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Lisa Dellmuth (2021), Is Europe Good For You? EU Spending and Well-Being, Bristol University Press, £47.99, pp. 202, hbk.
- JANICE MORPHET
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- Journal of Social Policy / Volume 51 / Issue 3 / July 2022
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- 06 June 2022, pp. 656-658
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- July 2022
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Frontmatter
- Janice Morphet, University College London
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- Outsourcing in the UK
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Preface
- Janice Morphet, University College London
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Summary
This has been an interesting book to write and it has once again reminded me of how little we have engaged with the international agreements that have been used to shape the UK state since the 1970s. We have attributed outsourcing to the domestic ideology of the Thatcher years and membership of the European Union (EU). We have lived within the mantras of efficiency and effectiveness, performance management and austerity without looking behind them at the continuing application of international agreements made by our government with the World Trade Organization. While there has been vilification of EU for procurement practices and state aid rules, we have failed to understand how these have been applied because the UK has agreed to them as part of its wider international commitments, beyond the EU. They will not be removed by Brexit. Our failure to engage in these agreements and practices has meant that the reforms of the state that have been delivered as part of their implementation, reinforced by the inevitability of these international agreements providing protection for their delivery, have not been challenged – but there were choices. As demonstrated here, central state administrations seek out international agreements to provide camouflage for the changes they wish to make to retain control. We need to question, investigate and understand more of what is being undertaken so that it can be challenged and called out when necessary. We do not have to accept that the narratives of the state are always as they seem, and we can do better.
This book came about through a coffee break conversation with Stephen Wenham at a Political Studies Association annual conference. I would very much like to thank Stephen for all our rare similar exchanges and for his challenge to me to write this book. My first book for Policy Press came about in a similar way after sitting next to Alison Shaw at a conference and subsequent books with Emily Watt have been hatched over coffees and dinners. What a great team to work with, and Caroline, Susannah, Jessica and Laura have all been there to provide support and encouragement to relate these issues to a wider world. Thank you.
9 - Outsourcing in Education
- Janice Morphet, University College London
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Introduction
The introduction of liberalisation into education varied according to each part of the sector. Universities already had a mixed economy of state funding for fees, public and private sector research funding, spin out companies and endowments, so there was less of cultural issue to address within the institution, although academic staff were less supportive of this approach (Walford, 1988). For new universities, the removal of higher education establishments from local authority control and their transition into the same model as other universities in 1992 appeared to reflect a longstanding pathway for new universities (Stone, 1998). This was not publicly associated with the preparation for the implementation of the General Agreement on Trade in Services (GATS) in 1996, where the vast majority of public services were subject to market liberalisation. The leadership of each university within this expanded set of institutions would need to change to include private sector experience but incentivisation of competition between universities for students and funding would encourage change (Deem et al, 2007).
For younger children, the provision of pre-school care has always been a mixed market (Melhuish, 2006). Parents placed children in local authority nurseries attached to schools or run independently. Parents also used au pairs and nannies employed directly or placed their children in private day nurseries or with child minders. In this sector, there was no expectation of universal public provision and the opportunity to place a child in a school nursery related to local policy. In some local authorities such as London, there was a strong commitment to nursery places in both free-standing and school-related settings but there was no consistency across the country.
The most difficult and challenging part of education provision to introduce liberalisation was that of mainstream school education for children aged 5–18. The role of private education through public and preparatory schools had been the subject of reviews including the 1944 Education Act, which had introduced them into the state system using the 11 plus and the direct grant and voluntary aided models rather than adopt a policy of abolition but many of these returned to the private sector when comprehensive education was introduced in 1976.
Outsourcing in the UK
- Policies, Practices and Outcomes
- Janice Morphet
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In this comprehensive account, Janice Morphet analyses the role and use of outsourcing within the UK public sector since the mid-1970s and illustrates the impact it has had on ideology, policy narratives and public expectations in the present.
