Britain - Private Blair on the warpath against public services

Jan/Feb 1999

Since Labour came into office, "public-private partnership" has become one of its central policies. Labour proposes to implement this contradiction in terms - which Thatcher, during her regime, had decreed as the basis for a newfound, "classless" prosperity. Following in her footsteps, Labour has to this end given wealthy businessmen a high profile in the government, appointing them to ministries, advisory bodies, inspectorates and new quangos.

This "partnership" is also the pillar for the "New Deal" for the unemployed, for the future "stakeholders pension" and for the financing of the sparse investment programme in public infrastructure. Of course it extends into the workplace too, whether private or public, in the form of the "partnership" between union leaders and bosses. As such it has allowed deals like the one agreed at Rover in December, where union officials joined with company management to blackmail workers into accepting over 2,500 job cuts and flexibility measures "for the sake of the company's future".

The previous Tory governments had of course already introduced private business into many areas of social and economic life where it did not exist before. They began the transformation of the social role of the state from one of providing amenities and services to the population directly to one of paying an army of private, profit-making contractors to do so instead. Blair's intention is to extend this much further still, as if his only aim was to make Thatcher's dream of a "lean government machine" come true. And "lean" can only mean less social provision.

The logic of "lean government"

Beyond Labour's on-going campaign to convince the middle class electorate that it is the most "tax- effective" party, by giving them the "best value for money", there are deeper reasons for such a drive. These reasons explain why this drive is not limited to Britain, but is common to all industrialised countries today, although the method of implementation may vary considerably.

Since the onset of the economic crisis, in the seventies, the capitalist class has been unwilling to risk its own capital in long- term investment in the productive sphere. This has had the consequence of reducing the overall volume of new value out of which profits can be generated. But it also had the consequence that the state, more and more, was required to subsidise companies through concessions to business, thereby increasing its spending deficit.

At the same time, the growing indebtedness of the rich countries made the world financial system increasingly unstable. Monetary disorder became an on-going threat for the bourgeoisies, which governments tried to pre-empt by reducing the growth of their deficits.

It is worth recalling, that before the Tories began their long term in office in 1979, the previous Labour government had already cut public expenditure significantly, including in the NHS where they cut 35,000 beds. This was continued under the Tories. This time, an increasing proportion of social resources was redirected away from the public sector and towards the private sector by all means available. Initially it took the form of crude cuts in the pay, conditions and jobs of public sector workers, reducing public services, while making increasing concessions in terms of tax to the capitalist class.

But one should not imagine that as a result overall state spending was cut. "Lean government" under Thatcher did not mean less spending, precisely because what was saved on public services was redirected to the bourgeoisie. And even in those sectors, like the ever-popular NHS, where Thatcher boasted that she was spending more, it was not the service itself which benefited. The balance of NHS spending was altered so that private firms who took over the contracts for ancillary services, accountants, lawyers, and other professional layers involved in the "restructuring process" as well as GPs (who became "fundholders"), were the beneficiaries.

PFI scam and creative accounting tricks

Under the Tories, who returned the nationalised industries inherited from the war period to the private sector, almost all the most profitable chunks of the public sector were transferred wholesale (literally) to the bosses by means of privatisation: public utilities (gas, electricity, water), transport (docks, airports, buses, coaches and railways) and telecommunications.

However not all of the public sector was easily transferable to private industry. The saga around the privatisation of British Rail showed how reluctant the bosses were to get involved in a venture where profits were not absolutely guaranteed. This was why the state undertook to go on paying huge subsidies to the new private rail companies thereby effectively paying for their profits and even part of their investment. With a few variations this has subsequently become the model for private involvement in the rest of the public sector - that is, in the area of social provision.

The "Private Finance Initiative", which was a flop when initially introduced under the previous Tory government is a good example of this. Labour has revamped this initiative in order to streamline it and speed it up and have relaunched it with enthusiasm.

The way PFI works is that the government puts out a tender for a private company to offer funding for a given project, like refurbishment of housing, a major public building or infrastructure project, as well as smaller projects involving the provision of equipment like computer systems. In exchange for this private funding, the state can commit itself to pay part of the cost itself, as a one-off payment or not pay anything at all, leaving the whole funding to the private company. But whether the state pays part of the cost or not, it undertakes to make payments to the private company involved in order to "buy" the use of the facility, be it a hospital, a road, or a school. The term of these regular payments depends on the size of the deal and can be short, like 5-10 years, or even as long as 20-30 years. The private "partner" is meant to recoup its investment through the profits it makes out of these payments from the state.

