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Putting public interest first means rejecting Tory dogma that private is best

Public or PrivateRecently, Ed Miliband said that the times we live in demand “a new culture in our public services. Not old-style, top-down central control, with users as passive recipients of services. Nor a market-based individualism which says we can simply transplant the principles of the private sector lock, stock and barrel into the public sector.”

In so doing he set a clear direction for how the next Labour government will govern. In place of the Coalition’s ideological dogma that says the only answer to the challenge of delivering public services is always to outsource, his is a call to look at the evidence in front of us and ask the question: how do we ensure that the public interest lies at the heart of how we provide public services?

And a One Nation Labour Government will always start with what is in the public interest. This requires a new framework for our services. In particular this means addressing the Tory claim that public service provision is always worse than private sector. This is an ideological claim, but it’s weakness as a statement of truth is that there is no body of evidence which shows conclusively that outsourcing public services is the most cost effective for the taxpayer.

Prioritising the public interest means rejecting the Tories’ ideological approach. Indeed the cost to the taxpayer of a privatised service is often much more than the price of the successful tender. And there are several reasons why I say this is the case.

First, there are what are called transaction costs. These are the costs to the taxpayer of preparing, letting, evaluating and then monitoring the tenders. For example, there are several thousand civil servants whose full or part time task is simply to process procurement issues. This costs tens of millions of pounds per year and should properly be added to the price of the tender, in order to calculate the total cost of outsourcing.

Equally there can be a price to pay if there are insufficient numbers of civil servants managing the procurement process. The best known example of this is the West Coast mainline franchise. This was a £50 billion contract, managed by only three civil servants. The result was a disastrous tendering exercise culminating in litigation and an additional and unnecessary cost to the taxpayer of £50 million.

The second hidden cost is the price of post tender contractual variations. The infamous G4S Olympic contract reportedly increased their administrative costs by over 800% from £7.3 million in their tender to a final outcome of around £60 million.

In some cases, the post tender contractual variations are quite extraordinary. Now the public sector too can see major cost over-runs, but there is transparency about where the risks for such failures lie.

Third, it is worth noting that the risk almost invariably remains with the taxpayer. For example, within weeks of signing the Olympic security contract, G4S announced that it could not recruit sufficient numbers of security staff. The possibility of catastrophe at the Olympics meant the government was left with no choice other than to deploy 3,400 troops in order to make the events secure.

A similar situation occurs where an outsourced activity has clear knock on impacts on costs for the wider public sector. The ATOS capability tests valued at £110 m per annum were designed to move people from disability benefits into work. ATOS failed.  200,000 people successfully contested their decisions.  The cost to the taxpayer of appealing ATOS’ bad decisions was £60 million on top of the contract.

As can be seen the costs of each of the above points can be substantial. They should at a minimum cause us to rethink the simplistic assertion that on value for money grounds all services should be outsourced. And indeed, this is exactly what is starting to happen.

Ten years ago now, a landmark report from consultants Deloitte noted how large corporations were beginning increasingly to bring services back in-house as the promised benefits of outsourcing had failed to materialise. Costs had often been higher than anticipated, flexibility had been reduced, and risk could never fully be transferred.

A 2011 survey revealed that over half of councils are “insourcing” services which were previously outsourced frequently citing poor value for money. Many Tory councils have done so, including Essex, Basildon and Surrey. In 2012, Deloitte’s survey of private sector outsourcing concluded that that 48% of outsourced contracts in the private sector had been terminated and of those, at least a third had been terminated for price reasons.

The next Labour government will comprehensively review the full life costs of tax payer funded contracts and will apply the lessons of the review before decisions are made to outsource. At a time of public spending pressures, nothing less is required.

The effect upon the tax payer is not the only concern however. The gap between executive and employee pay rises when services are contracted out, so employees’ rights often become much weaker. The government has made this more likely with changes to TUPE regulations which allow the erosion of employment rights, including pay and conditions for staff. But the public interest requires a motivated, properly rewarded and fully engaged work force that can deliver the high quality services the public expects.

