The Government is paying the political price for the lack of open policymaking in its reforms to the NHSPosted: October 31, 2012
The NHS is facing significant financial pressure as a result of austerity with smaller increases in spending, which are not keeping pace with demand. This has meant that the NHS has to find £20 billion in efficiency savings by 2015. At the same time the health service is facing one of its biggest upheavals ever, which will result in a greater involvement of private companies in the health services. The reforms to the NHS have been introduced in the face of stiff opposition and in many ways represent the opposite to open policymaking – and the Government is now paying the political price.
The opposition to the Health and Social Care Bill was substantial and included the majority of the main health bodies, many of whom were not invited to attend the infamous Downing Street health summit to discuss the bill earlier in the year. Notable non-attendees included:
- British Medical Association
- Royal College of GPs
- Royal College of Midwives
- Royal College of Nursing
- Chartered Society of Physiotherapists
- Royal College of Pathologists
- Royal College of Radiologists
- Royal College of Psychiatrists
Opposition to the bill was widespread in the workforce of the health service. One survey found overwhelming opposition from hospital doctors, with 9 out of 10 professionals opposed to the bill. Strong opposition to the reforms was also apparent amongst the grassroots of the coalition parties. ConservativeHome came out in opposition to the reforms, arguing that it could cost the Conservatives the next election and would distract from important reforms to welfare and education, whilst Liberal Democrat party members opposed the reforms by 2 to 1.
Much of the opposition about the reforms has centred on how complex and fragmented the new health system will be. Clare Gerada, Chair of the Royal College of GPs, has argued that the move to a market-driven health care system will result in a culture of ‘my disease is more important than your disease’, with GPs at the centre of this trying to balance these competing voices. She has flagged her concerns about the lack of experience of GPs in managing relationships with the charities and lobbyists they will face when commissioning in future.
Andy Burnham, the Shadow Health Secretary, agrees on the point of fragmentation of health care, arguing that “my answer is simple: markets deliver fragmentation; the future demands integration.” He has called for a single system for health and social care which addresses the physical, mental and social needs of the nation. He has argued that central government should decide what health services should be delivered and local government how.
Despite the overwhelming opposition, ministers have been happy to write off the protests as ‘business as usual’ when it comes to NHS reform. Simon Burns, the then Health Minister, stated that the opposition from these ‘vested interests’ was to be expected and scare stories about ‘creeping privatization’ are par for the course. Andrew Lansley, the former Health Secretary and architect of the reforms, argued that the Royal College of Nursing only opposed the reforms because of pension changes, accusing them of being ‘a vested interest indulging in trade union -like behaviour’. The appointment of Jeremy Hunt as the new Health Secretary does not inspire hope about a change of policy course, given that he is seen as a proponent of greater involvement of the private sector in a market-driven health service.
The reforms have now received Royal Assent and the Government seems committed to accelerating the involvement of the private sector in the NHS. Research by the Labour Party using freedom of information requests to NHS primary care trusts found that contracts for almost 400 NHS services worth a quarter of billion pounds were signed in early October, representing the biggest act of privatization ever seen in the NHS. The research found that in a quarter of cases, the primary care trust had not been open about its intention to outsource, resulting in a considerable amount of privatisation by stealth.
The biggest privatisations so far have been in community services – those healthcare services offered outside of hospitals including musculoskeletal services for back pain, adult hearing services in the community, wheelchair services for children and primary care psychological therapies for adults. Children’s health care in Devon is now delivered by Virgin Care, as are GP services in Northampton and sexual health services in Teeside. This week’s Channel 4 Dispatches programme entitled ‘Getting Rich on the NHS’ uncovered poor quality services delivered by Virgin Care and concerns from local residents that their local services have been privatised often with little or no involvement from the community in this decision.
Paul Corrigan, the former Labour health adviser, argued in September that outsourcing of services should go further. He proposed that the private sector should be allowed a greater role in the NHS to ‘save’ failing hospitals. This argument is ironic given that this week it became apparent that the flagship outsourcing of Hinchingbrooke Hospital in Cambridgeshire to the Circle Partnership is not delivering on the initial expectations. The hospital, in private hands, has racked up losses of £4.1 million in the first six months of the contract – £2 million more than was expected. Given that the private sector was involved to save the hospital from financial ruin, the experience so far does not bode well.
This closed approach to policymaking and reform is having a real and significant political impact on the Government. A recent survey by IpsosMORI on which party has the best policies on healthcare found that the Conservative’s ratings are at pre-Cameron levels. Only 16% of voters believe that the Conservatives have the best policies on healthcare and they seem to have lost the battle in convincing the public that the NHS is safe in Tory hands. A further recent poll by IpsosMORI points to a re-toxification of the Conservative brand, with a sharp increase in people who don’t like the Tories since they came into government, which the reforms to the NHS are clearly a part of. The Government is paying the political price for the lack of open policymaking in its reforms to the NHS.