And here is the scam: had the state body (for instance a local authority) borrowed the required invesment from a bank, instead of resorting to a PFI deal, the money borrowed would be counted as a liability in its accounts, and therefore in the government's accounts as well. But, thanks to PFI, the new investment appears nowhere, and its repayment, spread out over the years of the deal, counts as the payment of a service, taken out of current revenue, rather than capital expenditure, which would increase the government's deficit. This complicated accounting trick comes at a cost, however. Because the private "partner" usually finances his investment by borrowing from a bank, his profits have to come over and above the interest he has to pay for his loan. This means that in the long run, PFI deals can only cost more to the state than if it was financing the necessary investment directly itself, even by borrowing from the banks.

An example illustrates this instance of "value for money". The University College Hospital in London is being rebuilt via PFI at a cost of £160m. However the repayments to the private consortium for the use of the buildings will apparently be between £20 to £30m a year. If this went on for 30 years, it would come to a maximum of £900m - five times the original cost!

For New Labour, this is the best of all possible worlds. The state appears "lean" since the investment is not included in government expenditure. The private sector gains a milchcow which yields guaranteed profits for decades, having had the benefit of existing resources previously funded entirely by the state, as in the case of the national network links to a new road, the rail network of the Underground system, the existing support services of the NHS in the case of a new hospital, etc.

The procedure for PFI involves a multi-staged tendering process. The final stage of negotiations with the "preferred bidder" is behind closed doors. This is apparently because of "commercial confidentiality". We will come back to this point when we discuss the proposals for "Best Value" in local government, which is meant to involve "complete" transparency, accountability and, of course, democracy! However one of the ways of pursuing "Best Value" just happens to be via PFI which cannot therefore be transparent. In fact the treasury announced new rules for PFI in December which they claim do give union bureaucracies a bigger say in the negotiations, particularly if it will involve significant transfer of workers. But union officials will only be allowed to meet the short-listed tenderers and be given information on their past performance. They would have no influence on the final selection or the final negotiations. As Geoffrey Robinson, who was at the time still "Paymaster General" said: they would have the right to "vet not veto" proposals.

According to a survey published in the Financial Times last Decmeber, the total PFI projects which have been agreed so far amount to a value of £11bn. 60% of these have involved transport - of which 27% is for the Channel Tunnel Link alone. Among such deals signed recently is a £1bn 30-year power contract to a Seeboard Powerlink, ABB and BICC consortium to provide power to the London Underground. Then there are older projects like the Edinburgh Royal Infirmary due to open in 2003 with 20% fewer beds and staff, which also involves BICC, the Royal Bank of Scotland and Morrison Construction, for £180m. The consortium will provide equipment for £120m, ancillary services and manage the service, paid by the NHS, which will "still" provide the clinical services.

Schools, prisons, computer contracts are also included. However, already the private sector is getting away with murder - as is the case with the consortium meant to be building the Channel Tunnel rail link to London, LCR, which did absolutely nothing about this project while eating up most of the money it had been allocated. As a result the government has come forward with another £1.2bn and a guarantee for the £3.8bn of the total £5.8bn which this project might cost. In other words the government may end up paying the £3.8bn - which was not included in the initial costing of the deal.

Another "extreme" example (but who knows, this may become common) is the sale of 700 social security benefit offices by the state to a consortium led by US bank, Goldman Sachs. This handing over of money by Goldman Sachs, to the Treasury, allows Brown to claim it spends less than it really does, at least on this year's budget figures. But then the state is going to have to pay back the sum through payments for rental of the offices, under a 20-year contract! This lease will cost the government a lot more than keeping the buildings as public property would have and into the bargain guarantees Goldman Sachs a regular and tidy sum.

While Blair has set up "Public Private Partnership Programmes" known as "4Ps" to promote PFI in local government and this figures prominently in the July White Paper "Modern Local Government in touch with the people" there are limits to what can interest the private sector with regard to such projects. The aforementioned Financial Times survey was sceptical as to the possibilities of much further expansion due to the reluctance of private capital to commit itself and a shortage of profitable assets owned by local councils. However, speaking of the problem in this sector, Blair's PFI Task Force chief executive, Adrian Montagu, hopefully added that imaginative deals could well develop to provide more interesting possibilities: "some of these have very low capital value but large revenue payments because they are outsourcing a large chunk of people as well". In other words, the future prospects for PFI in local government may be the tendering out of labour intensive activities, i.e., selling off the workforce itself!

