Public Services in a Recession - Does Something Have to Give?

In the icy wastes of Hertfordshire yesterday a conference delegate asked a good question. Britain has experienced a financial bubble and an unsustainable house price surge. "Has there also been an unsustainable bubble in the public sector?"

It was the task of Liam Byrne, the Blairite-for-Brown Cabinet Office minister, and a clutch of senior public servants to persuade their audience that Labour's "invest and reform" mantra can be sustained through the recession.

Top healthcare is often also the cheapest, the NHS's chief executive, David Nicholson, pointed out. Recession may give us the chance to recruit smart graduates who won't be going into banking, said John Ransford, the chief executive of the Local Government Association.

This being the Guardian's annual public service summit, counter arguments were on offer too. Sceptics want the kind of decentralized and personalized power that Byrne promises: academies, foundation hospitals, customer choice, all have actually been accelerated since Tony Blair went sunbathing.

What kindly critics doubt is whether the government can deliver, afford to deliver or even understands how difficult Gordon Brown's pledge of personal care budgets for the sick will be in practice. "Sick people make bad shoppers," said one. It won't be cheap either.

Byrne was having none of it. There is no trade-off between a strong society and a strong government, which is, incidentally, not the same as big or top-down government, he insisted. "We want a country of powerful people ... in strong communities."

This is a far cry from the Fabian socialism of 50 years ago, more a reversion to the pre-1914 world of labor, with its Co-ops and local mutual insurance, coupled with the drive to open opportunities, he argued. As proof that labor no longer believes "Whitehall knows best" he unveiled initiatives to make the civil service more innovative, more responsive, more accountable.

"I think Whitehall reform is unfinished," he conceded in between sideswipes at the "incoherence" of Tory policy towards the public sector. David Cameron looks not towards a "post-bureaucratic age" but to a post-government age, Byrne claimed.

Really, both sides are closer than they admit on decentralizing public services. Byrne's claim that "letting go is not the same as walking away", that government must be the guarantor of standards, could have come from Cameron.

At a Social Market Foundation seminar this week, David Willetts, still the most level-headed Tory boffin, admitted both main parties had been making the same mistake. By putting too much emphasis on consumer choice in health or education they ignored supply, he said. The result has been too much "bogus choice", as parents learned when they applied for a preferred school.

Byrne mocked the Tory solution - making it easier to open new schools - but Willetts may be right to predict that public sector managers will find it hard to kick habits created by a decade of Whitehall targets. "It's rather like sheep in a field. If ministers promise to remove the barbed wire they'll still graze round the same patch of grass." Nicholson and his ilk are battling to prove Willetts wrong.