. Inner circle: public decision Right half:publicfinance Top half:publicprovisionHousing• “Pure private” sector accounts for 58 per cent in 1979/80 and rises to 69 per cent in 1995/6.“Pure public” sector correspondingly small: 18 per cent in 1979/80 and falling to 10 per centby 1995/6.• Increased use of Housing Associations as a form of contracting-out, although as proportionof total expenditure still small (2 per cent).• Public finance for private housing chosen by individuals - Housing Benefit for private rentedaccommodation, mortgage interest tax relief, income support for mortgage interest, Right-to-Buy discounts – in all, 13 per cent of total spend in both years.Social security• Nearly all in “pure public” sector, except for pensions.• Move away from state second-tier pensions scheme (SERPS) reduces expenditure in publicprovision and finance with private decision sector, from 14 per cent of pensions expenditureto 6 per cent.• Corresponding growth in public finance for private provision, through tax reliefs, incentivesand contracted-out deductions (up from 19 per cent to 24 per cent). No growth in “pureprivate” sector.Personal social services• Contracting out appears to have gone further than in other areas, driven by changes toprovision of residential care.• User charges a constant proportion of total expenditure, but shifted from being mostly forpublicly-provided services, to mostly for privately-provided services.• “Pure private” expenditure rose from at least 8 per cent of the total to 16 per cent.ConclusionTogether these changes result in a picture of surprising constancy (Chart 2). The “pure public”sector share has fallen slightly from 54 to 49 per cent, and the “pure private” sector share hasrisen, from 25 to 29 per cent. Contracting out has grown: an additional 5 per cent in that sector,and the demise of SERPS is noticeable (outer ring white sector). But otherwise the pattern ofexpenditure in 1995/96 is much as it was in 1979/80.Adding a third dimension – “decision” – to the familiar “provision” and “finance” dimensions ofwelfare services classification helps to clarify discussions about privatisation of welfare. Despitetheir significance in policy terms however, the multitude of initiatives designed to make greateruse of private provision, finance and decision, have had relatively little impact in expenditureterms. The “pure public” sector still accounts for nearly half of all welfare expenditure.About the researchThe research is part of a project on private welfare directed by John Hills and Carol Propper at the Centre forAnalysis of Social Exclusion (CASE), in STICERD at the London School of Economics. The project is funded bythe Joseph Rowntree Foundation, and the Centre is supported by the Economic and Social Research Council, to bothof whom thanks are due. The findings and views presented here, however, are those of the author and notnecessarily those of the Foundation or of the ESRC.ISSN: 1460-9770

Boundaries between public and private welfare

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