It is interesting to note that the cross party Public Accounts Committee has already indicated their belief that those who benefit from large tax payer funded contracts should contribute fairly to the tax which makes those contracts possible. Labour will need to do better at ensuring those who benefit from large public contracts contribute fairly to the tax that makes such contracts possible.

One Nation Labour is committed to delivering the highest quality of public services possible, within tight budget frameworks and delivering value for money to taxpayers. There can be no more lax arrangements within the public service and the process of outsourcing must itself be submitted to the same levels of rigour as other elements of the wider public sector.

For us it is the public interest that must come first. It is the guide to how a service should be provided, not an ideology that says at all times and in all places a service should be provided by the public, private or voluntary sector.

The task for the next Labour government is to reject the easy answers peddled by this government and ensure that all services put their users at the centre of what they do.

That is what Ed Miliband was setting out this week, and that is what the next Labour government will do.

Jon Trickett is Labour’s Shadow Minister without Portfolio, and Labour Party ‘Deputy Chair’

Image credit: stuartphoto / 123RF Stock Photo

4 Comments

  1. SANDRA CRAWFORD says:

    The Left are correct, direct public service and public works are more efficient, because we avoid the layer of economic rent charged by the heads of corporations. This economic rent often finds its way to offshore tax havens, reducing tax receipts. Also, public sector workers are paid more, due to not losing out to the rake off by corporate masters.

    However, the Left need to be aware of a very nasty Treaty that may be signed by our government before Labour gets back in.
    This is TTIP, the Trade and Investment Partnership between the EU and the USA.
    It is as George Monbiot called it A FULL FRONTAL ATTACK ON DEMOCRACY.

    It gives the rule of law to corporations, giving them carte blanche to sue governments for anything that reduces their profits.
    It will make it impossible to reverse the health and sacial care bill, further marketising health.
    It may marketise local councils, and leagally enforce deregulation, regardless of whether it is bad for people or the environment.

    Listen to the expert, Linda Kaucher here – and seek to stop TTIP if you want any return to social democracy.

  2. James Martin says:

    It is positive that the Blairite private sector is best nonsense has finally been dumped. But it is also highly ironic that at no point in this policy article is there mention of workplace democracy an worker involvement in the running of services they provide. The policy therefore remains completely top down.

    Many years ago we had a lot of good work done around workplace democracy in the Party by people like Eric Heffer, Tony Benn and Ken Coates. Indeed, Heffer’s approach in the 1960s and 1970s was probably the most farsighted. Coming from a working class background and a trade as a joiner and UCATT member after military service in WWII, Heffer was involved in the running of the maintainance department of Liverpool City Council as both a councillor and head of the Trades Council. He put workplace democracy at the heart of his approach as both a principle and a practical way to raise productivity and very importantly quality in terms of the work undertaken for Liverpool residents. And it worked for the time it was promoted and supported.

    But of course the real difference between the likes of Eric Heffer and Ed Milliband is that Eric actually understood the world of work and how that had to underpin genuine public services. All we have with Millband is the abstract ideas of a student debating society, jumping from one thing to another – and no amount of repeating ‘One Nation Labour’ (whatever that means – personally I honestly haven’t got the foggiest) will plaster over that complete lack of underlying philosophy that can take us forward.

  3. Robert says:

    Band wagons will not do it and this labour party re-branding and then band wagons just are not good enough, and I do not trust the Progress lot at all.

  4. Rod says:

    Miliband advises against infecting public services with “market-based individualism which says we can simply transplant the principles of the private sector lock, stock and barrel into the public sector.”

    Well, that still leaves considerable scope for infecting public services with the principles of the private sector. Just as long as the “lock, stock and barrel”, or any part thereof, aren’t included.

    I suspect Miliband’s policy of ‘doing more for less’ will mean more privatisation. The difference is that he, along with his Progress elite, think they are better able to manage privatisation than the Tories.

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