If the government is to modernise public services, it must first modernise the outdated employment culture within them.

In January, the prime minister, David Cameron, said that he wanted ‘one of the greatest achievements of this government to be the complete modernisation of our public services.’ At the launch of the Open Public Services white paper in July, he reiterated this vision, arguing that the coalition remains as committed to public service reform ‘as it has ever been’.

If it is to achieve this vision the government must first reform the corrosive employment culture that prevails within much of the public sector. As Reform’s new report on the public sector workforce, Reformers and wreckers, shows, the current picture is one of outdated employment policies that are not just bad for taxpayers but are  also often bad for public sector workers themselves.

First, public servants are poorly incentivised. For nearly 60 per cent of public sector organisations the primary reason for awarding pay rises is length of service, compared to just 8 per cent in the private sector. Only 40 per cent of public sector organisations offer bonus schemes, against more than eighty per cent among private sector organisations. The result is an ‘entitlement culture’, where what matters is how long you have been in the job, rather than how you perform in it.

Second, the workforce is poorly managed and resistant to change. Evidence shows that many managers in the public sector lack the relevant management expertise, especially in financial terms, and fail to effectively confront poor staff performance. Evidence suggests that more than 60 per cent of government organisations are seen to tolerate poor performance of staff, compared to less than 40 per cent in the economy as a whole.

Third, public sector workers are themselves dissatisfied with the current system. Data from the Chartered Institute of Personnel and Development has shown that public sector employees are disengaged with their organisation and dissatisfied with their managers, compared to net approval ratings in the private and voluntary sectors. Furthermore, public servants are far more likely to be absent from work, losing nearly ten days per employee a year, against under seven in the private sector.

Yet, visionary public service leaders have shown that it is not only possible to transform the public sector workforce in times of budgetary restraint, but that it can have profound effects on the quality of public services. Merseyside Fire and Rescue, for example, halved the number of domestic fires while reducing its number of firefighters from 1,500 to under 900, by moving from a traditional model to an innovative programme of safety and prevention. Similarly Greater Manchester Police’s decision to move to a ‘New Policing Model’ based around neighbourhood policing and streamlined management has had a dramatic effect on response times and led to savings of £11.7 million a year.

These innovative approaches show that proper incentives and performance management can radically improve results. Birmingham City Council, for example, has introduced performance development reviews for all 55,000 members of staff, from bin men to the chief executive. In conjunction with an employee engagement programme, this has increased staff motivation by 30 per cent and saved £17 million through improved productivity. At Denbigh High School, situated in one of the most deprived areas of Luton, the introduction of an innovative continuous professional development programme for teachers helped increase pupil achievement from less than 20 per cent of pupils receiving five good GCSEs in 1993 to 100 per cent in 2010.

These case studies show that reforming the public sector workforce is the key to effective public service reform. The workforce accounts for more than half of all public services, and over eighty per cent in some services such as the police. If the government is to really ‘modernise’ public services, it needs to first bring the employment culture into the 21st century.