CCT and local government workers

Compulsory Competitive Tendering, or CCT, which Labour plans to replace by the year 2000 with "the rose of another name", i.e., "Best Value" goes back a long way. In fact it goes back to the days when the Labour Party, in opposition, was vociferously opposed to privatisation and contracting out of public services.

CCT was first brought in by Thatcher right at the beginning of her office, via the 1980 Local Government, Planning and Land Act, for construction, maintenance and highways. This meant the subcontracting of such services either to private contractors or to so-called "in-house" bids. The latter are bids made by the existing providers of the work in order to carry on providing it, but the criterion for this was and is that it should represent substantial savings. In 1988, the Local Government Act extended CCT to such services as refuse collection, cleaning, schools and welfare catering. The following year, sports and leisure management were included. In 1996, local authority professional services were added to the list - like legal, property and personnel services.

CCT is undisguised cost-cutting. And it certainly takes no account of what the workforce or the population want. Only in one case, under the pressure of tenants associations, did the Tories feel obliged to issue guidelines for consultation in the case of the tendering out of housing management.

In order to enforce cuts and CCT, councils were "rate- capped" by the Tories. This meant that the government put an upper limit on the revenue a council could raise through rates (and later council tax). Since central funding from the government was controlled, it was meant to force any reluctant councils into cutting expenditure and particularly into tendering out services. By implementing CCT piecemeal (the government added services to be tendered out almost one by one over a number of years) and ensuring it was a behind-closed-doors business operation, it also had the effect of fragmenting and isolating any resistance there might be from the workforce.

In addition, by law, any bid from an existing council department which wanted to retain its own work had to guarantee a 6% return on any funding, under the pretext that otherwise private sector bidders would be at a disadvantage since they had to cater for profits. This meant that any "in-house" bid had to involve a 6% cut in costs, that is mostly on the wage bill.

The Secretary of State had powers under the 1980 and 1988 Acts to act directly against authorities which did not comply with CCT competition rules, by not being "fair" to all bidders.

In many cases CCT has been a farce, where despite these rules, contracts were awarded to cronies either in-house or outside. There was obvious scope for corruption - where council officials or "elected" councillors could set up companies to tender or award contracts on the basis of bribes. While accountancy firms flourished so did management consultancies blossom around this new industry of selling off public services. They offered themselves as experts to provide advice at every stage, thereby parasitising the whole process. Often these consultants were active or former local government managers (or even councillors), having the advantage of "inside knowledge". And then, when it was discovered that often the lowest bidder wasn't capable of running the operation at all, another blossoming occurred - this time of so-called "quality advisors" who would help set standards - and along with these came a plethora of new quangos to allocate quality awards like kite marks or the British Standards, like BS 2000, which does not stand for what it sounds like, but definitely should. These were meant to act as a guarantee that the service was to be maintained at a certain standard, when it was quite obviously bound to deteriorate through the under-resourcing that the cost framework required.

The consequences for the public sector workforce as a whole has been dire. Numbers and conditions have been slashed. Wages have been cut. The only protection they found to fall back on was that of so-called TUPE (Transfer of Undertakings/Protection of Employment) regulations of 1981, which were used to argue that workers who were transferred to a contractor had to be given comparable conditions and wages. But only for one year. And recently, even this TUPE regulation has been disconsidered by the courts aided by none other than Cherie Blair, the wife of Tony. As a QC, she won a House of Lords ruling which says that an employer can sack the entire workforce with impunity, before the transfer, so that they can then be re-employed under completely different, worse, contracts - which they would have little choice but to accept, given the lack of alternative employment.

"Best Value", Blair's revamped CCT

Despite Labour's criticisms of CCT while still in opposition, they chose to keep it going for another three years - till the year 2000 - rather than suspend it immediately. For instance, only a few months ago - mid 1998 - a company called ITNet took over housing benefit payments in the London borough of Islington, after a reduction in the workforce by two-thirds. The same company already administers housing benefits in Hackney and in Hertfordshire. In Islington this has led to a tenfold increase in complaints!

Obviously CCT has not been too popular - neither among the public sector workforce nor among the population which suffers the consequences of reduced services. So Blair has had to come up with a replacement for it which does the same thing, but which he can sell to his electorate, his party members in local government office and to his backers in the unions. This New Labour version of CCT is "Best Value". It will reach parts of the local government that no other privatisation plan has ever reached, since "Best Value" will apply to all services, whereas CCT only applied to specified work under the special legislation.

