Barnet: a case in outsourcing disaster

3:08 pm - March 23rd 2009

by Kate Belgrave    

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With more than two million people unemployed, house repossessions on the rise and falling incomes – health, education, housing support, welfare and job support become ever more important. Local authorities are already reporting a rise in demand for debt counseling, housing advice, employment guidance, community finance and business support. The DWP has had to take on extra staff to cope with growing demand.

So this is hardly the time to play private sector lottery with funds meant for the public sector. And yet, public sector leaders continue to promote the lie that private provision of public services is cheaper, more efficient, and inevitable. Pity too, that the public isn’t buying it.

In May last year, the Tory-held Barnet council in North London accepted – to the consternation of locals and staff – a cabinet report that essentially proposed that the council consider outsourcing all council services to the private sector and/or external providers.

It was drastic, regressive stuff, even for Tories. On the bright side, I thought the report might turn out to be a suicide note. Who isn’t aware of the catalogue of disasters that is the private sector’s record in public service provision?

The report failed to acknowledge that banks have played key roles in the privatising of the public sector – or of the trouble this could mean. As Paul Gosling observed in his ‘Rise of the Public Service Industry‘ report last year, the banks’ vulnerability may yet compromise public services:

[The banks] provide finance, including by putting together infrastructure funds, may provide short-term and longer-term funding for acquisitions, acting as intermediaries in raising capital, for example in the issuing of bonds and advising clients and contractors in PPP and other contracts involving the public sector.

Gosling lined up the Royal Bank of Scotland, Barclays, Lloyds TSB, HBOS, Deutsche Bank and Macquarie as key players.

Worrying was the council’s declaration that it would “look to scale down to a size which would mean it delivering only what the local authority must deliver to achieve efficiencies and improved services for residents,” as if these last two weren’t mutually exclusive.

Certainly, residents and unions got the point. It didn’t take long for them to hear about the council’s plans, or to get extremely upset about them. Well-attended protest followed well-attended protest as Barnet residents raged against the council – to good effect, it appears.

Badly compromised already by the Icelandic banking fiasco (Barnet had about £27m invested in Icelandic banks), a bitter, and as-yet unresolved two-year dispute between its outsourced careworkers and the Fremantle Trust, the aggressive pursuit of exaggerated financial settlements by existing private partners like Catalyst Housing, and local fury at recent council proposals to close down the sheltered housing service and make welfare rights unit cuts, the council has been forced to delay a decision on its proposed guillotine drop on inhouse service provision.

Barnet – case study
All this gives us Barnet as a nice little case-study (as with Hammersmith & Fulham) to show how public service provision in the modern age when outsourced.

Disciples of the public sector bad, private sector good school have been allowed to bang on for far too long, even as their beloved private sector has failed utterly to deliver.

Barnet Council’s aim is to distance itself from direct provision of public services altogether (despite a now-comprehensive body of research on the problems) and to focus its lofty attentions on strategy. It says:

To free up the council to focus on strategic activity, it is proposed that we explore the feasibility of developing a special purpose vehicle… the council’s direct service delivery role will shrink as its strategic capacity expands…

And what will these freed-up strategic minds focus on? On making money, of course – and eliminating services that don’t lend themselves to sales. Like so many councils before it, Barnet fondly imagines a world where it spends your tax money setting up joint venture companies with private partners, and then selling services to other public bodies – for all the world as if other public sector bodies were in the market for council services.

I’ll get to that soon enough too.

Photos from December 1 2008 Barnet residents’ protest against council outsourcing proposals.

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About the author
Kate Belgrave is a regular contributor to Liberal Conspiracy. She is a New Zealander who moved to the UK eight years ago. She was a columnist and journalist at the New Zealand Herald and is now a web editor. She writes on issues like public sector cuts, workplace disputes and related topics. She is also interested in abortion rights, and finding fault with religion. Also at: and @hangbitch
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Story Filed Under: Blog ,Local Government ,Trade Unions

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Reader comments

It’s the same at Conservative Westminster Council where Kit Malthouse once said that he would remove all Council Tax by 2012. He’s left Westminster now and brought his particular brand of fantasy politics over to the GLA (latest wheeze: an island airport) but the dream still lives on.

