For over forty years now privatisation has been at the core of right-wing economic thinking and strategy, pursued by both the Tories and New Labour alike. It was initially presented to us as a means of reducing the “bloated” state structure, cutting overheads, making public services and industries “more efficient” and so on. Reality has turned out to be quite the reverse.
For over forty years now privatisation has been at the core of right-wing economic thinking and strategy, pursued by both the Tories and New Labour alike. It was initially presented to us as a means of reducing the “bloated” state structure, cutting overheads, making public services and industries “more efficient” and so on.
Reality has turned out to be quite the reverse: reduced and poorer-quality services, pay cuts, staff cuts, rising prices, corners cut with little regard for the outcome, massive profits for the privateers, backed by the ruthless sucking up of ever-rising state subsidies and handouts to big business.
Privatisation in the shadows
Alongside outright privatisation has been the less open and spiralling process of outsourcing public sector work into private hands. The pressure of the austerity regime hasn’t stopped the government, according to the National Audit Office (NAO) in June, spending £88 billion and rising, on outsourcing, a 100% rise since 2010.
Massive grants are routinely dished out to shadowy companies who are all too ready to take full advantage and make a nice profit at our expense. For example, a National Audit Office investigation this year into something called the Private Infrastructure Development Group (PIDG) revealed that this company, responsible for infrastructure projects in Africa and Asia, has been more than a little loose with the £414 million it has received from the UK government.
According to the NAO, huge and strange expenses were being claimed by assorted directors and managers, including expensive trips to Mauritius where it turns out a number of PIDG satellite companies are based in order to avoid paying taxes. One manager claimed £9,000 just to fly to Stockholm.
Imagine the outcry had this been done by a public sector worker. Of course, the NAO has no problem with the standard profit-grabbing element built into this operation, just the blatant skimming off the top.
Public money flowing into private hands
Considerable public anger has rightly been directed at these massive companies who have pocketed huge amounts of public cash through privatisation and outsourcing deals over the years. Under New Labour, an attempt to soften this criticism was made through the pushing of a new concept, the use of charities – the so-called third sector – as an alternative “service provider’ option. Under the current government, this option has continued to be pushed as an “acceptable” alternative to public services provided directly by national and local government. Such “providers” are usually called Voluntary Service Groups or VSGs.
In this context, an organisation called the National Coalition for Independent Action (NCIA) has produced an academic report (Working Paper 5: Outsourcing and the Voluntary Sector – May 2014) into how the use of VSGs have worked out in practice. The conclusions are damning and expose successive governments’ talk about the “big society’ as just that – talk and nothing else.
The report sets the scene in the foreword where it states: “The nature and scale of the Coalition Government’s political project – ideologically driven – to degrade rights, entitlements and social protections, and to privatise public services that cannot be abolished is now laid bare.” (Page 1)
However, as Socialist Appeal has explained in articles and editorials many times in recent years, the actions of successive governments in Britain and elsewhere to attack public services are not just a result of a nasty whim on their part, but also reflect the ruthless demands of the capitalist system as a whole. In accepting the rule of capital, you are left with no choice under this rotten and decaying system but to carry out such measures, ideological or not. That is why we fight for socialism rather than hoping against hope that some “nice” capitalists will just come along to put everything right.
The report again outlines just how much public money has flowed into private hands: “A 2010 study by Seymour Pierce suggested that the outsourcing market would rise to £140 billion by 2014. But the net impact of the Coalition’s outsourcing agenda… may far outstrip that estimate… the largest contracts favour private oligopolies like G4S, Serco, Capita and Carillion, whose share of the overall allocation leapt from £9.6 billion in 2008 to £20.4 billion in 2012.” (Page 2)
No wonder outsourcing is, as the report notes “massive, growing, and enthusiastically promoted by the Coalition and the international money markets.” (Page 2) The reason?: “…to centralise power in a small, privileged elite, demonise and dismantle the public sector and trade unions, sanctify austerity and deregulate indiscriminately: all with the objective of maximising profit-making opportunities for their private sector backers.” (Page 2) Now we know why these big companies all back the Tories.
Lower quality at higher costs
No doubt at this point the defenders of this set-up will say: What does it matter if at the end it works? The report answers this point directly: “…the quality of public services at the point of delivery and the working conditions of those who deliver those services, continue to fall demonstrably… Public accountability and social justice are at once trumped by overseas shareholder profits, commercial confidentiality and risk aversion.” (Report Page 4)
Under these conditions how have our charities, the VSGs, got on in this new environment? Very badly it turns out. In the procurement and commissioning process to award work, the report notes that things tend to work out so that “… it delivers outcomes that, far from being cheaper and more customer oriented, are complex and time-consuming: worse still, they are predicated on a market return to shareholders rather than a social return to the vulnerable… large organisations regularly underbid to win contracts. They then cherry pick the profitable, quick-win elements, and subcontract the riskier ones to the cash-strapped voluntary sector – or back, indeed, to the public sector, which nevertheless retains a legal responsibility for those services.” (Page 4) This process of dumping the less-profitable parts onto others is called “creaming and parking.”