In our previous post we made the simple point that many of today’s politicians don’t look like us. Another reason we feel so disconnected from our politicians is that they seem so detached themselves, and because they express little feeling or passion. The current political class is increasingly technocratic because politics is increasingly a profession rather than a calling. They’re in danger of becoming Stepford politicians, opening up a ‘passion gap’ that can be occupied by dogmatists who do demonstrate their passion but for their own dangerous ends.
If you haven’t already, check out Julia Gillard’s recent speech on sexism and misogyny in Australian politics. Gillard used the speech to brand her opponent, Tony Abbott, who is the Leader of the opposition Liberal Party, a sexist and misogynist. What stood out was her anger and passion. Gillard told Abbott that if he wanted to know what a misogynist in modern Australia looks like then he should look in a mirror. She called him out on a range of sexist views he has espoused during his long political career. It was authentic, passionate and unspun.
The video of Gillard’s speech on YouTube has gone viral with two million views, and the speech was a top ten trending item in Australia on Twitter as well as trending internationally. It made headline news in South Africa, India, Canada and here in the UK. Jezebel, the popular American website for women lauded Gillard as “one badass motherfucker” after what it called her “epic speech on sexism”. Gillard’s approval ratings have risen significantly in the first public opinion survey since her speech. Almost 42% of Australians now think her opponent is sexist and the poll also shows that Gillard is 10 points clear of Abbott as preferred Prime Minister.
Contrast this to President Obama’s performance in the first US Presidential debate. He lacked passion, was detached and professorial, whilst his opponent Mitt Romney demonstrated energy and passion. Romney left the debate with a momentum which has carried through into the polls, wiping out Obama’s advantage. Romney has also been accused of being technocratic and wooden – probably the only reason why the election is close at all. The debate also highlighted one of the weaknesses of Obama’s presidency – his failure to maintain the energy and passion that he engendered in his supporters in 2008. Romney highlighted this in his nomination acceptance speech at the Republican convention:
“Hope and Change had a powerful appeal. But tonight I’d ask a simple question: If you felt that excitement when you voted for Barack Obama, shouldn’t you feel that way now that he’s President Obama? You know there’s something wrong with the kind of job he’s done as president when the best feeling you had was the day you voted for him.”
It’s become a common complaint that today’s politicians lack passion and are too technocratic. Mayor Boris Johnson has been labelled by Tim Montgomerie of ConservativeHome as the “Heineken Tory” who can reach parts of the electorate that other Conservatives struggle to reach in part because of his energy and passion. The same could have been said about Tony Blair in his early days as leader of the Labour Party – he connected with middle England in a way that no other senior politician on the left was able to. Sarah Palin is yet another politician who cut through to energise her party’s base because of her energy and passion – although in her case the euphoria unravelled quickly because of her lack of experience.
Of course, Prime Minister’s Questions has an element of passion – but it’s largely fake, a yaboo politics that disaffects rather than engages. It’s not so much passion that we want as authenticity – the feeling that politicians actually care about something and will take political risks to advocate for it. This is why Gillard’s speech stood out – she really believed in what she was talking about, and her anger and passion were genuine.
Part of the problem can be traced back to the rise of a professional political class. Politicians increasingly see politics as a career rather than a calling. The way to get ahead in politics now is to start out as a researcher to an MP after university, become a Special Adviser to a Minister or Shadow Minister, and then seek selection to a winnable seat before becoming part of the government shortly after entering Parliament. This aspiring politician might have a small period of time working for a think tank, a charity, in PR or the media, but generally in a role connected to politics. We now have a whole class of politicians whose whole careers have been inside the Westminster bubble – they have not held a job outside of politics. David Cameron, George Osborne, Andrew Lansley, Ed Miliband, Ed Balls and Andy Burnham have all trodden this path. The careers of Nick Clegg, Ed Davey, David Willetts and Danny Alexander have all centred on Westminster as well. In fact a third of the cabinet worked for a politician or political party before they became an MP:
- David Cameron: Special Adviser to both Norman Lamont as Chancellor and Michael Howard as Home Secretary
- Nick Clegg: EU policy official and adviser to Sir Leon Brittain as EU Commissioner*
- George Osborne: Special Adviser to Douglas Hogg as Agriculture Minister, worked in No 10 when John Major was Prime Minister and worked in William Hague’s office when he was Leader of the Opposition
- Vince Cable: Special Adviser to John Smith when he was a Cabinet Minister in 1970s
- Ed Davey: Adviser to Sir Alan Beith
- Andrew Lansley: Adviser to Norman Tebbit MP* & Conservative Party (Director of the Conservative Research Department)
- Michael Moore: Researcher for Archy Kirkwood MP
- David Willetts: Researcher for Nigel Lawson as Chancellor, worked in the No 10 Policy Unit when Margaret Thatcher was Prime Minister and is the former head of the Centre for Policy Studies.
