Hamish McRae: The erosion of our public service ethos

Many will side with Mark Thompson, the director-general, who turned down his bonus, saying, "It just wouldn't have felt right." The BBC governors evidently agreed, or at least agreed sufficiently, for their chairman Michael Grade to announce that next year no executive would receive more than a 10 per cent bonus.

Will that be the end of the story? As far as the BBC is concerned that may be so. It has recognised that large bonuses and the public sector don't mix. But the whole episode reflects the much bigger trend for public sector pay to mirror that of the private sector. The argument here is the familiar one that senior jobs in government or government-funded bodies are becoming much more like senior jobs in commercial companies and that to attract the right talent, the pay and conditions have to match. But that raises two huge questions. Are the jobs becoming much the same? And if they are, why should there be this distinction between public and private sectors anyway?

There is no doubt that the public sector is behaving more like commercial companies in the sense that it is trying to respond to changes in customer demand. You can see this in a host of areas.

We want more choice in health care, so the NHS is being forced to offer that. Our job centres are behaving much more like commercial employment agencies, with so much success that Germany is trying to reform its centres on similar lines. The BBC has increasingly abandoned its high-minded public service ethos and switched its resources to such "commercial" delights as Fame Academy. It may not always be successful in chasing the ratings but you can see the direction it has sought to go.

What is happening is a privatisation of public services, not in the way they are owned, but rather in the way they operate. This is a process that has continued under this government, in some ways more swiftly than it did under the Tories.

Indeed the two main areas where there has been little or no attempt to privatise the method of operation has been in the policy parts of Whitehall, in particular the Treasury and the Foreign Office, and the armed forces. (And even in the upper reaches of the civil service, there are attempts to recruit talented people from outside.)

The transformation, however, is far from complete. The terms under which public sector employees work remain very different from the private sector. There is, for example, pretty much common pay throughout the country, whereas in the private sector pay in London and the South-east is higher than it is elsewhere, even for similar jobs. Pensions are almost invariably better in the public sector. Job security tends to be better. Hours of work tend to be shorter.

Even in the BBC, the nature of the management task is qualitatively different from that of commercial radio and TV companies. Alone in the media world, the BBC knows its income for years ahead. Ratings may affect its amour propre but not its hard cash. No commercial company has that luxury. The need to keep the money flowing in is one of the reasons why commercial firms develop their various bonus schemes, and why these schemes are less appropriate in the public sector.

Not only are they less appropriate. They may actually be damaging. One of the huge changes that has taken place under the present government has been the rapid extension of targets as well as incentives. If you give an official a target and make it clear that promotion will depend on meeting it, he or she will do so. So NHS waiting lists have been cut by the device of not putting people on to the lists until there is room on the lists to take them. Give the police the incentive to raise money with speed cameras and they will do so.

Commercial companies use all sorts of targets and incentives but they usually do so with care because a bad incentive structure can wreck a business. The public sector has aped the private sector without understanding that you have to do this thoughtfully and carefully. Of course commercial companies are far from perfect: think of those rewards for failure handed out to top executives who are sacked because they do the job so badly. But there is a structure for correcting such practices and shareholders have become increasingly strident in their opposition. At a more mundane level, companies that have incentive structures that encourage managers to distort the business are punished by the marketplace.

The danger is that people who go into the public sector because they explicitly want a career that is not driven by commercial values will become increasingly cynical. They will tick the boxes and meet their targets because that is what the political masters require them to do. But they won't care so much about the job. The public service ethos that has, since the Trevelyan reforms of 1854, taken 150 years to build up, will gradually be eroded - indeed a lot of that ethos has been eroded under governments of both parties in recent years.

If society is changing in such a way that it requires the sort of flexible demand-driven services that the private sector provides, rather than the more top-down "Whitehall knows best" ones, then maybe those services should come from the private sector. If taxpayers have to pay civil servants big bonuses to do their job well, what kind of message does that say about the people and practices of the public sector?

People went into the BBC - and made it one of the great global media brands - because it really was different from commercial television and radio. People listened to, and watched, its programmes because they were really different. These bonuses carry the message that it is not quite as special as it used to be.

The BBC will eventually have to be funded in a different way that reflects its diminished role. That is relatively easy. The more difficult task is to maintain the true public-sector ethos - of people motivated by trying to do things well - in areas that could not be carried out by the private sector. And then to figure out the areas that need the customer responsiveness that only the private sector can provide. This is the long slog for the next couple of decades in every country in the world.