Charities have found themselves pushed out or relegated to being just “bit players” in doomed projects such as the Work Programme. Morale in the voluntary sector has collapsed with many organisations just withdrawing rather than face more job losses, pay cuts, zero-hour contracts and so on.
Failing to deliver
In addition, it has been noted that many of these well-funded projects have simply failed to produce any real results. For example, the report notes that “Disability Rights recently pointed to an 88% failure rate with people on out of work disability benefits. Of 31,600 persons formerly on Incapacity Benefit, only 310 (0.9%) had secured more than 3 months employment.” (Page 5)
If we turn to the situation with care homes, then things are even worse. In relation to children, the report explains that 65% of children’s care homes are private-sector run, 24% council run and 11% run by charities. Why? “…As £1 billion is spent per annum on children’s homes – 1/3 of the total allocation on care or £200,000 per child – the spectre of profiteering looms large.” (Report Page 8) Again, charities have been squeezed out as large companies just come in and underbid to provide services on the cheap.
One scam is to place these homes in cheaper parts of the country so that, as the report remarks “…in 2012, Greater London had 130 children’s homes, Rochdale, with 1/40 of the capital’s population, had 41. The consequences for displaced children in institutional care can be dire. In September 2013, Ofsted reported that private care homes had a consistently higher proportion of ‘inadequate’ ratings than council or voluntary-run ones…” ( Report Page 8) Still, profits are profits!
A similar grim story exists for adult care. Despite considerable cuts in funding available, this area remains very lucrative. The report repeats Unison data that showed that in 2011 “the total market for adult care was worth around £15 billion per year, and expected to rise 3.1% annually, irrespectively of public sector contributions.” (Page 9) How can profits still be made and even grow as they have done? The report answers: “Because staffing accounts for 80% of care costs, savings are generally made by cutting workforce numbers, pay and conditions. 83% of care workers are female, mostly low wage earners with family responsibilities. They are usually paid on a ‘task and tick” basis i.e. by the minute and not the hour…” ( Report Page 10)
Again, charities are being forced out of the market unable to match the big companies even after bringing in zero-hour contracts to cut costs. The private sector completely dominates.
Youth services have also been badly hit by the cuts. Many councils have made proportionally higher levels of cuts here compared to other areas of expenditure. Although the government has been pushing for the outsourcing of youth services, many councils have been unwilling to do this.
Here the report notes that in relation to youth services, “they offer few profit-making opportunities for predatory big players. But there were, nevertheless, signs that many local authorities were considering social enterprises, youth mutuals, or outsourcing their entire service to another provider.” (Report Page 12) Here again, charities either missed out or simply failed to be able to do the job.
In April 2012, Barnardos won the contract to run certain youth services in Newcastle-upon-Tyne. By August of that year they had to admit that they could not deliver and asked the Council to re-advertise the contract. ( see Report, Page 13)
A regime of austerity
This report presents overwhelming evidence that the involvement of charities, the VSGs, in the outsourcing process has been bad news all round.
Those charities which have not been squeezed out or just given up, have been put under considerable pressure to meet the demands of a regime of austerity: “…these pressures oblige smaller bodies to embark on unpalatable ‘innovations’ in an effort to stay afloat. Examples include dipping into their limited reserves, imposing zero-hour contracts on staff, asking unpaid volunteers to take on additional obligations that they feel morally unable to refuse, and in many cases, prioritising core services around a narrower spectrum of people in need.” (Report Page 20)
Those charities which saw becoming VSGs as the way forward in a changing environment have had a rude awakening, reduced to being minor props for the big players in the outsourcing industry and effectively acting as foot soldiers for the Coalition’s cuts programme.
Only the “mega-charities” come close to being able to compete in this ruthless cut-throat market and yet even they must realise that far from meeting any social need, they are just operating as a cover for the cuts which are decimating essential local services.
So much for the Big Society
As the report notes, the elephant in the room for all these charities and voluntary organisations is an austerity programme which is using the outsourcing process to carry out cuts whilst still providing ever-more profits for the likes of Capita and the rest. As always, it is a case of no austerity for them. Who really loses? We do. We face the real consequences of the cuts in services.
That is why we must fight all forms of privatisation. Outsourcing to VSGs has provided no satisfactory alternative at all and has simply served to try and hide the real, profit-making nature of this rotten process.
The Labour leadership needs to realise that people have had enough of privatisation in all its forms and commit itself to bringing the major utilities back into public hands under workers control and management as part of a socialist plan of production. Only then can we ensure that the endless outsourcing of essential services is stopped, the public sector is given adequate funding and support to do these necessary tasks in-house and to a proper standard.