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Privatisation by stealth set to soar

Whatever the result of the general election, private sector corporations are eagerly looking forward to getting their hands on larger and larger areas of public services as state spending comes under pressure because of the budget deficit.

The trend was set as soon as New Labour was elected in 1997 when prime minister Blair declared that what mattered was “what worked” – not what sector the service was in. Within a short period, contracting out in Britain surpassed every other major industrial country in its size and scope.

Total British government expenditure stands at about £620bn, of which just over a fifth is contracted out to companies operating for profit. You name it and the private sector is involved. They clean your streets, maintain social housing, run prisons and detention centres, train military pilots, transport prisoners, collect parking fines, maintain databases, inspect schools, administer the criminal records bureau and collect TV licence fees.

This is in addition to full privatisation of public services, as well as the so-called public private partnerships (under which the London Tube system is part-privatised) and private finance initiative (PFI) partnerships. Under these, the private sector build new projects like hospitals and schools which they then lease back to the public sector at vast expense because the state picks up the interest on the finance.

With all the major parties promising to cut state spending and find cheaper ways to run services, the leading companies in the field are rubbing their hand with glee. Their shares are soaring as the market anticipates rich pickings.

Shares in Capita, the back-office specialist, closed at 796p on Friday, a record. Shares in Serco, which runs prisons and welfare-to-work schemes, are at their highest since November 2000. The firms have told the parties that they can run services 30% cheaper. “There is almost no area of public services where we wouldn’t be able to help provide efficient and quality services,” said Chris Hyman, chief executive of Serco.

Local authorities account for a fifth of Capita's business, which describes itself as “the UK’s leading outsourcing company”. Outsourcing is increasingly being applied to "frontline" services. Recently outsourcing firm Tribal Group announced it had won a £64m five-year contract from the government funded education inspection body Ofsted to inspect almost half of England's nurseries.

“It will be a really great opportunity,” says Ruby McGregor-Smith, chief executive of Mitie, the facilities management group whose contracts include providing security services for courts across the UK. “I think the challenge can be met.”

In 2008, the DeAnne Julius report commissioned by the government estimated that services outsourced to the private sector cost 20% less. The explanation is obvious. The “savings” are more often than not achieved by cutting jobs and hiring new staff on inferior pay and conditions.

Dubbed “stealth privatisation” by trade unions – whose leaders have done precious little to resist the process – the prospect of an even larger market in the near future has produced a spate of mergers. Babcock, which makes most of its profits from defence contracts, has taken over VT, formerly Vosper Thornycroft and once famous for shipbuilding, which reinvented itself as a provider of services to cash-strapped government and local authorities in a bid to diversify its business.

With all the parties capable of forming a government after May 6 committed to contracting out, oursourcing, private-public partnership – call them what you will – it is just one more reason that the election is a fraud. The best thing you can do in these circumstances is hang on to your vote and instead use your energy to begin to create real democratic politics and a society where services are provided because they are needed.

Paul Feldman
Communications editor
12 April 2010

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