References
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7 - Outsourcing Central Government Services
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The requirements on central government to liberalise services as part of the implementation of the General Agreement on Trade in Services (GATS) provided an opportunity to distance the civil service from the more difficult and public-facing elements of its roles. Privatising delivery of these services enabled the introduction of performance management and cost-cutting measures that could be blamed on the contractor rather than the government. While the civil service and particularly the Home Office, often called the Ministry of the Interior in other countries, have traditionally had responsibility for police, borders, visas, migration and asylum, this has primarily been focused at a policy level. Until the late 1960s, governments had no particular interest in asylum or immigration policy as most of the post-war immigration to the UK had been from Commonwealth countries including the Caribbean and Indian subcontinent to meet employment shortfalls in UK public services (Timmins, 2001). Other migration between the UK and Commonwealth countries saw trends moving the other way as UK citizens migrated to Australia, New Zealand and South Africa.
The pressure on government departments to cut costs through the Rayner Scrutiny Reviews from 1980 onwards and then agencification through the creation of Next Steps Agencies in the late 1980s and early 1990s had generated some institutional change in the structure of the civil service (Gray and Jenkins, 1984; Dowding, 1995). While preparing to meet UK commitments for public service liberalisation through the Government Procurement Agreement (GPA) and anticipated GATS agreements, central government implemented this by prioritising nationalised industries and local government (De Graaf and King, 1995; Parker, 2009). When approaching central government services, those that were public facing, employed more staff and were not regarded as strategic were peripheralised first, in anticipation of competition requirements on the civil service. This enabled a reduction in central department employee headcounts and was expected to reduce the day-to-day management burden of these services, allowing a focus on policy issues (Theakston, 1995). These services were primarily focused on clerical tasks including tax returns, social security and pensions that employed higher numbers of low-paid staff and required most face-toface contact. The use of agencification and then privatisation would allow the reformulation of pay bands that could lead to cost reductions in the front-line delivery services (Dowding, 1995).
12 - Conclusions
- Janice Morphet, University College London
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Introduction
In this concluding chapter, the major questions that arise from over 40 years of public sector liberalisation and consequent outsourcing are considered. As this book has demonstrated, the UK response to the implementation of the opening of competition across the public sector has been undertaken in a number of waves while some of the institutional restructuring in central government has been used as a mechanism to delay or prevent the introduction of any competition or external provision. Where outsourcing has been a method deployed by central government, it has been on the assumption that the operational practices required for external service delivery based on contracts and legal agreements do not apply and that control is still from the commissioning department. We have also noted that some of the attempts to apply liberalisation have not been successful and the government has had to take back major health and transport infrastructure projects to manage directly at financial and social cost to the country (NAO, 2020b; DfT, 2020). We have also noted that this detachment of the civil service from operational management has reduced its capacity to specify and manage contracts and to cope in a crisis (Dunhill and Syal, 2020). As the government's response to the COVID-19 pandemic demonstrates, it no longer appears to know which levers to pull and have turned to personal and political contacts to fill these gaps (NAO, 2020g).
At the same time, local government has managed to adapt to a mixed economy, to move services in and out of contracted delivery. The introduction of austerity in 2010 has allowed local authorities to develop and innovate further to include different forms of service provision working with each other and the community and to rediscover its role in providing housing both to meet needs and to generate income (Morphet and Clifford, 2020). For the National Health Service and education, there has been some liberalisation, although again this has not been wholly successful. In education, the introduction of free schools and academies has detached the ownership of outcomes from local authorities while they remain responsible to the government for school performance. Some free schools have failed and many academy schools have not improved outcomes for their children.
List of Abbreviations
- Janice Morphet, University College London
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4 - Preparing to Outsource Government Services
- Janice Morphet, University College London
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While the first stages of the implementation of the Government Procurement Agreement (GPA) focused on those government-owned activities that required capital investment in infrastructure, the second wave of government preparation was in anticipation of the application of the General Agreement on Trade in Services (GATS) that came into effect in 1994. The Uruguay Round 1986–1994 was concerned with the extension of procurement into the liberalisation of public services and to other parts of government, including local government (Walsh, 1989). There was also some preparation to open these markets through the parallel development of the Single European Market (SEM) from 1985 that came into effect in 1992 (Cockfield, 1994). In the EU, the negotiation of the GATS was undertaken by the European Commission (EC) for member states, although each was an individual signatory of the agreement (Meunier, 2005). While these General Agreement on Tariffs and Trade (GATT) negotiations had an external, international focus for world trade, they also informed the development of the SEM (Abbott, 1990).