For the moment 37 pilot schemes among local authorities have begun. There is an increasing number of additional voluntary participants, no doubt lured by the fact that participating in "Best Value" pilot schemes exempts them from CCT, and the fact that if they start now they will be less likely to face government intervention at a later date.

But how will "Best Value" be different from CCT? Well, first of all, most importantly, and almost exclusively, in its presentation. The government boasts of the fact that this is a "lesson from America" and based on the on-going "re-invent government" programme championed by US vice-president, Al Gore. Actually the US "National Programme for Re-inventing Government" does not bear describing, being full of stuff which one would aim at five year old kids rather than adults (like "forgiveness vouchers" which managers give their staff to encourage innovation after they have made a mistake in their work!). But the heart of it is the aim to cut "overhead costs" - that is, mainly wages - from one third of all expenditure to one sixth!

So too with Blair's "Best Value". It is packaged in cute jargon and every step of the way involves asking the opinion of everyone and anyone. But consulting the "user groups" or even the workforce (if they are lucky) does not remove the compulsory element. And anyway, any consultation is likely to be via selected samples - selected no doubt by council managers, to get the answers they want.

As far as compelling councils to implement "Best Value", the new ministry responsible for this area of the public sector, the Department of the Environment, Transport and the Regions, (DETR) has even more powers of compulsion than under CCT. Local authorities will be expected in the first instance to expose all their services to review within five years. What this means is the creation of a new layer of bureaucrats, with new private consultants, accountancy firms (Coopers and Lybrand, Deloitte and Touche, Ernst and Young, KPMG, Price Waterhouse, are all already involved) armies of lawyers, market researchers etc., all getting their share of yet more public funds just to implement the process! The ultimate aim is to gain a whopping 10% increase in the "quality" of services over three years, (how much has quality deteriorated over the past decade? Certainly a lot more than 10%!), to cut costs by 5% (ie jobs, wages and conditions) and to attain a "mixed economy" of provision...

Local authorities have been "instructed" to follow the four "C's": "Challenge", "Consult", "Compare" (best-performing councils will be awarded "beacon status" and will act as benchmarks for the rest) and "Compete". Apart from the league table implications of this - which are incorporated into the guidelines - with best-performing councils having less expenditure controls imposed on them, there is the final emphasis on competition. This is expanded upon in the July White Paper in the context of criticism of CCT as follows: "The government is committed to building a competitive economy with a flexible labour market, underpinned by the fair treatment of those affected. Local government needs to play its part by securing the real efficiency gains that benefit the nation as a whole and competition in the broadest sense will help to achieve this .... CCT made the costs of services more transparent. But its detailed prescription of the form and timing of competition led to unimaginative tendering, and often frustrated rather than enhanced real competition." In other words, for Blair - or rather his minister for Local Government, Hilary Armstrong - the main problem with CCT was that it was not imaginative enough and took too long! Yes, CCT was not imaginative enough in generating artificial competition. So Labour is going to solve that little problem, well and good!

That "the guidance will emphasise that retaining work in-house without subjecting it to real competitive pressure can rarely be justified" says it all. Of course there are many ways in which such competition can go forward and authorities can choose which one - which apparently supplies the "missing imagination": joint ventures, tenders to outside bidders only; matching outside bidders with an inhouse bid; part-tendering-out; complete selling off, etc...

In theory at least, local authorities can specify so-called "non-commercial" aspects in the contracting out process such as pay, conditions, equal opportunities. However there is no compulsion for them to do so. The main public sector union, UNISON, far from challenging the premises of "Best Value" and exposing the fact that this is a thinly disguised re-run of CCT, but worse, is asking only that it is included on the "Best Value" committees. So union officials may be invited to sit on committees which administer "Best Value", and are prepared to present this as a victory to their members, when in fact they will at best be expected to condone cuts.

As for enforcing "Best Value", a section of the Audit Commission will become the "Best Value" Inspectorate to oversee compliance with legislation. The government has "swingeing" powers to intervene in the event of "failing services", and no doubt the model of hit squads for "failing" schools applies. Of course "capping" of expenditure, as it was called under the Tories, like CCT, will be abolished too, in 2000. However capping under another name is to live on. There will be a system under which the Secretary of State can make exemptions from budgetary controls but also where they can be applied. But more importantly, there is a much more insidious way of capping that the government is introducing by restricting the council tax benefit subsidy from April 1999. What this means is that if council tax is increased by more than the government's guidelines, (this coming year this is 4.5%), the subsidy provided by central government for council tax benefit will be reduced. That means that the council will have to bear the cost of paying any additional benefit itself. Just like capping, this will penalise the poorest areas, and amounts to a cap on spending anyway. But, in addition, choosing this particular target is yet another propaganda tool against people on benefit.

