How the cult of the free market sabotaged our public services

Value of nothing: Does private provision of public services actually work for the taxpayer?
Value of nothing: Does private provision of public services actually work for the taxpayer?
Ian Dunt By

Here are some home truths about private companies providing public services: They do not offer value for money. They do not work in the interest of the taxpayer. They are monopolies which squeeze out competition. Their commercial contracts are rigged in their favour.

These warnings were issued when successive governments started experimenting with free market provision many years ago. And they are the conclusions of today's public accounts committee report. After decades of private provision of services - with firms now accounting for half the public expenditure on goods and services – the original fears appear well-founded.

The committee issued these warnings before. Nothing was done. Change is slow for the same reason that the free market experiment so regularly fails: because it is based primarily on dogma.

Since Thatcher, the cult of the free market has existed across political divides. For Tories it is not much less than a religious faith. For most Labour MPs, it has been internalised as a form of common sense.


For over two decades, we've been told competition would drive down the cost of public services and drive up standards. This is now accepted unquestioningly.

But peel back the dogma and the reality is quite different. Today's report found civil servants were hopelessly outclassed by much larger and more experienced negotiating teams from the private sector. Civil servants do not have "the commercial expertise to compete with their counterparts in the private sector".

Thatcherism marked the start of a widespread faith in the efficiency of private firms in British politics

Once contracts start, our dogma about the efficiency of the private sector blinds us to the need to actually monitor them. It is just assumed they will be cheaper and better. "The civil service has prioritised the work involved in letting contracts and deemed the monitoring of contracts as mechanical and unimportant," the committee found.

Some departments have been cutting staff numbers on contract management at the same time as the role of the private sector in public services was growing.

And how did the private providers behave? Appallingly. G4S and Serco overcharged the Ministry of Justice for years on electronic tagging contracts. Two other G4S contracts have been referred to the Serious Fraud Office and another Serco contract has been referred to the City of London police. The committee already reported on Serco's altering of performance data on its contract for out-of-hours GP services in Cornwall.

And on it goes. None of it makes a blind bit of difference. G4S bungle an Olympics contract, exposing the UK to global humiliation, but they carry on their relationship with Whitehall regardless. It's like commissioning the man who forgot your wedding cake to make you dinner for the rest of the year.

Serco's contract running the immigration detention centre Yarls Wood came just after the announcement of a National Audit Office inquiry into how it was spending taxpayer money amid allegations it had "inflated certain figures".

G4S' failure during the Olympics did not stop it winning further government contracts

It's common for contractors to fail to show a "duty of care in the use of public funds", as the committee puts it. And why not? G4S' bonus scheme is 75% dependant on financial results – not social ones. The comptroller and auditor general told MPs that firms as large as Serco and G4S struggle to control the way bonuses incentivise certain behaviours because of their size.

And these are seriously big companies. Serco employs 120,000 people in 30 countries, providing everything from Canadian driving tests to UAE air traffic control. They can typically undercut smaller companies or charities in the bidding process. They then sub-contract out the smaller work – usually with tougher, hard to reach, less profitable cases – to charities or foundations.

This often has the effect of impoverishing charities. A recent National Coalition for Independent Action report found charities were being forced into imposing zero-hours contracts on staff, asking unpaid volunteers to take on extra responsibilities and prioritising their service around "a narrower spectrum of people in need".

This isn't competition. It is a private monopoly.

As the report today found, competition should require real consequences for those contractors who fail to deliver. But this manifestly does not occur. The government gave the impression it was halting Serco and G4S contracts while at the same time extending them, awarding new ones and negotiating for future ones.

Contracts are locked in in a manner which gives the provider maximum leeway and the taxpayer none. Today's committee report calls for the government to be able to "manage costs and performance throughout the contract's life and avoid the taxpayer being locked into unreasonable and out-dated costs".

G4S provides various public services, but is often at the sharp end of criticism from Commons committees

It then says it will pay careful attention to the Ministry of Justice's contracts for privatised probation contracts as a litmus test. It is unlikely to prove a particularly encouraging one. Two firms - Sodexo and Interserve – were put in charge of over half the services in England and Wales. Sodexo's contract for the north-east will operate in the same location where they run Northumberland prison, meaning they are paid to reduce reoffending and put people in jail.

Not only that, but the sell-off meant the wife of the probation inspector was also the deputy managing director of a private justice company which won six of the 21 regional contracts. This obvious potential conflict of interest, whereby services are inspected by the husband of the person profiting from them, has been repeatedly defended by justice secretary Chris Grayling.

The contracts tie the hands of a future government for ten years. No matter how badly they go – and these contracts could cause deaths if they are as catastrophic as critics claim – it will be financially devastating to change them.

TTIP could make private involvement in the NHS impossible to reverse

Not only is Whitehall's attitude to private provision unlikely to change, but the financial safety net offered to these firms will soon be immeasurably strengthened by the TTIP trade treaty between the EU and the US. This will put corporate lawyers in the position of judges in a shadow legal system available only to investors which will financially penalise nation states for any action they take which threatens their profits.

When Germany decided to close its nuclear power plants in the wake of the Fukushima, Swedish nuclear energy firm Vattenfall took them to an investor tribunal. When Australia introduced plain packaging for cigarettes, US manufacturer Philip Morris announced it would pursue all available legal means to prevent it.

TTIP negotiations are held in secret. But once they are concluded we are likely to see ruinous financial attacks on governments which try to extract private firms from their public services.

Despite all the evidence of its failure, the free market experiment in public services continues. Things will not improve until we get over our naive faith in the efficiency of the private sector.

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