What nobody seems to be able to explain to me is how this dream will a) improve public services and b) be cheaper for the people using those services.

People would be less supportive of outsourcing if council staff were more pleasant and dynamic and less jobsworthy. There should be a full audit , published, of all employees salaries, working hours, holidays , pensions and other entitlements- including agency and consultancy costs. We should know how many staff work in each department.Many people think there are too many paper pushers , such as equality officers and not enough blue collar staff repairing homes and sweeping streets. The unions need to prove to the public there is not over manning, especially of useless white collar office dwellers.

How much is spent on LEA staff and offices which could be spent on schools? Salaries of senior staff should be reduced. A chief executive is not worth more than £100-120k and none should have more than 25 days holiday a year and work less than 37.5 hrs a week.

An efficient and effective council employeed unit should be cheaper in the medium and long term than outsourcing .

Private provision of public services is cheaper and infinitely more efficient. One of the main reasons for the colapse of socialism in Eastern Europe was that all public services were provided by the state; pity that such lessons are forgotten so quickly.


Private provision of public services is cheaper and infinitely more efficient

If I could be so bold – “Bullshit” sir!

Like Adam – I would like to see you ‘proof’ of such a thing.

The idea that private provision is always more efficient than public is laughable, particularly at a time when private healthcare in the US (where spending on health is 16% and rising rapidly, and where 30% of private health resources are spent on billing, advertising and administration). Private provision of social care is not more ‘efficient’, it is simply able to pay less, strip away pension provision, reduce training budgets and minimise standards of care. The ‘savings’ are simply passed on in the form of externalities – more means-tested benefits for those without pensions, greater costs to the NHS as those being ‘cared’ for are admitted and re-admitted back into a hospital/care-home merry-go-rtound due to inadequate levels of care in the community, etc.

Nowhere in the world has the market been able to provide health, education, pensions of social security for more than a small proportion of the population. The state has always had to step in to fill the vacuum, not through some ideological ambition, but because there is no alternative. The private companies now providing care are not working in a ‘market’, they are simply giving a substandard service at the taxpayers’ expense, while funds are siphoned off of funds to private shareholders.

I note that the contributor extolling the efficiency of private provision gave no examples.

On health care, for example, the administration could develop the ideas advanced by Senators Robert Bennett (R., Utah) and Ron Wyden (D., Ore.) to encourage employers to raise employee salaries by an amount equal to the value of the health benefits they pay—and then to create a competitive national marketplace in which employees could buy health insurance plans for themselves.

Conservatives (and Wyden) want to emancipate as many insurers as possible to offer the widest diversity of plans, everything from barebones plans at rock-bottom prices to gold-plated service at full price, with insurers incentivized to deliver improving service at declining prices—much like markets for every other good and service.

“such as equality officers”

Out of interest, do you actually know what these do?

Yep, Martin – I’d be interested in evidence as well. You’re simply parroting prevailing right wing rhetoric when you state that private is better than public and leave it at that. PFIs, PPPs – come on. It’s no longer enough to simply state that private is better than public – stating that is as easy as it is irresponsible. That’s my point. It’s time to move on from that too-easy rhetoric, to a constructive discussion about the way our money is being spent, and who the true beneficiaries of that money are.

Chuck H is right – privatising isn’t about providing a better service. It’s about big companies getting hold of public service contracts and making money from those contracts by sweating the assets – usually by cutting salaries (a la Fremantle, Care UK, etc), and leave allowances, etc. Fair enough in some respects – that’s what companies do. The question is whether they ought to pursue that model in the public sector and whether we get better service provision as a result.

Chuck H is right – privatising isn’t about providing a better service. It’s about big companies getting hold of public service contracts and making money from those contracts by sweating the assets – usually by cutting salaries (a la Fremantle, Care UK, etc), and leave allowances, etc.