- David Laws: Economic Adviser and Director of Policy and Research for the Liberal Democrats
- Danny Alexander: Press Officer for the Liberal Democrats.
*paid as civil servants
The current approach to using interns in think tanks and charities reinforces this closed shop approach to the professional political class. In many ways, policy is the new ‘international development’ – to get a paid job you need to undertake an unpaid internship. This means that policy is increasingly only open to people whose families can support them financially.
This new professional political class lacks the backstory that politicians like Vice-President Joe Biden, Alan Johnson, Paddy Ashdown or David Davis bring to the job because of their experience outside of politics. Joe Biden is a single parent, Paddy Ashdown served in the Royal Marines, David Davis grew up on a south London council estate, whilst Alan Johnson started his career as a postman. Much play was made at the party conferences about the lives of the main party leaders before they became politicians, but no matter how these speeches were portrayed by the spinners, our current party leaders don’t have the wealth of experience outside of politics that the likes of Johnson, Ashdown etc do. They pale in comparison.
What matters here is the content – the policies that politicians advocate for and their real world consequences. Rich Yeselson argues that it isn’t the ‘truth’ of people’s personalities that matters but rather the factors involved in the reality of politics, such as the size of the majority in the legislature that influences policy. However, politicians’ backstories also matter. As Nadine Dorries, the backbench Conservative MP, has argued in relation to Osborne and Cameron:
“I think that not only are Cameron and Osborne two posh boys who don’t know the price of milk, but they are two arrogant posh boys who show no remorse, no contrition, and no passion to want to understand the lives of others – and that is their real crime.”
Politicians can’t be passionate if their real passion is the inside game of politics rather than standing for something that matters to the rest of us. The real danger is that this passion gap creates the space for dangerous dogmatists who do demonstrate their passion – the far right politicians such as Pim Fortyun and Geert Wilders in the Netherlands or the wholly self-interested politicians such as Silvio Berlusconi in Italy. If we want to avoid being subject to someone else’s passion, we will have to find our own – our political class is not providing it.
Andrew Mitchell was eventually forced to resign from the Cabinet on Friday for allegedly calling a police officer a ‘pleb’. Like the best political scandals, plebgate has revolved around a politician telling the truth, because compared to the Cabinet we are all commoners. It doesn’t matter what Mitchell actually said – the real issue in politics today is not individual personalities but the demographic profile of our politicians.
The Cabinet doesn’t look like their backbenches
More than half of the Cabinet attended an independent school (17 ministers), while Theresa May and Michael Moore attended both private and state schools. Whilst 19 Cabinet Ministers attended Oxbridge (61%), 12 didn’t (39%). The full list of Cabinet ministers, their schools, universities and careers is as follows:
|Minister||School||University||Career before becoming an MP|
|David Cameron MP, Prime Minister||Independent (Eton)||Oxford||Politics & PR|
|Nick Clegg MP, Deputy Prime Minister||Independent (Westminster)||Cambridge||Media, EU policy & politics (MEP)|
|George Osborne MP, Chancellor||Independent||Oxford||Politics|
|William Hague MP, Foreign Secretary||Grammar and comprehensive||Oxford||Management consulting|
|Theresa May MP, Home Secretary||Independent and comprehensive||Oxford||Finance & councillor|
|Chris Grayling MP, Justice Secretary||Grammar||Cambridge||Media, management consultant & councillor|
|Vince Cable MP, Business Secretary||Grammar||Cambridge||Politics, economics & business|
|Philip Hammond MP, Defence Secretary||Comprehensive||Oxford||Business|
|Ed Davey MP, Energy Secretary||Independent||Oxford||Politics & management consultant|
|Andrew Lansley MP, Leader of the House of Commons||Independent||Exeter||Politics, civil service & lobbying|
|Michael Gove MP, Education Secretary||Independent||Oxford||Journalist & writer|
|Jeremy Hunt MP, Health Secretary||Independent (Charterhouse)||Oxford||Business & PR|
|Eric Pickles MP, Communities Secretary||Grammar||Leeds Polytechnic||Business, councillor & Leader of Bradford City Council|
|Justine Greening MP, International Development Secretary||Comprehensive||Southampton||Accountant|
|Lord Strathclyde, Leader of the Lords||Independent||University of East Anglia||Politics|
|Grant Shapps MP, Co-Chairman of the Conservative Party||Grammar||Manchester Polytechnic||Business & writer|
|Danny Alexander MP, Chief Secretary to the Treasury||Comprehensive||Oxford||PR|