The UK government prepared for the implementation of the GATS and the SEM by restructuring its institutional governance arrangements. It did this by separating policy making and ministerial responsibilities from services with a direct public interface, businesses or service providers (Haddon, 2012). This separation between policy and delivery led to distancing and deskilling within the civil service (Theakston, 1995; Rhodes, 2001). Preparations for liberalisation took both practical and cultural approaches. The practical steps included a gradual approach to preparing government delivery services for potential exposure to competition (Pliatzky, 1992). This was accompanied by a change in the cultural narrative of the public sector's role and abilities to undertake its work by moving away from the assumption that public services can only be delivered by public service providers. This was a major challenge, as Margaret Thatcher found (Marsh, 1991). By her second term in office, 1983–1987, the costs of government had increased rather than reduced and it was proving very difficult to wean the public away from expectations of public services and the ways in which they were to be delivered (Fry, 1988).
11 - Taking Back Service Delivery
- Janice Morphet, University College London
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After 40 years of liberalisation of the public sector in the UK, there are now signs that a more mixed economy may be emerging, particularly in local government (LGA, 2019). There are a number of reasons for this. The first is a philosophical and ethical argument about the nature of public service, why it differs from a commercial service and how the public sector has reacted in crises and the last resort. Such arguments have increased with every public crisis that has occurred in the last 40 years, from flooding, foot and mouth disease, public health to social care. The political public policy narrative of outsourcing to improve efficiency and effectiveness has not been demonstrated in experience (for example NAO, 2012, 2014a, 2015b, 2020b). Costs for external providers have been higher and their performance has been mixed as demonstrated in the probation service (Kirton and Guillaume, 2019; NAO, 2019a). The achievement of lower prices has been based on removing working safeguards for employees and pushing back the costs for those on zero-hours contracts to the state (Brinkley, 2013; Hopkins and Fairfoul, 2014), either for income support or for care home deaths (Pollock et al, 2020). The second reason is that some of the structures of the outsourcing apparatus have not prevented failures. Some outsourced services have been unable to maintain their contract delivery over longer periods of time – for example rail franchises (NAO, 2015b), hospital private finance initiatives (NAO, 2020b), the probation service (NAO, 2019a) and the management of COVID-19 (NAO, 2020d). The third reason is that most contracting arrangements have been inflexible and difficult to change when needed (Mennicken, 2013). The cost reductions and efficiencies promised as part of liberalisation have not been found in practice across all services, and where they have, they have not always been due to outsourcing but rather work redesign and reducing eligibility (Bovaird, 2016).
There has also been a significant change in the understanding of public bodies, about the ways in which the European Commission public procurement legislation works. The Government Procurement Agreement (GPA) and the General Agreement on Trade in Services (GATS) were never intended to remove all direct public service provision but to open an agreed amount of expenditure to the competition. Many EU member states argued successfully that this discriminated against third sector bodies working with the local state.
Index
- Janice Morphet, University College London
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10 - The Third Sector and Social Value
- Janice Morphet, University College London
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The election of the Coalition government in 2010 brought contradicting ideologies of the role of the state and the way that it should be operating in relation to competition and outsourcing. Through the use of statecraft, the Labour government during 1997–2010 maintained the fulfilment of the commitments made through the World Trade Organisation agreements on the Government Procurement Agreement (GPA), the General Agreement on Trade in Services (GATS) and EU Single European Market (SEM) to liberalise the public sector. It continued to use the private finance initiative in the provision of public sector facilities and their management through projects such as Building Schools for the Future (Morphet, 2008; Mahony et al, 2011). It reduced the compulsory components of some aspects of competition for public services in local government while extending competition to all local authority services through best value (Wilson, 1999). It had introduced competition into education and health through a series of initiatives using the policy narrative of improved efficiency (Eyles and Machin, 2019; Guy, 2019). It introduced revised EU policy to support the third sector and the role of small and mediumsized enterprises (SMEs) into the competition framework through the creation of the Office of the Third Sector (Alcock, 2010).
