Privatising public services: threats and alternatives

12 December 2012 By John Medhurst John Medhurst explains how so-called "mutuals" cropping up within the public sector are far from employee-led, and in fact disadvantage workers and attack employment rights.

Commentary icon12 Dec 2012|Comment

12 December 2012

By John Medhurst

John Medhurst explains how so-called “mutuals” cropping up within the public sector are far from employee-led, and in fact disadvantage workers and attack employment rights.

The Conservative-Liberal Democrat Coalition has set out to transfer delivery of the UK’s public services to the private sector, using a variety of models and hybrid schemes to disguise a massive programme of privatisation.

This is being driven forward despite a consistent record of outsourcing failure: G4S and Olympic security; A4E and other contractors’ inability to get results for the long-term unemployed, producing outcomes that would have occurred if there were no Work Programme at all; ATOS viciously persecuting the disabled unemployed, forcing some distressed claimants to commit suicide; and Thames Water’s consistent failure to repair and maintain its pipe network, focusing instead on corporate tax avoidance.

My own union, PCS, is campaigning hard to highlight the damage done by outsourcing core civil service functions. Although there are too many cases to cite, perhaps the most irresponsible are those within the Department for Work and Pensions (DWP). In the last year, the National Benefit Fraud hotline was outsourced to private contractor Vertex, and JSA Online telephony advice to Capita. The services provided to the poor and vulnerable by Crisis Loans and Community Care Grants are due to be abolished in April 2013, when this vital “safety net” will transfer to local authorities, who are not obliged to deliver it themselves. Strapped for cash, many will outsource the service to private contractors whose priority will be to deliver returns to shareholders rather than provide essential protection for those with nowhere else to go.

Similarly, after the budget of the Equality and Human Rights Commission (EHRC) was halved, its regional offices closed and services cut back, the government-sanctioned advice helpline on all equality and human rights matters was outsourced to Sitel, who run a smaller service and do not recognise trade unions. Now the staff (whether originally from Sitel or TUPE transferred from the EHRC) who provide expert advice on human rights law for the UK government cannot themselves access a fundamental human right.

The mass privatisation of the UK’s Prisons continues, with confirmation that Northumberland, Moorland, Hatfield and Lindholme prisons are to be privatised. Justice Minister Chris Grayling said that further prisons are in scope for privatisation and suggested that non-custodial supervisory functions also be outsourced. There are now 13 private prisons in the UK holding 15% of the UK’s prison’s population, making the UK the clear leader of prison privatisation in the world. PCS is calling for an independent review into the mass privatisation of our prisons, which has occurred without political or media scrutiny, and a moratorium on further privatisations until that review is complete.

One of the drivers for this escalation of privatisation is the by now admitted failure of the Private Finance Initiative (PFI). Even the Treasury, in conducting a review of the programme, had to concede that “some of the commonly identified concerns” about PFI were valid. This acceptance of its failures was driven more by belated recognition that PFI simply postponed massive cost to the public purse for a few more decades, and more directly by the drying up bank finance to PFI consortia (previously a license to print money, given the rate of return on the consortiums initial outlay for constructing a new hospital, school etc) after the financial crash and scaling down of bank lending.

Unfortunately the aim of the Treasury’s review was not to learn lessons from inappropriate use of private finance and the profit model in delivery of public services; it was, instead, to “help bring forward proposals for a new approach to using the private sector in the delivery of public assets and services”.

The “new approach” bears striking resemblances to the old approach. For example, we now face the first privatisation of an entire NHS hospital. Hinchinbrook Hospital was loaded with massive PFI repayment debts, but instead of “bailing out” the hospital the government decided to hand it over to Circle Healthcare, a so-called “Mutual” in which the staff has 49% of share ownership. Because of this business perk, some have not seen this as the straightforward privatisation that it clearly is. The hospital is now run for profit by Circle, a joint venture between Circle Partnerships and a hedge fund called Circle Holdings registered in the tax havens of Jersey and the British Virgins Islands.