What makes Labour's "modernising Local Government" so utterly cynical is the actual context in which it is taking place. Every council, just about, is being told to cut its spending and make savings already. Circulars are sent round to inform workers and residents in the boroughs precisely what is to be cut - which library, what percentage of Youth services, which school, which day care facility for the elderly, etc. For instance Islington informed its workers and residents that £20m had to be saved from its budget in 1999. They suggested cutting the quality of school meals, targeting only the most vulnerable elderly for community care, and so on. As to the consultation of users, it amounted to a newsheet being sent to every home in the borough, in which people were given boxes to tick next to which service they felt could be cut more than another!

"Democratic accountability" versus workers' control

Today, those who are critical of "Best Value" (just as before with CCT) argue that it ultimately takes the public services away from democratic accountability. In this, they are undoubtedly right.

Of course Hilary Armstrong has tried to pre-empt criticisms on the question of accountability with a soft-sell approach, recommending an apparently extensive system of opinion polls (mostly done by Mori) as part of the "Best Value" pilots project - in order to "involve" the public... But flooding people with questionnaires in which the only choice is to rob Peter to pay Paul (when it is not to rob them both!) has nothing to do with accountability!

As to democracy, Blair's idea is to back up "Best Value" with the introduction of a number of changes which will streamline and centralise the operation of elected councils. This will involve the election of the mayor (either directly by local people or, as before, by the council) who will be given extensive powers, particularly that of appointing a "cabinet" from amongst the elected councillors. This cabinet will be the executive body in control of the council, in effect with all the main decision-making powers and with financial control of the council's budget. It is not hard to imagine what this implies in terms of "democracy".

What is much more dubious, however, in the argument put forward by the critics of "Best Value", whether among the Labour left or the far left, is the conclusion they draw from all this - i.e. that returning local public services to elected local councils would be, in and of itself, a guarantee of democratic accountability.

After all, is it not these "democratically" elected councils which are now enthusiastically embracing "Best Value" (just as they implemented CCT in the past) with the full knowledge that this involves further cuts, fewer services and less social provision? Surely, if anyone knows the full extent of the erosion of local services it is councillors (or at least they ought to know!). Besides, "democratically" electing, once every four years, a ward councillor whose powers will be limited (even if he had the political will to do otherwise) to implementing at local level the policy of a party which is committed to defending the interests of the wealthy on a national level, is hardly likely to yield any kind of accountability. All the more so as, particularly in large towns, a lot of the actual decision-making rests in the hands of a non-elected bureaucracy of managers.

In reality, within capitalist society, accountability can only arise out of a relationship of forces through which the working population imposes its will on those in power, by its mobilisation. At local government level, it can only arise out of permanent and active control by working people, the unemployed, the aged and the youth over the entire activity of local councils - that of the elected councillors as well as that of the managers.

On a limited level, there is already a tradition of such control. Tenants associations, for instance, have played an important role in many cases, in defending the interests of council tenants against the privatisation sharks - with some success at times. Likewise the drive to close down hospital wards, schools, etc.. led to the emergence of adhoc committees. All these committees tried, in their own ways, to implement a form of control on decisions which had been made above people's heads and against their interests. However, this form of control has so far been purely defensive, in reaction to specific threats rather than aimed at forcing local councils, health authorities, etc.. to respect the interests of the majority of the population.

Genuine accountability would, for instance, require the opening of the council's accounts, so that everyone can check where the money goes - what is handed out in perks to managers and gifts to local businessmen, what is wasted on useless public relation gimmicks and prestige operations, what is "lost" due to incompetence or sheer corruption and what could be used, for instance, to create jobs for the local unemployed. It would involve close public scrutiny of all council plans - before they are implemented, not afterwards - to check that services to the population are not cut but improved, that the workforce is not made to pay for these plans, that the local companies which benefit from them pay their share of the cost (which is rarely the case) and that if savings have to be made, they are made at the expense of the superfluous rather than at the expense of the working population or the council workforce. Then, and only then, would the working population and the unemployed be in a position to bring the council and its managers to account.

What is true at local government level is true in the workplaces as well as at central government level: there can be no genuine accountability without a conscious mobilisation of the working class and the unemployed to control the actions of those in power. And to stop the constant deterioration of its conditions, the working class will have to bring the bosses and their politicians to account at every level of society.

4 January 1999