Public and Commercial Services Union

Public sector – the ultimate guarantor

Nowhere in the world are universal public services delivered solely by the private sector.

There will always be a need for a public sector to provide those services that the market alone cannot adequately deliver.

These services exist not for profit, but to support the social, economic and environmental well being of communities . The Government takes on responsibility for their funding and the regulation of their quality and delivery.

It also has responsibility for the risk of service failure – a risk that as we have seen in the cases of Railtrack and NATS is never really transferred, no matter who provides the service. For a detailed examination of the relative merits of public versus private provision, see the PCS sponsored document “The Case for Civil and Public Services : An Alternative Vision”, available from PCS HQ, Protect Public Services Unit.

Private sector inefficiency

It has been argued that in genuinely competitive industries in the manufacturing and retail sectors, with well informed and empowered customers, privatisation can improve incentives, reduce costs and raise the quality of service.

Even were this so, there is little logic in extending privatisation to sectors that are natural monopolies such as the transport network and water utilities, and no case at all for subjecting universal public services such as health, education and welfare to the dictates of the market. This has not deterred successive UK governments from doing so, with predictable results.

The programme of privatisation and outsourcing now increasingly threatens the Civil Service. Gordon Brown’s controversial programme, announced in 2004, of 80,000 job cuts in the civil service has led to increased outsourcing in order to plug the gaps left in service delivery.

As of mid-2008, over 20,000 Ministry of Defence civilian staff face job cuts and privatisation which will adversely affect the quality of logistical support to the UK’s armed services.

Areas under threat of privatisation include specialist and basic training, and most of the defence supply chain – including procurement and delivery of frontline equipment, and IT and military communication systems. Plans to outsource training in languages and driving military transport were postponed due to union pressure, but a fully integrated support system for the UK’s armed forces is still under threat from private sector provision.

An investigation by Channel 4 News and Computer Weekly into the Defence Information Infrastructure project (DII) found that the MoD and its main private contractor, the Atlas consortium, had delivered only about a quarter of the systems that were due under the original plan to have been implemented by the end of July 2007.

Although the House of Commons were informed that the overall projected cost of the DII would be £4bn over 10 years, the cost is now estimated at more than £5bn. The Chief of Defence Materiel, General Sir Kevin O'Donoghue, admitted in October 2007 that there were "major problems" at the first site to have DII installed.

One of the most alarming examples of civil service privatisation was the government’s 2003 plan to privatise the UK’s Forensic Science Service.

Only a campaign by PCS and Labour MPs forced the government to retain the service under public control for two more years. After this period, a form of semi-privatisation was taken forward anyway and the FSS was transformed into a “GovCo”, a company in which the Secretary of State is the sole shareholder.

The GovCo has not been a commercial success. If full privatisation now goes ahead, it will make the UK the only country in the world that considers the detection of crime should be a matter for private profit. The possibilities of miscarriages of justice are obvious.

More recently, the government decided to outsource the IT functions of the Office for National Statistics (ONS) to private contractor Fujitsu Services. It is unlikely this will offer value for money.

In addition, there are concerns that individuals and businesses will not now provide sensitive information to the ONS because it will be handed to a private company (Fujitsu, due to its US operations, may also have to divulge that information to the US Government under the terms of the US Patriot Act).

The private sector is now intruding in to areas previously thought of as “core” public services. One of the UK Welfare State’s historic achievements was the replacement of ad hoc private and charitable provision for the needy with properly resourced public bodies delivering a national service. From the pre-WWI Labour Exchanges to the modern Job Centre Plus network, the delivery of unemployment, sickness and other benefits to the disadvantaged, whilst assisting their path back to work, has been more effective for a co-ordinated national approach.

Now the Government is to put the clock back by outsourcing programmes aimed at the long-term unemployed to the private and voluntary sectors. It also proposes an increase in “conditionality”, i.e. tightening the criteria for receipt of benefits for single parents, the sick, disabled people and carers.

That private contractors have their own financial imperatives (to deliver a good return to their shareholders) with which a responsible public body is not burdened is not seen as a problem. If paid by results, it is feared private contractors will concentrate their services on more job-ready clients whilst those with more intractable problems will be quietly parked or forced into low quality “McJobs.”

Two tier workforce

Private contracts make savings by reducing salaries and cutting jobs. This can lead to the emergence of a two-tier workforce, with terms and conditions much worse for new employees than for staff transferred under TUPE (for more detail on TUPE and the Two-Tier-Workforce Code, designed to prevent these problems, see ANNEX B and ANNEX C).

A private sector employer will be far more content to accept high staff turnover, as many believe low staff turnover is unhealthy and will take action to encourage staff to move on.

The two-tier workforce generally is a disunited workforce with lower morale. High staff turnover also makes it difficult for employers to meet civil service vetting standards; this can be a particular problem when work is secondarily outsourced to an agency.

Imperfect competition

The nature of a contract can also be a problem. One risk is that too much is thrown into a contract, with highly specialised areas that will present additional problems being included without a proper assessment. If this is the case, PCS representatives should challenge this from the outset, suggest separate scrutiny of these areas, and attempt to limit the scope of what is being transferred.

Where there is limited provision of a specialist service privatisation can actually increase costs. This can be through staff exercising their market worth and driving up costs (e.g. train drivers post-privatisation). Or it can be through a monopoly supplier driving up the costs of the contract if any new requirements become apparent, especially if the contract is for longer than three to five years.

The price is fixed against known requirements at the time of transfer. If these change, the contractor can insert additional charges. If there is not enough competition for the department to challenge this, then they will have to pay whatever it costs.

Consortia

In some instances employers may work together to win a contract, but revert back to their normal competitive state post-transfer. Where staff had previously worked together for a government department they now are divided by the competing employers, and sharing routine information becomes difficult.

As the employers compete, they fight over the more lucrative aspects of the privatised contract, and this can lead to further TUPE transfers between the employers.