|David Jones MP, Welsh Secretary||Grammar||UCL||Solicitor|
|Michael Moore MP, Scottish Secretary||Independent & grammar||Edinburgh||Politics & accountant|
|Owen Paterson MP, Environment Secretary||Independent||Cambridge||Business & agriculture|
|Patrick McLoughin MP, Transport Secretary||Comprehensive||Staffordshire College of Agriculture||Farm worker & miner|
|Iain Duncan-Smith MP, Work and Pensions Secretary||Comprehensive & military school (HMS Conway)||Sandhurst||Army & business|
|Maria Miller MP, Culture Secretary||Comprehensive||LSE||Advertising, marketing & PR|
|Theresa Villiers MP, Northern Ireland Secretary||Independent||Bristol||Barrister, lecturer & politics (MEP)|
|Sir George Young MP, Chief Whip||Independent (Eton)||Oxford||Policy & politics (councillor & member of GLC)|
|Kenneth Clarke MP, Minister without Portfolio||Grammar||Cambridge||Barrister|
|Francis Maude MP, Minister for the Cabinet Office||Independent||Cambridge||Lawyer & politics (Westminster councillor)|
|David Laws MP, Minister for Schools||Independent||Cambridge||Banking & politics|
|David Willetts MP, Minister for Universities||Independent||Oxford||Politics & think tanks (Centre for Policy Studies)|
|Baroness Warsi, Minister for Faith and Communities||Comprehensive||Leeds||Solicitor|
|Dominic Grieve MP, Attorney General||Independent||Oxford||Barrister|
This is somewhat different to MPs. 112 MPs were educated at Oxford, whilst 53 went to Cambridge – this means that ‘only’ 25% of MPs went to Oxbridge compared to 60% of the Cabinet. According to Kavanagh and Cowley in The British General Election of 2010 (Palgrave Macmillan, 2010) the parliamentary parties elected in 2010 break down as follows:
- 34% of Conservative MPs went to Oxbridge, compared to 30% of Liberal Democrat and 18% of Labour MPs.
- 54% of Conservative MPs went to an independent school, which is similar to the Cabinet but is higher than the 40% of Liberal Democrats MPs and 14% of Labour MPs who did so.
We have a Cabinet of lawyers, politicos and ex-businessmen and women; this is broadly similar to the party backbenches. Kavanagh and Cowley found that:
- 41% of Conservative MPs elected in 2010 had a career in business before entering the Commons (125 x MPs), 18% were solicitors or barristers (56 x MPs) and 1 in 10 worked in politics (31 x MPs).
- 31% of Labour MPs had a career in politics (as local politicians, union officials or political organisers – 81 x MPs), 14% worked in education (35 x MPs) and 10% were solicitors or barristers (26 x MPs).
- 19% of Liberal Democrat MPs worked in business before becoming MPs (11 x MPs), 18% worked in education (10 x MPs) and 12% worked in politics (7 x MPs).
However, the main Cabinet jobs are held by individuals who have never held a job outside of politics and PR. Cameron, Clegg, Hague, Alexander and Osborne don’t have a background in business or the law in the way that their party backbenchers do. There is also a dearth of local government experience in the Cabinet – only five Ministers – Grayling, May, Maude, Young and Pickles have held elected office as a local councillor.
Parliamentary parties don’t look like the electorate
People educated in the independent schools sector are significantly over-presented in Parliament. Only 7% of young people in Britain are educated in the independent sector, yet over half of the Cabinet went to a private school. Oxbridge accounts for a tiny proportion of the higher education sector in the UK – but over 60% of the Cabinet attended these two elite institutions. (According to the TES – 45% of places at Oxford and 40% of those at Cambridge are taken by pupils from the independent sector.)
Professions such as law, business and politics are significantly over-represented in parliament as well. There are more barristers and solicitors on the Tory benches than there are Tory women MPs. Indeed, there are nearly as many Etonians in Parliament (20 MPs) as there are former manual workers (25 MPs).
Women and people from BME communities are also still significantly under-represented in Cabinet and Parliament. There are only 5 women in the Cabinet (16%), and only 1 BME politician. Women also account for just 22% of MPs elected in 2010. Broken down by the main parties this comprises:
- 16% of Conservative MPs (48 MPs)
- 12% of Liberal Democrats (7 MPs)
- 31% of Labour MPs (81 MPs)
Progress was made in 2010 in the number of black and Asian MPs that were elected, which rose from 14 in the last parliament to 27 in this Parliament. They make up 4% of MPs in the Commons, compared to the estimated 8.7% of the total UK population.
Three women in the Cabinet – Baroness Warsi, Maria Miller and Justine Greening all hail from parts of Britain not usually considered true blue. Miller grew up in Bridgend, South Wales, Warsi is from Dewsbury and Greening from Rotherham. All three of them attended their local comprehensive and had a career before entering politics. Of course, both Warsi and Greening were demoted in the Summer reshuffle.
