Progress | Centre-left Labour politics

After Carillion

Following Carillion’s demise, the temptation is to turn our backs on public-private partnerships. We should draw up a new deal instead, writes Jack May.

The numbers are so vast it is hard to begin to comprehend them. Even if we do not enter any private finance initiatives in the future, charges continuing into the 2040s amount to a cost of £199billion to the taxpayer, a report by the National Audit Office shows. Public sector outsourcing is worth almost £100bn a year, which constitutes half of all government spending on goods and services.

In the specific case of Carillion, too, the numbers are vast. At the point of its liquidation last week, Carillion had almost £2bn in debts, but only £29m left in its coffers. Carillion has almost 30,000 small businesses as creditors, and we do not yet know the full impact of its demise on suppliers’ fortunes.

The motivation to keep costs down and find the most efficient way of doing things will never be present in the public sector the same way it is in the private sector, and the standards expected of a contractor can be higher than those of government. Any private outsourcing firm guilty of the omnishambles of universal credit or the incompetence much of Home Office business would be dragged through the streets relatively promptly.

Turning our backs entirely on private-public cooperation and buying our way out of PFI deals is as wasteful as it is foolhardy. We pillory this Brexit government for spending millions to exit an arrangement while having no serious plan for its aftermath; we cannot seriously suggest pulling out of PFI agreements without detailed plans for what replaces them.

This mess does not mean that the private sector is innately evil – more that we are inept at handling them. From Margaret Thatcher’s policy of compulsory competitive tendering to the over-optimistic way Tony Blair and Gordon Brown believed PFI was the answer to everything – as Alan Milburn said when health secretary, ‘it’s PFI or bust’ – private sector involvement in public service delivery has been so lacklustre that it is unsurprising that we have been lumped with terrible deals as dead weights around our national neck.

To spare the public purse from disastrous deals, we need a radical new approach to public-private partnerships. Not mere tinkering  like David Cameron and George Osborne’s ‘PF2’, but a new social contract between state and business in service delivery.

The government legal department should be bolstered, its commercial wing expanded, and funding no longer provided quasi pro-rata as is currently the case, but as a consistent, reliable stream to ensure it has the teeth to draft, scrutinise, and veto contracts not in the public interest.

We need a select committee which sole focus is to scrutinise all aspects of private finance initiatives, outsourcing and procurement. It would work across departments, and be willing to challenge and scrutinise ministers at every level.

We must move from a private-first mentality to a public-first one. When it comes to outsourcing, a bullish attitude has merits. Private companies must understand that the government is not compelled to contract the private sector, and any deals must be in the taxpayers’ interest. This means providing value for money, encouraging  innovation and efficiency even over the medium and long-term, and espousing the values we believe in.

Their contracts must also be genuinely accountable. Unions must be recognised by companies taking on public contracts, and both workers and service users must be represented on the boards of companies taking on public work. Clear figures must be published about the cost of these services and contracts, and a body akin to the Office for Budget Responsibility should produce independent assessments of their ongoing worth.

The Smith Institute suggests in its latest report on the topic that companies taking on public work should be subject to a version of Freedom of Information. With careful drafting and certain exemptions, firms should be open and transparent.

The problem of moral hazard, which meant that the government approved more Carillion contracts with Network Rail and defence work even as alarm bells were ringing, cannot continue. No private provider should be ‘too big to fail’. Procurement must be diversified, offering more small and medium enterprises a chance to compete rather than focussing on a megalithic oligarchy of a few giant firms.

There must be serious consequences for failure. Whether G4S and the Olympics or Serco and prisoner tagging, the consequences for private companies getting it wrong on public work must be debilitatingly severe. They should be blacklisted from new contracts for a number of years, and fines of a large scale would be a welcome gift to the Treasury’s coffers.

Private involvement in the public sector is in a pitiful state, and Corbyn’s temptation to throw the baby out with the bathwater is understandable. We should instead consider why it got so murky in the first place.

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Jack May is a Progress columnist, writer and editor. He tweets at @JackO_May

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