Circle Healthcare highlights the danger of taking government rhetoric about “localism”, “mutualism” and “giving services back to employees” at face value. For example, in its 2011 Open Public Services White Paper, the government claimed that: “We will not dictate the precise form of these mutuals; rather, this should be driven by what is best for the users of services and by employees as co-owners of the business. Options include wholly employee-led, multi-stakeholder, and mutual joint ventures”.

No part of that statement is true. The first part of the civil service to be “spun out” as a mutual was My Civil Service Pension (MyCSP), the body that administers over one and half million civil service pensions. It is now a Mutual Joint Venture with Equiniti Group, with MyCSP staff holding 25% shares. No other model was on offer, and MyCSP staff were never asked for their views. When an independent survey found that the majority did not wish to “spin out” into an MJV, thereby losing their civil service status, this was ignored. A strike by PCS members against the “mutualisation” demonstrated how “employee-led” the privatisation actually was.

The private sector “mutual partner” is Xafinity Ltd, part of the Equiniti Group. Equiniti’s Chair is Kevin Beeston, ex-Serco. Its CEO is Wayne Story, ex- Capita. MyCSP Ltd’s new Chair is Lord John Hutton of Furness, ex Labour Defence and Business Secretary, who recommended the complete overhaul of public sector pensions that MyCSP will now trade in. His salary is reported as £1,000 a day for an undisclosed amount of work. MyCSP’s “employee partners” were given no say in the choice of Chair or his remuneration.
There are other models in which the government cloaks privatisation, such as GOCOs (Government Owned, Contractor Operated). After the failure of the Forensic Science Services GOCO – primarily because the provision of scientific criminal evidence should not be matter for private profit, and arguably cannot be – the government has now wound up the GOCO and is to simply contract out the work in different ways in different Police Authorities, despite the concern of the police and the DPP that this could lead to the loss of evidence in past cases.

The government cares nothing for such public service concerns. Instead, it wishes to further utilise the GOCO model in outsourcing Defence Equipment and Support (DE&S). No other country runs defence procurement in this way. Not only would such a change require primary legislation, but it raises questions about how and whether military allies like the US would share technology with a private commercial concern. The Royal United Services Institute’s Acquisition Focus Group (a collection of ex-service chiefs set up to examine the proposal) concluded “At present we cannot easily see how the DE&S would even work in practice, let alone why it would be less expensive and a better alternative to what is in place today”. But such rational objections are not the point, as Colin Cram, Managing Director of Marc 1, revealed when he wrote in praise of the proposal – “A GOCO would not be restricted by civil service and military terms and conditions of employment”.

These proposals have nothing to do with the “democratisation” of public services or decentralising delivery from the state to localities and communities. That is simply spin for the credulous, and it does not motivate Tory ideologues for a second. What does drive them is a political project to remove the public sector ethos as a factor in running, maintaining and delivering public services, most especially the terms and conditions of public sector workers. It is the employment rights of those employees that the government seeks to target, in the process either a) removing them to a realm of insecure employment in which no thoughts of trade unionism and political resistance can take shape, or b) turning them into armies of individualists motivated solely by personal profit.

If the MJV, the GOCO and the much-hyped “John Lewis Model” are not acceptable alternatives to privatisation, then what might a progressive and democratic alternative to either privatisation or a top down managerialist model of public service (and other sectors of the economy) actually look like? Such alternatives include democratic workers self-management, forms of Workers Co-operatives, Co-management, and numerous experiments in workers occupation and other grass roots initiatives.

In the UK, a wave of worker occupations leading to the setting up of cooperatives occurred in the early to mid 70s, and found support at government level when Tony Benn was Secretary of State for Industry in 1974-75. Long before Margaret Thatcher attacked the perceived failings of nationalised industries, a movement for grass roots industrial democracy centred around the Institute for Worker’s Control (IWC) had brought these issues to the fore. The IWC encouraged ideas and schemes for greater industrial democracy in British industry and for direct worker control of the production process. It was a challenge not just to the CBI and management hierarchies within private industry, but also to the public sector managers of the state-owned industries and the full-time officials of the trade unions with whom they often worked in tandem.