Attempts to diversify the make up of parliamentary parties have met resistance from party memberships
Party memberships are increasingly different to not only their parliamentary parties but also to the wider electorate – the membership of the Conservative Party is rapidly ageing for instance. It is well documented that the membership of the Conservatives, Labour and Liberal Democrats are in steep decline and compares poorly to the increase in membership of smaller parties such as the SNP, Greens and UKIP. Membership of both the Conservatives and Labour parties has halved since the 1990s, whilst the Liberal Democrats have seen their membership fall from 100,000 in the 1990s to 65,000 at the beginning of this decade. Attempts have been made to diversify the parliamentary base of the main parties but they have met resistance from local party associations. Political parties are no longer the mass movements for change that they used to be but their membership base still controls the selection of parliamentary candidates.
The result, then, is that the main political parties, Parliament, and especially the Cabinet do not look like us. That being the case, why should we expect the policies they propose and support to ‘look like us’ either?
The West Coast mainline franchising fiasco shows that the current approach to outsourcing public services has serious flaws that need to be addressed – the much too complicated and secretive nature of outsourcing is the problem, rather than the people handling the process.
Last week Patrick McLoughlin, the new Transport Secretary, cancelled the West Coast Mainline franchise deal. The Department for Transport has been on a damage limitation exercise ever since, with McLoughlin blaming the fiasco on officials at the DfT “because of deeply regrettable and completely unacceptable mistakes made by my department in the way it managed the process”. Philip Rutnam, the Permanent Secretary at DfT, has also joined in telling staff that they must accept that the reversal was the fault of officials. Meanwhile, Kate Mingay, one of the three officials suspended by DfT (an ex-Goldman Sachs employee parachuted into the civil service because of her private sector expertise) has hit out at the way her role in the procurement has been portrayed by the Department.
Blaming officials is an easy way to distract from the substantive story: whether the current approach to franchising used by the DfT is fundamentally flawed. The Department argues that mistakes were made from the way the level of risk in the bids was evaluated due to human error – in particular the way in which inflation and passenger numbers were taken into account, and how much money bidders were then asked to guarantee as a result. But the assumptions about inflation and passenger numbers are dependent on the state of the UK and global economy and the ability of the future franchisee to bring in new customers. Colin Cram, writing for the Public Leaders Network, argues that: “…this enters the realms of guesswork and slight changes in assumptions can lead to different outcomes for contracts that may be for only three or four years, let alone 13.” If the Government’s own Office for Budget Responsibility continues to get its predictions on economic growth significantly wrong, how can we expect the assumptions made in the rail franchising process to be watertight?
This is not the first time that assumptions about economic growth and customer numbers has gone wrong, for example the previous experiences with the East Coast mainline or in the commissioning of welfare to work services. The Work Programme was designed for a far more positive economic climate than we now find ourselves in. DWP’s estimates of the number of customers in receipt of Employment Support Allowance have proven to be wholly unrealistic, with serious consequences for the business models of prime contractors and charities.
The risks associated with complex procurement processes such as the rail franchise are compounded by the secretive nature by which they are often conducted, behind a veil of ‘commercial in confidence’. As we’ve argued before, this ‘closed shop’ approach leads to poor decisions and a profound lack of public engagement – until something goes horribly wrong. The complexity involved also means a significant diversion of resources into the process of franchising rather than actual delivery of services. Franchising might work however if the process was more transparent and the assumptions about passenger numbers (and any other projections) were open to rigorous scrutiny by others outside of the process – so why isn’t it?
The West Coast fiasco has much wider implications that the policy establishment probably doesn’t want the public to consider. Cheryl Gillan, the former Conservative Welsh Secretary, has argued that a root and branch re-examination of the High Speed 2 rail project is needed if the public is to have trust in such a significant investment of public resources. Instead, plans for competition and outsourcing are being accelerated in prisons, probation services and health. In this context, the secretive, complex and bureaucratic nature of outsourcing needs to be addressed as a matter of urgency. If the public is going to be on board, then a public debate is needed on the merits and risks of delivering services in this way – which surely is what the Government’s open policy should be all about.
Fundamentally, the political establishment doesn’t engage the public in a debate about the merits of rail franchising because the public doesn’t support the idea. This ‘outsourcing by stealth’ approach wins neither hearts nor minds. Various surveys continue to show a strong majority of public opinion in favour of re-nationalising the railways – one recent survey found that 70% of respondents supported such a move. Impossible? New Zealand provides an example of such a policy put into action. Its rail and ferry network was privatised in the 1990s and asset-stripped and run down by an Australian outfit. It re-nationalised both in 2009. Michael Cullen, the then Finance Minister said privatization had “been a painful lesson for New Zealand”. Kiwi Rail in public hands has been able to invest in its long-term future whilst also generating significant financial and economic benefits for taxpayers in New Zealand.
Here, despite the strong public preference for a nationalised rail network, none of the three main political parties are committed to such a policy. At last week’s Labour Party conference, Ed Miliband and Maria Eagle made positive noises in this direction but no firm commitments. So we are left with an unpopular, risk-laden, fragmented rail network – and the policy establishment searching around for scapegoats when they should be looking somewhat closer to home.