The argument from the ‘private is good’ crowd is that privatisation doesn’t have to equate to corporatism, where services formerly provided by monolithic state institutions are outsourced to monolithic private institutions (all of the downsides with less accountability). It is possible to imagine a world in which a larger number of small, competitive organisations would provide publicly-funded services and would make better use of innovation and adaptation to do so. The question to ask is “why does this never happen?”.

Fair point, Rob – I think it never happens for the very simple reason that the private sector has a profit motive. It’s not enough to simply win a contract – a company’s shareholders expect a return, and they get that by cutting costs – salaries, etc. I don’t see that model changing simply because the scale of a providing organisation does.

What’s missing in this discussion is true competition.

If we as the customers had a choice about who we pay for rubbish collection and schools etc then we would see a better standard of service. Obviously companies want to make profits but if they do that at the expense of service – they lose their clients. This drives what is known as – efficiency!

Here we get the government giving contracts to private companies for 3 years – on the basis of what – G-d only knows – and they make as much money off of us as they can in those three years because the contract can’t be broken and then after three years they call themselves something new and bid again! It doesn’t take a genius to figure out why its not working.

“What’s missing in this discussion is true competition.

If we as the customers had a choice about who we pay for rubbish collection and schools etc then we would see a better standard of service.”

No, we would have three times as many rubbish vans traveling the same routes, clogging up the same roads, and costing, er, three times as much to collect the same amount of rubbish.

10. and 11. Councils are going to have to publish all their expenditure and especially their staff costs and numbers in order to become fully accountable. Councils need to prove that they are providing the best possible value for money . The the call for outsourcing will die down. The reality is that much council spending could probably cut and move to front line activities. Councils need to change fat to muscle. It may be possible to employ fewer staff but pay them more.

I’ve been in charge of bin collections (and street cleaning and so on) in a city council. I doubt if any of the people merrily pontificating about wasteful councils have such experience.

Councils already publish high-leel financial statements every year. I don’t see anything much wrong with them publishing more detailed information, but I don’t see it doing much good. It would generate a lot more noise than signal. An important function of the council’s bureaucratic infrastructure is in helping the people responsible for budget decisions to make sense of this mass of data.

If you want to cut waste and make council services more efficient, you need your council to impose a savings requirement in each budget (something of order 3%, say), using this to generate a sum of money that the council can use to fund its political priorities (which may be new or improved services, or cuts to council tax or service fees). This is basic good practice: if your council isn’t doing this, elect new councillors.

As for private bin collections, there are two ways to do this, and both are problematic. Having bin collections done by the council enables efficiencies and economies of scale: collections can be effectively coordinated, management can be lean. If you simply contract out the entire service to one private firm, those efficiencies can be preserved. however, the council loses operatonal control of the service, making it less responsive to user complaints, and it is hard to see where the profitability is going to come from without impacting on service quality.

If instead we open it right up, and have each household contracting with its favourite bin collection company, all those efficiencies and economies go out the window. It gets a lot more expensive. Also, while the council doesn’t need to pay for collections any more, it still has a duty to ensure that rubbish is collected. Civilisation is common defence plus waste management: people who don’t get their rubbish collected cause a public health hazard, and the council has to deal with that. This would require a lot of enforcement, which is a damned expensive thing to do. Contracting out the whole service is a poor solution, but opening it up to a free-for-all is just stupid.

16. Matt Munro

“It is possible to imagine a world in which a larger number of small, competitive organisations would provide publicly-funded services and would make better use of innovation and adaptation to do so. The question to ask is “why does this never happen?”.

Beacuse we live in a world of monpolistic comeptition. In other words the level of capital needed, the corporate infrastructure, the track record, the regulatory and legislative requirements and the general credibility needed to bid for public services create entry barriers that effectively mean only a few large corporate entities can bid for the contracts. The same applies to banking, construction, transport etc which also have very high barriers to entry. It’s not a true market, which is why people like Richard Branson, Anita Roddick, Alan Sugar etc are rarities.

Good points Iain.

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