‘Shadow state’ being created by privatisation of public services

‘Shadow state’ being created by privatisation of public services
Public Sevice Europe, by Sam Simmons

Excessive profiteering by private companies has no place in our public service markets but it is already damaging many sectors and hurting ordinary citizens – warns campaign group

The way the British government provides public services is rapidly changing. For decades, direct provision has been giving way to outsourcing to the private sector. This is accelerating fast as new sectors including the police and health service are being opened to marketisation. But a number of sectors including prisons, welfare-to-work, children’s homes, foster care and adult social care are already wide open. Large private-sector players are vying for high value contracts. Too often, multinational firms are scooping up large shares of each market.

Already, the outsourced public services market is worth £82bn a year and this is predicted to rise to £140bn over the next two years. As a consequence, we are seeing a ‘shadow state’ emerging – evidenced in a new report by Social Enterprise UK – in which private companies are moving large swathes of money out of the public realm and into the pockets of a wealthy minority. In their drive to maximise shareholder profit, they are stripping wealth from communities, degrading the quality of services and in some cases fuelling further social problems.

Despite this, current commissioning practices favour these companies – creating a market where they are too big and too complex to fail. A small number of companies have huge and multiple stakes across different services: transport, prison, defence, health, education and more. All provided by one monolithic organisation, building up the United Kingdom government’s dependency on individual providers and placing a huge amount of power in their hands.

The full effects are felt on the frontline. In a bid to lower costs, private companies are delivering inadequate services that often put the most vulnerable people in society at risk – whether it is children and the elderly in care homes or disabled people. For staff delivering adult social care, they are falling victim to what’s known as a ‘race to the bottom’, where cutting costs in services often means cutting wages while staff turnover is high and morale is low. It is plunging care workers into poverty and spreading costs to other government departments that are forced to foot the bill when in-work benefits are needed to sustain the workforce.

As well as the public, charities and social enterprises are bearing the brunt of this damaging culture. They are the organisations we believe are most adept at delivering services that put people first, who have often worked for years at the heart of the communities they support; building their expertise around local needs and reinvesting profits back into the services they provide. Yet they are being squeezed out of our public service markets. Contracts are becoming so large that only one type of provider is able to bid. When the government put services out to tender through its flagship work programme, one company took nearly a quarter of the £3.3bn total.

Unlike their private counter-parts, many charities and social enterprises do not have the vast reserves needed to bid for the contracts and deliver on a payment-by-results basis. When charities and social enterprises lose out to companies like Ingeus, whose chief executive Therese Rein owns 97 per cent of the company and which paid £3.8m in dividends in 2011, it is important that civil servants question whether public money is being spent on the provider that is maximising value for communities and society.

The Shadow State report is a warning of the risks that lie ahead. Already in the energy sector, pursuit of shareholder profit is seeing fuel prices soar at the expense of the consumer. Fuel poverty is endemic and the government is helpless when faced with the stranglehold big firms have over the market. It is critical our public service markets take a different course. The Social Value Act offers commissioners and public bodies a lifeline to secure services from providers that work to achieve social impact, and wider economic value, not shareholder profit.

The act, which comes into force in January, is designed to help embed social value in every procurement and commissioning decision made, so that service users’ welfare is valued more highly than shareholder profit. Transparency and accountability are also key, as is a mixed market which sees social enterprises and charities as core providers of public services. Excessive profiteering by private companies has no place in our public service markets – not when the human relationships which quality services are built upon are put at risk because of it.