The IWC brought together trade union militants, shop stewards and socialist theorists under one umbrella and with an increasingly popular goal. Benn expanded the argument from private to public corporations, saying that “In recent years many workers in nationalised industries have expressed their dissatisfaction with authoritarian management”. He went on to recommend a variety of experiments to address this, from workers’ control to co-operatives to co-partnership. Lest there be any doubt that this meant a form of workers’ capitalism, Mike Cooley (one of the convenors of the Lucas Aerospace Worker’s Combine and architect of its “Alternative Corporate Plan” to switch from military production to production for social use) made clear that “We start from the simple premise that a direct conflict of interest exists between the employer and the workforce throughout Britain. We think that unless that is understood and unless workers build organisations powerful enough to meet force with force at the point of production, then they are simply creating illusions” (IWC Pamphlet No 45).

Similar attempts at workers’ control erupted out of the economic crisis in Argentina in 2000/2001. Like the UK now, Argentina has been brought to its knees by the failure of an extreme model of free market neo-liberalism. This had resulted in massive debt, the decimation of social services, and mass privatisation. With half the country driven below the poverty line, the Argentinean working class took to the streets, setting up roadblocks to commandeer food and fuel deliveries. This developed into the “Fabricas Recuperados” movement – the Recovered Factories. Initially, most worker takeovers were to ensure that the owners could not liquidate assets before filing for bankruptcy to avoid paying back salaries and redundancy. But over time they grew from a tactic to safeguard jobs into a system of self-management.

This in turn led to the creation of “Autoconvocados” – self convoked neighbourhood assembles run as grass roots local democracies that took decisions on the provision of social services, with assemblies in better off areas of Buenos Aires directing resources to poorer areas. It was this profound democratisation of social life, and the rejection of financial institutions, that led to Nestor Kirchner’s election in 2003, the repudiation of Argentina’s debt, and the severing of its ties to the World Bank and the IMF. Since then it has gone from strength to strength, and in April this year it renationalised YPF, the national oil utility, following a trend across Latin America of countries freeing themselves from the “Washington Consensus” of free market fundamentalism.

Similar experiments are occurring now in Venezuela. After a mass employers’ lock out in 2002/3 (in a illegal attempt to remove President Chavez) workers took over factories to keep them running. This led in time to legislation to formalise what came to be known as “co-management”, and to fund and support workers’ co-operatives. For example, Ineval Valve manufacturing, is 51% owned by the state and 49% by the workers. Decisions are taken by a “Workers Assembly” which elects recallable “Co-ordinators of Production” for one year. All employees at all levels are paid equally.

Francisco Pinera, Ineval’s Treasurer, has summarised the philosophy behind Ineval and other state supported Venezuelan Worker Cooperatives – “We want it in public ownership, but for workers to control all production and administration. This is the new productive model. We don’t want to create new capitalists here”. This is in keeping with the new wave of social spending on “Citizen and Worker Managed Governance”, which funds the public sector Bolivarian Missions that provide free medical clinics, new educational initiatives to promote literacy, and food and housing subsidies.

Pinero identifies the key issue, which is ownership and power. The current UK government’s proposals to outsource public services to “any willing provider” do not mean to the workforce. On the contrary, in doing so they wish to deprive employees of hard won rights and terms and conditions, creating “new capitalists here” who will be driven by fear and greed, not public service.

This process must be resisted by trade unions, in alliance with local campaigners and service users. As PCS General Secretary Mark Serwotka has said of privatisation in all its forms – “These are not the results of accidental errors of judgment. They result from a political and economic logic which says that in every sphere of our lives, the market and the profit motive will perform better than any other system. It is this dogma that all who want democratically accountable and publicly owned services must challenge”.

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John Medhurst

John Medhurst John Medhurst John Medhurst is a Policy Officer with the Public and Commercial Services union (PCS). Prior to this he was a civil servant for 22 years and a CPSA/PCS lay activist in Jobcentre Plus, HSE and DCMS. He was HSE London HQ Branch Secretary, DCMS National Branch Chair, and a member of the PCS National Executive Committee. He is PCS representative on the EPSU Public Services Network and has been published in the Journal of Contemporary European Research (JCER).