In posts over the past few weeks we’ve looked at the Government’s ‘open public services’ agenda, in particular the outsourcing of public services, and how this threatens to undermine another Government initiative, for ‘open policy making.’ The Prime Minister has reshuffled his Government so that it is focused more on “delivery” for the rest of this parliament – but at the cost of undermining the open public debate that it should be having on the future of our public services.
The open public services agenda involves outsourcing public services to the private sector (and to a lesser extent the voluntary sector). Unprecedented levels of outsourcing are taking place across prisons, probation services, policing, schools, welfare to work and the health service. Virgin Care now run children’s health services in Devon for instance. The Economist magazine has predicted that £58 billion of public services will be outsourced by 2015 as part of this agenda, on top of the £82 billion already outsourced (according to Oxford Economics). And yet – as illustrated recently by the failure of G4S and increasing concerns over outsourcing police services – the Government doesn’t seem to want a public debate over its plans, despite its apparent commitment to open policymaking. Why not, if open public services are as popular as it claims?
The recent furore over the role of G4S and its £283 million contract to provide security staff to the Olympics has placed the outsourcing agenda firmly in the spotlight. G4S were forced to admit just weeks before the start of the Olympics that they would only be able to provide 7,800 of the required 10,400 guards, which resulted in the army being called in to the fill the gap. G4S has claimed that it will take a £50 million hit from their failure to meet the requirements of the contract – but we don’t know yet what its failure cost the taxpayer. Nick Buckles, G4S Chief Executive, is due to appear again before the Home Affairs Select Committee in the next couple of weeks as part of its inquiry into the scandal.
Philip Hammond admitted in an interview with the Independent that in light of the experience of G4S that we can’t always rely on the private sector. In particular he questioned the ‘lean model’ that G4S and other private providers such as Serco use, which has been adapted from manufacturing. Parts of the outsourcing industry uses a ‘just in time’ approach, which in the case of G4S meant that they planned to recruit, train and manage a new workforce that they would build from scratch weeks before the start of the Games. G4S didn’t bring existing capacity to the Olympics contract, rather they ‘sold’ their ability to recruit, train and manage a large workforce in an efficient way in a short space of time. The just in time approach is well established in the manufacturing sector, but there are legitimate questions about its suitability for parts of outsourced public services, something we will look at in a subsequent post.
Hammond and other ministers have acknowledged, at least when pressed in interviews, that the G4S debacle should make us pause and consider the limits of outsourcing, but these statements have sounded like deflections rather than the start of a genuine and transparent debate about the role of outsourcing in public services. It seems that this debate has already been concluded – just without the public. Theresa May confirmed last week that police forces should press head with their plans to outsource more of their services into the hands of the private sector. Three police forces – in Bedfordshire, Cambridgeshire and Hertfordshire – are considering outsourcing more than 1,000 jobs in IT and human resources to G4S. May also ruled out a review of the £1billion contracts that G4S has with the public sector to run prisons, welfare to work and tagging of criminals arguing that the Olympics contract was ‘rather different’ from G4S’s ‘day in, day out’ public sector work.
This reluctance to engage in a public debate is also having a curious knock-on effect on some of the Government’s other initiatives to make public services more accountable. For example, most people in England and Wales will have the opportunity to go to the polls in November to elect a local Police and Crime Commissioner. The Economist reported last week that less than a fifth of voters are aware that there are elections for these roles or what the job of the commissioner involves. It is not surprising therefore to hear that the Electoral Reform Society’s prediction that only 18.5% of the electorate will actually make the journey to the polling station to vote, less than half the average turnout for local elections.
The quality of candidates for these posts has been criticized whilst the Government has also refused to fund an election address for candidates arguing that the internet, local and social media can fill the gap. The lack of public debate around these elections is a concern given the expected remit of these elected officials – Police and Crime Commissioners are clearly an idea that hasn’t caught on.
However, in the context of cuts and outsourcing, in many respects this lack of public engagement is in the Government’s interest – the main topics for debate will inevitably be the 20% cuts to policing budgets by 2015 and outsourcing more police services. Both of these are debates the Government would like to avoid given that the public remains unconvinced that cuts and outsourcing will lead to a more efficient and better quality police service, a view that is shared by many in the police force. Indeed, the outsourcing of public services has never been popular with the public. According to a recent YouGov survey for the Fabian Society, nearly two-thirds of people think that ‘services like health and education should not be run as businesses.’
Last week’s Cabinet reshuffle points to a ramping up of the open public services agenda with key proponents of this in Government bring promoted. The elevation of Chris Grayling to head up the Justice Ministry is a clear signal of the Government’s intention to expand the Work Programme model of outsourcing to revamp the much heralded ‘rehabilitation revolution’, whilst the promotion of Jeremy Hunt to Health Secretary points to an expansion of the private sector in the NHS. It seems like, whatever its promotion of open policy-making, there are some policy issues on which the Government is less interested in having an open debate.
