The privatisation game: winners and losers

By Clare Sambrook
March 7, 2014

Privatisation hurtles on in the UK, regardless of the damage. Even David Cameron and George Osborne acknowledge that we have been badly served by the Private Finance Initiative (PFI), under which companies build hospitals, schools and prisons, then lease them back to the state, locking taxpayers into decades long maintenance contracts.

In Yorkshire, to take one modest example, the cost of rebuilding Calderdale Royal Hospital is £65 million. The public will end up paying £773 million. For providing one extra grit bin (value £200) outsourcer Amey charges Birmingham Council £4,500, the BBC reported the other day.

PFI will ultimately cost the taxpayer £300 billion, a Guardian investigation has revealed. "The irony is that we privatised the buildings but nationalised the debts. It's crazy," said Labour MP Margaret Hodge, who chairs the Public Accounts Committee that is supposed to guard taxpayers' interests.

The outsourcers are making a mess of things. There's the contracting out of court translation services (Applied Language Solutions and then Capita), the army recruitment fiasco (Capita again), the degradation of asylum housing (Serco, G4S and Capita), the dangerous experiment that is Birmingham's Oakwood Prison (by G4S).

Last week, disability minister Mike Penning had to make an 'unreserved apology' after news got out that the government's back-to-work assessors Atos had relentlessly pursued a woman in a coma.

Having made what's known in the jargon as a total bollocks of the task, Atos is trying to negotiate an early release from its obligations, blaming death threats.

Regardless of all that, the government has invited Atos to manage the extraction of our personal health data for commercial exploitation and medical research.

Is there no better candidate than Atos? Apparently not.

When contractors' failures come to light, privatisation's defenders step forward to say that we shouldn't let the odd slip up blind us to the benefits of outsourcing.

Here's economist DeAnne Julius, given a 700 word advertising opportunity by the Financial Times: "It would be wrong to use the cases of G4S and Serco, and their contracts with the Ministry of Justice, to condemn the industry, especially before an investigation of the circumstances has concluded," she wrote. And:

"Using a specialist provider whose reputation and share price are on the line, commissioned and monitored by an in-house procurement team, results in higher reliability, better quality and cost savings – it is better than doing it yourself. It’s a hat-trick too good for the public sector to pass up, especially when money is tight."

Where's the evidence?

The FT describes Julius as "a former member of the Bank of England’s Monetary Policy Committee" who "led the Public Services Industry Review (2008) for the department for business".

They neglected to mention her part-time directorships — at Serco (the outsourcer), at Roche Holdings (healthcare and pharmaceuticals), at Jones Lang LaSalle (global real estate), at Deloitte (described as the 'Big Swinging Dicks' of PFI).

Ruby McGregor-Smith become chair of the CBI's Public Services Strategy Board last year, not long after she'd scooped that £730,000 windfall. “UK business plays a hugely important role in delivering many public services around the country," she said. And:

"It is crucial, at a time when private provision is under intense scrutiny, that we demonstrate the positive impact that the private sector can make in transforming services and generating value for taxpayers through greater competition."

Four years ago she was one of 35 business leaders invited to sign a letter in the Daily Telegraph, urging Chancellor George Osborne to cut public services. Reducing the budget deficit quickly, they claimed, would "deliver a healthier and more stable economy".

They said: "everyone knows that when you have a debt problem, delaying the necessary action will make it worse not better."

The BBC's Robert Peston noted: "there is a whole school of economists . . . who would describe that statement as laughable."

Austerity politics creates work for outsourcers regardless of whether they do things more efficiently than the public sector, or not. The PFI model that accountants have dreamed up keeps capital spending off the government's balance sheet, making the official budget deficit smaller. Pushing public money into private hands shrinks the state and weakens organised labour.

Who gains, then?

The big accountancy firms who frame the contracts that serve taxpayers so badly are reckoned to have made £1 billion in fees from the Private Finance Initiative.

The winners include management consultants like McKinsey.

And politicians who have taken fees, donations or directorships — like Michael Gove, (Christofferson Robb & Company), Lord Reid (G4S), Alan Milburn (PricewaterhouseCoopers), Virginia Bottomley (Bupa), Lord Darzi (GE Healthcare) . . .

Capita's founder, Rod Aldridge, lent the Labour Party £1 million.

Who gains? Civil servants like David Griffiths. He led the government's review of "probation efficiency", developed the commissioning policy, then jumped ship, becoming director of probation and community services at G4S.

Financier David Metter has made more than £80 million for himself. He owns or co-owns 28 NHS hospitals, 269 schools, the Ministry of Defence HQ, a Scottish motorway and a Welsh jail, according to the Daily Telegraph. (The chief apologist for PFI, here he is running rings around flatfooted MPs on the Public Accounts Committee).

Who gains? The accountants who run the outsource companies: G4S's chief executive Nick Buckles built a fortune of more than £20 million before the fraud scandal forced him out last year. Serco's departed multimillionaire chief executive Chris Hyman (Ruby's former boss) races Ferraris for fun.

Capita's chief executive Paul Pindar trousered £8.5 million last year after cashing in £6 million worth of shares to fund his divorce. He retired last week, to "establish a portfolio of private equity opportunities".

Austerity pays.


© Clare Sambrook is a novelist and journalist. She is co-editor of openDemocracy's OurKingdom section and co-founder of End Child Detention Now. She is also winner of the Paul Foot Award and Bevins Prize for outstanding investigative journalism in 2010, as well as being an Orwell Prize nominee in 2013.

This article is excerpted from a longer one entitled 'Fail and prosper: how privatisation really works', published on OurKingdom here: It is republished under a Creative Commons license which Ekklesia also operates. Further details below. Some rights reserved. Visit openDemocracy here:

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