When the Coalition government took power in 2010, its overriding ideology was for a small state (Gamble, 2015). The Prime Minister, David Cameron, continued the third sector and SME approach to providing public service delivery through his concept of a Big Society (Smith, 2010). There was some alignment to the government's ideology but this was not sufficiently developed to create an understandable political narrative. This confusion was noticed at the time by commentators (Lowndes and Pratchett, 2012) but its provenance was not investigated. Within the Conservative Party, the principle of moving towards a small state led by George Osborne, Chancellor of the Exchequer in the Coalition government, created by reducing the public sector, through funding cuts under the austerity narrative, was pre-eminent. The focus was not so much on outsourcing but on preventing the public sector from having any resource to spend. Subsequently, as in the response to COVID-19, this has been to replace central and local government delivery by outsourced contractors (Monbiot, 2020).
1 - Introduction
- Janice Morphet, University College London
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The introduction of competition and outsourcing in the UK since the early 1970s has had a profound effect on the role, delivery and content of public services. It represented a major policy punctuation that shifted public services from direct to indirect delivery for the user (Gyford, 1991; Walsh, 1995). This has created a sense of detachment between organisations that remain responsible for the service and recipients (Kelly, 2007). Public organisations have mediated their understanding of service requirements with the quality of delivery and performance. However, public organisations never lose their responsibility for services purchased from third parties. Their accountabilities remain the same.
These changes in public sector delivery are frequently termed as privatisation although nothing in the international agreements and their associated legal frameworks for public sector liberalisation have required specific service transfer from public to other sectors. Rather there has been an agreement that they should be open to competition (Jackson et al, 1982). While the introduction of outsourcing is strongly associated with Margaret Thatcher's ideology in favour of the market over the state (Gamble, 1989; Marsh, 1991), the agreement to liberalise the public sector, exposing public services to competition, was made by the Labour government in 1976 (Morphet, 2013). This decision came after the government had been forced to seek financial assistance from the International Monetary Fund (IMF) in 1976 (Burk and Cairncross, 1992; Parker, 2009; Lowe, 2011). However, the international framework for liberalising the public sector had already been discussed and set as part of a longer term process of international trade discussions within the World Trade Organization's predecessor, the General Agreement on Tariffs and Trades (GATT). These discussions were part of the Tokyo Round of trade negotiations that lasted between 1973 and 1980 (Hoekman, 1995).
While the Conservative Party had always been in favour of reducing the welfare state and replacing it with the private sector (Lee, 2015; Mount, 2020a), Thatcher was more cautious about this before she became Prime Minister. Her 1979 manifesto included a commitment for local authority tenants to have the right to buy their council homes, but there was no commitment to privatisation (Seldon and Collings, 2014). Thatcher's election could also be seen as a temporal convenience (Goetz and Meyer-Sahling, 2009) that allowed the civil service to use a change in Prime Minister to implement the liberalising elements of the GATT agreement, developing and harnessing Thatcher's ideology.
2 - The Legal Basis for Competition in Public Services
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The legal agreements and constructs that provide the operating framework for outsourcing in the UK are seldom discussed and more frequently regarded as the result of neoliberal ideology being applied by successive governments (Harvey, 2007). The opening of public sector procurement for goods and services from 1980 gradually replaced a direct delivery model, which had prevailed as the norm in the UK since the 1880s. The liberalisation of the public sector has had a long and international tail (Jackson et al, 1982). In any international policy, agreed within a treaty, each signatory state is bound to apply what has been included within it, which may stretch into the future (Aust, 2013). In this case, the Labour government in 1976 agreed that the UK would adopt the Government Procurement Agreement (GPA), which was then in negotiation as part of the Tokyo Round (1973–1980) of the General Agreement on Tariffs and Trade (GATT) (Jackson et al, 1982; Winham, 2014). Through this decision, the government entered into obligations to liberalise public sector procurement, of goods and then services, opening it to competition from domestic and international organisations (De Graaf and King, 1995).
