From the TUC

Public services? “Shareholders first” say CBI

29 Sep 2015, by in Public services

In one of his occasional speeches on public services last month, David Cameron eulogised the role that private companies play in revamping things:

What energises many markets are new insurgent companies, who break monopolies and bring in new ways of doing things. Opening up contracts to small businesses spreads entrepreneurship and drives innovation

The innovation and efficiency that “small businesses” (note: the PM is never allowed to talk about big business when it comes to public services) serves a higher progressive cause:

Reform – be it breaking state monopolies, bringing in new providers or allowing new ways of doing things – can cut the costs of these failures both economically and socially and help advance the progressive causes of spreading opportunity and enhancing social mobility that we should all care about.

Two items in today’s Financial Times may caution us against sharing the Prime Minister’s zeal.

First up, the CBI’s John Cridland (£) bemoans the way in which the public services market is being undermined by fussy public authorities burdening businesses with contract requirements about price, margins, staffing and additional obligations, such as the national living wage.

To you and me these are exactly the kind of guarantees that safeguard the interests of service users and tax payers. CBI members see it differently:

The danger is that you thin the market because people say “actually it’s not in my shareholders’ interest to take this work, I can’t make a difference, I’ve got other things my bid team can go for in other countries” … And this fantastic public services industry suddenly starts going for business in the parts of the world where there’s business to be done.

Not sure where these other parts of the world are but I’m guessing he’s not talking about the regulation-free, low wage paradise of the European Union here.

The second item bears this out. The privatisation rush in the NHS seems to be tailing off  a bit (£). The surge in outsourcing following the passing of the Health and Social Care Act in 2012, with the number of services out to tender growing by 14-15 per cent a year, has hit the buffers with much flatter growth in the last 12 months. A number of high profile withdrawals from the health service market suggests that Chrstian Mazzi, head of health at Bain consultancy, is right when he says “we are seeing private sector companies walk away and say they cannot make any money”.

With real terms cuts across the health and social care sector, it’s no wonder that margins are failing to materialise, fewer cherries remain to be picked and “shareholder interest” is waning. Cridland’s view that’s overly prescriptive contracting is to blame is somewhat undermined by the laissez-faire approach taken by most CCGs, with 70 per cent failing to monitor contracts or enforce standards and 60 per cent unaware if they’d even visited private providers’ premises, according to the FT.

Of course, we should caution against complacency. The NHS market is here to stay and privatisation of non-clinical, community and mental health services continues at a pace. But the point needs to be recognised, the private sector walks when the shareholders lose interest.

Which brings us back to our friends at the CBI. What is holding back John Cridland’s members from delivering the public services revolution the Prime Minister craves? Well it seems they need “more opportunity and fewer no-go zones” and greater control over the levers of productivity – staffing levels, price and margins.

Draw your own conclusions.