hen Labour came to power in 1997, it promised to abolish
compulsory competitive tendering (CCT) and to end the ideology
of private good/public bad. Instead it has argued that "what
matters is what works". Unfortunately, four years later,
local government is facing the greatest pressure for privatisation
that it has ever experienced and the ideology seems to be
"what matters is what works but the private sector works
better". This is not an evidence-based ideology. It reflects
the persuasiveness of Thatcherism and the growing influence
of corporate Britain on the Labour Government.
The pressure to privatise comes in four forms. Firstly CCT
has been replaced by Best Value. The best value regime, drafted
by civil servants who are still influenced by Thatcherism,
emphasises the third 'c' in the regime, 'compete'. Under best
value there is no obligation to accept the cheapest option
- an improvement on CCT- but local authorities have to deliver
2% savings a year; they have to go through an expensive and
bureaucratic process of best value review on all their
services not just the ones that were subject to CCT; and where
services are deemed to be "failing", the council
can be ordered to outsource them. It is all too easy to read
into the best value process an obligation, not just to keep
an open mind about who might deliver the services, but positively
to prefer the private sector option to any in-house alternative.
The second pressure comes from financial controls. 75% of
council funding comes from central government increasingly
in the form of special grants with funding tied to particular
forms of spending. Capital spending remains tightly controlled.
In the Finance Green Paper issued last year, the government
proposed a prudential framework which would allow local authorities
greater freedom to borrow where, through the investment, they
would generate sufficient revenue streams to cover the cost
of borrowing. But we are still waiting for the details and
implementation of this reform. If the proposal is not in the
Queen's Speech immediately after the election, it will be
2004 before it is implemented. In the meantime, money is freely
available under the Private Finance Initiative scheme and
PFI has become "the only game in town" despite serious
doubts as to whether it represents value for money and the
question of its longer-term affordability.
The third pressure is political support for public/private
partnerships (PPPs). While critics of PFI have questioned
the economic case for PFI, it is becoming increasingly clear
that the political and public policy case for public/private
partnerships is now being promoted. We already have had the
bizarre spectacle of the failed privatisation of British Rail
being used as a model to develop a public/private partnership
for the London Underground. Meanwhile the IPPR set up a commission
in 1999 to explore PPPs that will report immediately after
the election. It looks like this will conclude that there
is no macro-economic case for PFI and that there are some
doubts about the value for money of some of the large schemes
in health and education. But far from seeing this as the end
of privatisation, the commission is likely to argue that partnership
would work better if it had a wider remit and if there are
no boundaries between the public and private sector. Could
PFI be expanded into areas currently excluded such as clinical
services in the NHS or the management and employment of teachers?
The Commission is funded by corporations such as KPMG, Norwich
Union PPPs and BT so it is hardly surprising that it will
be looking for new markets for the private sector.
Finally, the three core services of local authorities, education
housing and social services, are being targeted directly.
For sometime Ministers have been openly supporting and encouraging
the development of a market in education services, in particular,
those which have up to now been provided largely by local
authorities. "Failed" local authorities have been
pushed into outsourcing at least parts of their education
service. IPPR, the New Local Government Network and Chris
Woodhead have all been arguing for the end of LEAs, with the
latter two seeing clusters of schools buying services direct
from the private sector.
In housing the government has been pushing local authorities
into large scale voluntary sector transfer of their housing
stock to housing associations and 130 local authorities have
now complied. Almost no new central government money is available
for new council housing - money for new-build comes through
the Housing Corporation. And, in social care, the market grew
by 50% between 1992-97 under Conservative legislation. Now
the NHS Bill is promoting new health bodies - care trust -
to take over local authority health-related services which
will mean that elected and accountable councillors will have
less control over budgets and services for which local authority
has a statutory responsibility. There is a reserve power in
the Bill for the Secretary of State to set up such trusts
compulsorily where local authorities are deemed to be performing
inadequately. Such trusts could commission from the private
sector services that are currently provided by local authority
Does all this matter? The LGIU would argue that it does and
has recently published a special issue of its 'Briefing'
magazine on these issues, (issue 138). This makes the
following arguments. Firstly the private sector is not necessarily
more efficient than the public sector. For example, in 1999/2000,
65% of the complaints to the Local Government Ombudsmen about
the administration of housing benefit in London came from
just 4 councils; Lambeth, Hackney, Islington and Southwark.
These 4 councils had contracted out the administration of
their housing benefit to 3 different, large private sector
companies. Meanwhile, in next door Camden, the local authority
has beacon status for this service.
Secondly, there is evidence that what "productivity"
gains are achieved are mostly due to savings on labour costs.
Even with TUPE workers are not fully protected and new staff
are usually employed with cuts in pensions and conditions.
None of the companies currently bidding for PFI contracts
offer a defined pension scheme to new employees. Unison has
been documenting the growth of a two-tier workforce with women
particularly affected. Privatisation is building up problems
of pensioner poverty and social exclusion.
Thirdly, a private sector contractor will operate to the
terms of their contract, maximising return on investment rather
than operating in the public interest. It is very difficult
for the public sector to draw up a contract that has incentives
in it to deliver to public agenda, particularly where that
agenda changes over time. An example of the problems that
are caused can be given by the private sector companies which
led on the New Deal for Young People in 10 areas. The incentives
in the contract encouraged the providers to push the young
people into unsubsidised jobs rather than subsidised jobs
or training. So the providers did this despite the fact that
nationally 44% of unemployed young New Dealers in unsubsidised
jobs are back on the dole in 13 weeks - double the rate for
subsidised jobs. And despite the private providers' so called
good relationship with the private sector, they were unable
to improve on the retention rate.
A key argument against privatisation is that there are many
reasons why local authorities will not be able to play their
new community leadership role if they do not deliver services.
Experience has shown how well authorities with directly provided
services can respond to emergencies and disasters; the same
may not be true of a council that does not have its own staff.
Providing services allows local authorities to 'learn' what
works and what doesn't. If a local authority is tied into
many contracts with limited flexibility to change direction,
it may have problems meeting needs identified from its community
leadership. Crucially a local authority's track record and
knowledge of service delivery can carry weight in negotiations
over community leadership and enables it to deal with fragmentation
by joining up different services in a holistic way. As George
Jones and John Stewart recently argued in the Local Government
Chronicle, cumulative privatisation could leave local
authorities with the rhetoric of community leadership but
without the means to make it effective.
And finally there is the issue of accountability. If a council
service does not work you go to your local councillor to complain.
You know who is responsible. Furthermore an elected local
authority ensures that accountability of services is to the
communities that are served. A voice is given to the poor
and disadvantaged - the market does not give them this voice.
Privatisation is undermining the councillor's role, which
is to ensure that local government provides goods and services,
develops democracy and citizenship and promotes justice and
Local authorities are not perfect bodies but there are other
ways than privatisation to get improvement. Increasing participation,
developing peer review and support, supporting the public
sector ethos, spreading good practice, and openness, transparency
and accountability can all yield rich dividends. This should
be what "new" Labour is all about.