Profits before people

The last 30 years have been characterised by a growing dependence on private companies to provide public services but there has been a human and economic cost to letting the market determine price

Unsurprisingly, Ed Miliband kicked off Labour’s election campaign with a statement about the NHS. But while he referred to increased funding, the promise that caught the headlines was that a future Labour Government would introduce a profits cap on private health companies for NHS contracts worth more than £500,000. Any company that made more than 5 per cent above the cap would have to reimburse the NHS.

The Labour leader also referred to abolishing what he called David Cameron’s “market framework”. In fact, that framework takes in public services much wider than the NHS, and while it was the Government led by Margaret Thatcher that opened the door to widespread private contracting in the health service, the last Labour Governments were just as enthusiastic.

Indeed, Miliband has never explained what getting rid of the “market mechanism” really means. Thus, he seems to have avoided not just questions about who provides health services but, more significantly, any criticism of the way in which a shadow state has been created with private contractors making millions from everything from defence to education, social security to health, children’s services to prisons. Everything now has its market price.

In the past 30 years, public services have come to be governed by the prevailing narrative of the market, competition and efficiency. These have become unquestioned as guiding principles. Yet there is not much evidence of improvement in what the public receives or that services are more efficient. There is, however, evidence of an ever-growing catalogue of scandal, failure and fraud.

On this shadow state rest the fortunes of Virgin, Serco, A4e, G4S, Capita and other conglomerates to whom services are (to use management-speak) “outsourced” – that is, turned over to non-government bodies. In 2012-13 providing UK public services and central government earned Atos, Capita, G4S and Serco £6.6 billion. That same year Atos and G4S paid no corporation tax.

G4S and Serco are presently being investigated for allegedly over-charging the Government tens of millions of pounds when they billed it for supervising electronically tagged prisoners who had moved abroad, returned to prison – or were dead. In November 2013, Serco admitted this was true, as did Ashley Almanza, chief executive of G4S. “I don’t think we did correctly tell the difference between right and wrong. We got it wrong,” he said, as if this were a matter of mistaken judgement or poor administration.

Not that senior managers lose out in scandals. When, in 2012, Emma Harrison resigned as chairman of A4e – contracted by the Government to find jobs for unemployed people – she gave up a £365,000-a-year post but took with her a CBE and £8.6m in a share dividend. The parliamentary Public Accounts Committee (PAC) queried the value for money received by the Department for Work and Pensions when Harrison’s rewards were not linked to performance.

No one accused her of wrongdoing but in March 2015 six former employees were jailed for practices that exaggerated the numbers they had helped into work – at a cost of almost £300,000 to the taxpayer. Another four ex-staff received suspended jail sentences for what Judge Angela Morris said were “deceitful and unscrupulous” practices.

It seems to matter little what these companies do – executives who resign or are sacked walk away with generous pay-offs and failure or wrongdoing are blips on a chart of ever-rising awarding of contracts. For example, G4S lost its contract for deportation work and its failure to provide security for the London 2012 Olympics (when the Army had to be drafted in), but that did not stop it getting a three-year contract to run two rape crisis centres in Birmingham and Walsall. Despite allegations of fraud, criminal charges and failures, A4e was still awarded a contract for prison education.

Serco’s contracts continue to land on the mat although, with the Cornwall Primary Health-Care Trust, it was accused by the PAC of “lying and cheating” and “shocking” inadequacies in a GP out-of-hours contract. (On one occasion, only one GP was on call for home visits in the entire county of Cornwall. Serco regularly had staff shortages for all clinical posts but falsified records, which the trust failed to monitor.) The whistleblowers who brought this to light were, said the PAC, “persecuted”. Two managers, blamed as mavericks by Serco – a claim that the PAC chairman Margaret Hodge said was “not credible” – have been paid off and made to sign confidentiality agreements.

Now much of probation, a service whose Christian roots stretch back 150 years, is to be subject to profit calculations. Twenty-one contracts, worth £450m over seven years, have gone to eight “partnerships” (some private companies have drawn in one or two charities). They will supervise 200,000 low-risk and medium-risk offenders, including 45,000 short-sentence prisoners. (Serco and G4S were disallowed due to the over-charging allegations.)

The new providers will be paid by the unproven payment-by-results system, where experience suggests that contracts favour the biggest, quickest savings as opposed to investment in people and seeing success in the longer term. Already some companies have proposed that offenders report to them via cash point-style machines to cut costs, rather than meet staff face to face. The Government has attempted to put a gloss on the burgeoning size of the private sector role by issuing warm words about the voluntary sector’s larger role in provision. However, in practice charities, cooperatives and mutuals have proven very minor participants.

When it started in 2011 the Work Programme, set up to provide work and training to help people find jobs, was hailed as a massive boost for the “Big Society”, which itself seems to have been quietly dropped from the policy agenda. The programme offered contracts worth £3-£5bn over seven years and charities complain they were sometimes used by private companies as “bid candy” to secure contracts. Of the 18 regional contracts awarded in April 2011, only two went to voluntary bodies but 289 voluntaries were sub-contracted locally. Many charities received no referrals and some went out of business, while others handed back contracts they no longer regarded as sustainable. Nearly half of the charities were subsidising the work from their own resources.

But even small voluntaries can be more effective than corporations. For example, the PAC discovered that, in the 10 months up to May 2012, A4e had only found 4,020 jobs that lasted more than three months for the 115,000 people obliged to attend its centres. This cost the taxpayer £45 million. In contrast, London’s medium-sized Cardinal Hume Centre places 70 people a year in jobs – at a cost of £2,000 a time. But given the way that contracts are written voluntary bodies of this size (and larger) do not have the resources even to allow them to think about submitting applications.

As Sir Stuart Etherington, chief executive of the National Council for Voluntary Organisations, says, “Charities don’t have the advantages of scale that major companies do, so they can’t spread their financial risk in the same way. Such issues can be overcome by making sure that contracts for running public services are arranged in ways that suit charities, not just large companies”.

Behind what has happened is the ministerial desire for “the small state”, which oddly entails the use of multi-national companies. Seen as a way of saving money, in reality costs are moved from public to private ledgers – but the taxpayer still foots the bill.

One of the ironies of what has happened is that it militates against another policy advocated by the main political parties – that public services should become more transparent and accountable. Not only has the private sector proven to be incapable of securing or even desiring this, it seems inimical to the way business operates.

No one argues that the private sector has no place in providing public services. But we need to reassert the place of publicly provided services, to reinvent them and with that the ethic that recognises that they are not there to boost share prices and top executives’ pay packets but to serve those who use them.

Terry Philpot is the author of more than a dozen books and reports on social care.