Rail privatisation offers a warning from history for the Government’s ‘open public services’ agenda to outsource more public services. In our previous post we suggested that rail privatisation has never been wholly accepted because the Major Government overlooked the essential ‘publicness’ of the railways. In this post we identify five specific damaging consequences of rail privatisation that should cause the current Government to consider much more carefully how it approaches outsourcing or risk repeating the same mistakes in other public services.
1. Expectations of greater efficiency from privatisation have not been realized
One of the principal expectations from privatisation was that the railways could be delivered more efficiently in the private sector because of the motive to generate profits. British Rail was already pretty lean following a cost cutting exercise in the 1980s, and in fact the opposite has occurred. The unit cost of the privatised rail industry is significantly higher than that of British Rail because economies of scale have been lost and the complexity of the industry has thrown up new costs. The public subsidy to the industry is considerably higher than it ever was for British Rail.
Chris Grayling when he was Shadow Transport Minister admitted that the way privatisation was organised “…helped push up the cost of running the railways – and hence fares – and is now slowing decisions about capacity improvements. Too many people and organisations are now involved in getting things done – so nothing happens. As a result, the industry lacks clarity about who is in charge and accountable for decisions.”
2. The rail industry has coalesced around a small group of large private sector providers who are (almost) too big to fail
The rail industry after privatisation was highly fragmented. This fragmentation has now been reduced but has resulted in a small group of private sector companies who now dominate the market. The complexity and scale of these contracts has skewed the market in favour of these large private providers who have the scale and deep coffers to absorb the risks associated with running a franchise.
Nonetheless, the narrowing of the market around this small group of providers is a risk. On three occasions, the state has had to step in and pick up the pieces because a company has pulled out of a franchise. The exit of Virgin Trains from the rail industry has further reduced the options available to government. Two of the recent new entrants to the rail market have been the national train operators of the Netherlands and Germany who have been accused of profiteering to subsidize their domestic operations. Where will the new train operators come from if another company fails or is judged to offer a poor quality service?
3. The private sector has profiteered from parts of the rail industry
To many people, private profit shouldn’t have a place in an industry that receives a £4 billion subsidy from the public every year and where consumer choice is highly limited. But there’s profit and then there’s profiteering. One of the publicly neglected aspects of rail privatisation is that running a Rolling Stock Leasing Company (or ROSCO) is a very lucrative business. Three were created as part of the break-up of British Rail and all are now owned by a combination of banks and private equity. ROSCOs have found older rolling stock to be especially commercially attractive as they can continue to generate revenue for stock even after the construction costs would have been written off by British Rail. This has also helped to inflate the fares paid by customers.
The privatization of ROSCOs is another example of the public sector selling assets at below their fair market value. The National Audit Office in a 1998 report stated that the UK Government had not realised fair market value for the sale of these assets. Eversholts Leasing later HSBC Rail was sold for £518 million in February 1996 but a year later the business was sold on for £726 million, a gain of some 40 per cent over the sale price by the Department for Transport.
More generally, train operating companies own virtually nothing, hiring most of the assets required from Railtrack and ROSCOs whilst also contracting out areas such as onboard catering and cleaning services. For this reason, Baroness Vadera, when she was a special adviser to Gordon Brown as Chancellor of the Exchequer, described the privatized passenger train operating companies as ‘thinly-capitalised equity profiteers of the worst kind’.
4. Privatisation led to a loss of skills and flexibility
The Hatfield disaster in October 2000 – caused by a broken rail as a result of faulty maintenance procedures – illustrated the loss of skills and flexibility from the rail industry as a result of privatisation. Railtrack, which had responsibility for rail infrastructure, had outsourced almost all of the maintenance and renewal of track. Outsourcing maintenance and renewal both removed flexibility (unless it was already included in a contract) and led to a drain of skills and knowhow from Railtrack. In the aftermath of the disaster, thousands of speed restrictions were imposed unnecessarily across the network because Railtrack did not have the expertise to know whether other parts of the track were also at risk of an immediate tragic failure. Railtrack was a disaster waiting to happen according to Christian Wolmar in his book On the Wrong Line: how ideology and incompetence wrecked Britain’s railways; the system it operated in was brittle and not designed to cope with sudden challenges. Hatfield sealed its demise and replacement by Network Rail, which has taken a different approach to maintenance by bringing some of this in-house again.
5. The views of users and frontline staff were sidelined
British Rail argued that if it was to be privatised then the rail network should be privatised as one entity. Instead the Treasury, under the influence of the Adam Smith Institute, advocated for the creation of 25 passenger railways franchises as a way of maximizing revenue. The effect of this was to create a complicated system with over 100 different companies delivering bits of the rail system, which made it difficult for the views of users and practitioners to be heard. Passengers were unclear on who was responsible for what or who to direct their questions or complaints to. Public accountability suffered as a result.