As with all international agreements, each signatory state starts from a different point and has to determine its own domestic policy agenda to achieve the delivery of terms of the international agreement (Jackson et al, 1982; Bown, 2004). The discussions on how to implement such agreements can be in the public domain, but for those that will operate over decades, different cultural and institutional frameworks and policy redesign from those prevailing at the time of the agreement may be required (De Graaf and King, 1995). Governments, supported by civil servants, will apply the tools of statecraft to embed these changes using all available means (Smith and Jones, 2015). They will attempt to implement the easiest options first, often described by management consultants as ‘low hanging fruit’ (Thorburn, 2020), both to make some early progress and to show the holders of these international obligations that a start has been made to comply with agreed commitments. This was the case for the GPA in the UK. The progress towards opening public services to competition and outsourcing was undertaken in a programmed way, leaving the most politically contentious services to later – education and health.
6 - Creating the Public Services Market
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A key challenge for central government in implementing the General Agreement on Trade in Services (GATS) to liberalise public services when it came into effect in 1996 was to find a way of market making. It would be difficult to open public services to competition where there had been no private sector engagement before. In some public services, there had been little external provision. Introducing change and potential for opening internal processes to competition meant that private sector contractors would have to be attracted to establishing a capability to bid for this work (Walsh, 1995; Héritier, 2001). This was particularly in relation to professional and specialist functions in local and central government such as building control, finance, legal services and planning. In some services, it was possible to transfer skills between the public and private sectors very readily, such as human resources, although there continued to be differences in the cultural context of the public sector (Harris, 2008). In other local authority services, the development of private sector markets was encouraged through changes in regulation such as planning (Adams and Tiesdell, 2010; RTPI, 2019).
There were also challenges about the ways public bodies defined their activities, attributed costs and were managed. The role of performance management regimes was central to creating these markets in specifying what should be done and how it would be delivered, priced and measured (Bovaird and Gregory, 1996). In many cases, there was a need for new market making such as in building control. The deregulation of building control was common across a number of Organisation for Economic Co-operation and Development (OECD) countries including in the EU, Australia and Canada (Meijer and Visscher, 2006; Van der Heijden, 2010). In the UK, following the Building Act 1984, an independent provider of building control regulators, the National Housing and Building Council (NHBC), established a subsidiary company in 1985 to employ ‘approved inspectors’. Up to this point all building control had been undertaken by professional qualified inspectors employed by local authorities. The NHBC building control professionals became the preferred inspectors for many private sector development companies and their role was highlighted in the Grenfell Fire tragedy (Hodkinson, 2019).
Contents
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8 - Liberalising Health Services and Functions
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While there is an underlying view that the state has provided health services since the creation of the National Health Service (NHS) in 1948, the NHS Act 1946 placed an overlay on existing arrangements rather than creating new structures and institutions (Baldwin, 1999). In the UK, health services have always been provided through a mixed market model. Before 1948, general practitioners (GPs) and dentists were paid by fees sometimes covered by personal insurance schemes or charities. After 1948, GPs and dentists remained as individual practitioners and not employees of the NHS and primary care has remained in the mixed economy (Propper et al, 2002). Doctors provide most services that are free to users at the point of delivery and charging for others such as travel immunisation or medical certificates to confirm sickness absence to employers. The NHS is an arm's length organisation responsible directly to ministers, and since 2012, public health has been the responsibility of local authorities (DoH, 2012). Public Health England (PHE) was established as an agency in April 2013 and had had executive responsibilities for health protection primarily through the management of its laboratories and research. It provided advice to local authorities and directors of public health who were appointed by local authorities when they took on these responsibilities. PHE reported to the Secretary of State for Health and Social Care and had some autonomous powers. The Department of Health and Social Care (DHSC), generally referred to as the Department of Health, was founded in 1988 and its responsibilities, apart from public health, have remained consistent. Social care is managed through a mixed market that is in part run by local authorities and in part by the private sector (Cunningham and James, 2014). Health is a devolved matter and managed separately in Scotland, Wales and Northern Ireland.