The views of passengers have also been neglected in franchise decisions. Passenger satisfaction targets in franchise agreements don’t carry sufficient clout. According to Passenger Focus, only 42 per cent of rail passengers are satisfied with value for money, yet increases in rail fares have continued this year despite the concerns raised by passengers. Given the amount of public money invested in the rail industry last year, as well as the cost of fares, surely the views of passengers should be at the forefront of rail policy?
The nationally-owned British Rail was far from perfect, but most people think that rail privatisation has been a relative disaster for the reasons discussed here. Rail privatisation represents a warning from history for a Government that seems intent on outsourcing more of our public services – will it learn the lessons?
It’s been almost twenty years since John Major’s Government privatised British Rail, but unlike some other sell-offs the issue of who owns and runs our railways continues to attract widespread public controversy. In recent posts we’ve been looking at the tensions between the Government’s ‘open public services’ agenda for outsourcing and its ‘open policy’ agenda for greater transparency. In this post we suggest that rail privatisation has never been wholly accepted because the Major Government overlooked the essential publicness of the railways – a warning from history for the current Government’s attempts to outsource much of our public services.
Rail privatization is back in the news again with the announcement that Virgin Trains lost out to FirstGroup in its bid to continue to manage the West Coast mainline, a contract that Virgin has held since 1997. Richard Branson quickly offered up a withering criticism of the way the Department for Transport conducts its franchising arrangements for new passenger train operating companies (or TOCs). Branson has threatened that Virgin will walk away from the railway market for good, having spent £60 million on four thwarted bids, because (it says) it won’t play the game of offering up unrealistic performance targets to win business. Of course, this could just be regarded as sour grapes – but Branson is usually too savvy to let a knock-back make him seem like a bad loser. Rather, it’s best to assume he means it, and that his criticisms of the franchising process are heartfelt and somewhat accurate. If this is the case, how did we reach this point where Britain’s best-known businessman expresses so little confidence in what was supposed to be such a flagship privatization policy?
The 1993 Railways Act privatized the rail network. British Rail was broken up into over 100 different companies, with the complete separation of infrastructure (track, rolling stock, stations and signaling) from passenger train services. The latter were broken up into 25 different franchises (or contracts) leased to private sector passenger train operating companies. The number of franchises has subsequently been reduced, with a small group of private companies now dominating the market, including the likes of FirstGroup and the national rail companies of Germany (Deutsche Bahn) and the Netherlands.
Rolling stock, meanwhile, was transferred to three Rolling Stock Leasing Companies (ROSCOs), who were privatized and sold to private equity investors and banks including Abbey and the Royal Bank of Scotland. Rail infrastructure was transferred to Railtrack, which outsourced all maintenance and renewal to private contractors. Railtrack was quickly privatized in 1996 to prevent the unwinding of railway privatization by the incoming Labour administration. After the Hatfield rail disaster, Railtrack was sold to Network Rail and, remarkably, its current legal status is unclear with disagreement as to whether it is a public or private body. Franchising was also outsourced but was eventually brought back into the Department for Transport given the political sensitivities over the railways.
Proponents of rail privatization claimed it would improve quality and efficiency. While there are more trains on the network and there have been some improvements in safety, there have also been many downsides to privatization. There has been a significant rise in unregulated fares – particularly walk on tickets bought in stations or on trains. Costs have risen, since rolling stock is now leased from ROSCOs and construction costs would have previously been written off by British Rail. The unit costs of the privatized industry have risen significantly as the various train operating companies are not able to realize the economies of scale available to the previously national network. The complex nature of the industry has also watered down accountability and confused the general public (and no doubt often policymakers as well).
The numbers of passengers on the railways has also increased significantly but the start of this can be traced back prior to privatization. Factors such as the cost of petrol and increased road congestion could also help to explain this rise. Nonetheless, the public subsidy to the rail network has increased to about £4 billion in 2010/11 – down from a high of £6.5 billion in 2006/07 but far higher than what was given to the sector under public ownership. The effect of this has been to place an even greater burden on profitable routes such as the East and West Coast mainlines to return a significant dividend for the taxpayer – hence the reason perhaps that the Department of Transport has put so much faith in the highest bidders for these routes.
This faith hasn’t always been realized. Two operating companies, GNER and National Express, have handed back the East Coast franchise because they were not able to service the expected payment targets. Both providers over promised in order to win the franchise and ran into financial difficulties trying to deliver their plans. The result has been a legacy of under investment and cost cutting – which of course has ultimately cost passengers.
Richard Branson argues that the selection of the new franchisee for the West Coast mainline shows that the Department for Transport has not learnt the lessons from previous failures. The short-term political desire for a good headline has over-ridden the long-term interests of the network – and the concerns and opinions of rail users, despite active representation from passenger groups. But the broader lesson from this ill-conceived and rushed policy might be that some services need to be properly publicly accountable, even if not every aspect of them is delivered by the state. Does the current government understand the essential publicness of our public services?