The application of the Government Procurement Agreement (GPA), the General Agreement on Trade in Services (GATS) and the Single European Market (SEM) within the health and social care sector has been undertaken in a variety of ways that reflect the market's involvement in different parts of the service. Early approaches to the implementation of a private finance initiative (PFI) for the provision of hospitals and the GP model included some privatisation but these were not seen as relating to the provision of secondary care in hospitals (CEC, 2015b).
5 - Local Government: Compulsory Competition and Best Value
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The wider liberalisation of local authority services started once negotiations began to extend the Government Procurement Agreement (GPA) to local government in 1988 and inclusion in the emerging General Agreement on Trade in Services (GATS) through the GATT Uruguay Round that started in 1986. This had a significant effect on the outsourcing of local government services that had hitherto been delivered by directly employed staff. Margaret Thatcher's government anticipated this through the application of Compulsory Competitive Tendering (CCT) in 1988 and it was continued by the Labour government's approach through the best value regime (Wilson, 1999). The policy approaches adopted by successive governments were framed in an immediate ideological construct of New Public Management (NPM), which diverted the public sector away from the underlying international agreements that the UK had entered into (Dunleavy and Hood, 1994). However, the wider role of performance culture supported the establishment of local authorities as more credible institutions than other parts of the UK state by 2010.
The expansion of the GPA, together with the application of GATS to sub-national government, introduced some mechanisms for implementation (Audet, 2002). In order to ensure that states complied, an international system of single national accounts (SNAs), initially agreed in 1968, was updated through a UN agreement in 1992 as the World Trade Organization was coming into being (Preeg, 2012). While not mandatory within the WTO, in 2002 the EU agreed that each member state should prepare the SNA. In the UK, these were introduced in 2007 following the Atkinson Review (Atkinson, 2005a, 2005b). SNAs established the system of assessing the scale of public expenditure by sectors and how much of the budget is to be exposed to competition as a consequence. They also support assessments of national and regional productivity and the Treasury commissioned specific reports to accompany these assessments (HMT, 2001, 2004).
In preparing the SNA, governments were required to assess all public expenditure. This was then used to ensure that a sufficient portion has been exposed to competition across all sectors so that none was protected. The role of local government is significant in the SNA. It has been estimated that the expenditure of local government represents 65 per cent of all state expenditure in the Organisation for Economic Co-operation and Development (OECD) although this varies between states (Audet, 2002).
3 - Competition in Utilities
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At the start of the 1970s, the UK state owned or had controlling shares in a large range of companies and activities (Parker, 2009). Many of these had been taken into public ownership after 1945. As both concerns for the UK economy and international discussions about the role of the private sector in running of public business started to mount in the early 1970s, there was a change in attitude towards their retention (Parker, 2009). The links between monetary theorists and the newly established think tanks in the UK such as the Institute of Economic Affairs and the Adam Smith Institute meant that these ideas were starting to cross the Atlantic (Ridley, 1992; Shleifer, 2009). They found a political home that could have some influence on Conservative Party thought about future economic policy for the time that they would next be in government (Selsdon Group, 1973).
While these influences were developing as a prelude to the General Agreement on Tariffs and Trade (GATT) Tokyo Round that started in 1973, they did not resonate with Edward Heath, Prime Minister between 1970 and 1974, who primarily focused on the UK's entry to the EU and the consequent institutional reforms associated with this, such as the reorganisation of local government (Campbell, 1994). This focus allowed those in the Conservative Party, who were against EU membership and more Atlanticist in their orientation, to consider how these monetarist approaches could be harnessed and developed in the future in the UK (Overbeek, 1993).
The first moves to implementing the Government Procurement Agreement
The Conservative Party entered a period in Opposition in 1974 and established a review of the future role of the nationalised industries led by Nicholas Ridley, who was expected to take on the job of a junior trade minister in the forthcoming government when elected (Ridley, 1992; Taylor, 1996). Its terms of reference were ‘to consider future policy regarding the existing nationalised industries, the scope of denationalisation and conditions required for the proper management of the industries remaining in a competitive economy’ (1968, quoted in Taylor, 1996, p 143). This report did not recommend that there could be a complete rolling back of the state in the operation of the nationalised industries but concluded that they could be run more effectively if privatised.