Warning - Privatisation Seriously Damages Our Public Services

This edition is dedicated to one issue - the creeping privatisation of our public services. UNISON's position, re-iterated year after year at national conference is to oppose all forms of privatisation.

The reason? Privatisation, whether it be via PFI or PPP or via 'outsourcing' has been proved to be a less efficient use of tax payers' money. And not only is direct democratic control of those services lost, but employees' terms and conditions are all too frequently cut, save for a few very senior managers who receive obscene pay rises. Another feature of privatisation is that it leads to redundancies, increasing local unemployment. Sadly the trend to privatisation is not limited to Britain, though to our shame UK plc is second only to the USA in exporting privatisation overseas. It is now a global business, and very lucrative it is too for the few who stand to benefit.

What's PFI and How Does It Work?

The Private Finance Initiative (PFI) is the government's preferred way of investing in public services and assets, such as buildings, as well as increasing private sector involvement in the provision of public services. The government also uses the term 'public private partnership' (PPP). While PPP is the general name for any public service that involves the private sector, in practice the vast majority of PPPs are in fact PFI schemes.

Under PFI, a public authority (e.g. a council or health authority) buys the services of a private company to design, build, finance and then operate the services for a facility, such as a new school or hospital. The private sector borrows the money for the scheme and the public body then pays an annual fee to the private company under a long term operating contract for the services. The staff who deliver the services are transferred from the public sector to a private sector company.
Under traditional funding for projects to refurbish or build facilities, - such as hospitals, schools, leisure centres, libraries and housing - the public authority borrows the money (at a cheaper rate than the private sector) and then owns and operates the facility. But under PFI the public authority may never actually own the asset.

The public authority makes an annual payment to a private company to cover all the costs of designing, building, financing and operating the facility. Instead of paying for the facility over a few years, the public authority undertakes to pay the private company for many years to come - typically for 25 years - passing on the real costs to future generations.

PFI, or the Public Fraud Initiative as it has been called, is like paying your mortgage on your credit card - expensive, pointless and unnecessary.

Our Survey Said...

A recent survey of over 200 members of the Association of Chartered Certified Accountants (ACCA) produced some interesting results.

Only 1% of those surveyed agreed that PFI provides value for money. More than half (57%) stated that it was demonstrably cheaper to build through public funding.

One respondent summed up the view of many, "PFI is an extremely expensive option generated through political dogma which ought not to be necessary if central government allowed organisations to borrow money to invest."

Andy Wynne, ACCA Head of Public Sector stated: "There is still deep scepticism about PFI. Many finance professionals have real concerns over cost, bureaucracy, the time taken to progress schemes and the long-term revenue commitments involved." Under PFI rules it must be proved that the building could not be done cheaper using traditional public funding methods, yet the survey found only 1 in 7 accountants felt that such proof was objectively tested on PFI schemes.

No less a person than Jeremy Colman, Deputy Controller of the National Audit Office described the value for money tests as "pseudo-scientific mumbo-jumbo." (Source: Guardian 11/10/02)

A Web of Private Interest

Public alarm is growing at the potential conflicts of interest of the Big Five accountancy firms - Pricewaterhouse Coopers, Andersen, KPMG, Ernst & Young, and Deloitte Touche.

These companies dominate the accountancy profession, providing financial reporting and audit services in both the public and private sector. There is nothing wrong with this - all organisations have to have their accounts independently audited to ensure accountability to either shareholders in the private sector, or to taxpayers in the public sector.

However, in addition to their auditing businesses, the Big Five have all developed management consultancy arms which now provides over half of their profits. This raises concerns as to whether auditors who sell other services to their clients can remain independent. Much of this consultancy work undertaken by the Big Five is on privatisation. At the same time the Big Five have been at the heart of developing the government's privatisation policies. All of the Big Five have staff seconded to work in government departments that devise, negotiate and drive privatisation policy.

How It Works

The Big Five accountancy firms act as advisors to the government and other public bodies when developing and evaluating PPP or PFI schemes. However, they also provide management consultancy services to the private sector companies involved in bidding for public sector contracts.

The Greater London Council considered legal action against the London Underground PPP because Pricewaterhouse Coopers and Ernst & Young, who evaluated the deal also sell audit and consultancy services to 5 out of the 8 private sector companies involved in bidding for the work. In effect, they are the advisors both to the public sector who is letting the work, and to the private sector who are bidding for the work. The European Union, if not the UK government, has rules forbidding potentially corrupt arrangements such as this.

Unfortunately, such conflicts of interest are endemic. When UNISON examined PFI schemes where the Big Five acted as financial advisors to the public sector, we found 45 cases where they also acted for at least one of the bidders.
There are 4 facts we would like you to consider:
1. The Big Five helped develop PPP and PFI.
2. They act for public bodies in developing, evaluating and awarding lucrative contracts for such schemes.
3. They also act for the private companies bidding for public contracts.
4. The Big Five are advisers to over 400 PPP/PFI schemes worth over £55 billion.

The web of private interest that joins government privatisation policy, the Big Five accountancy firms and the privatisation industry extends across the whole of PPP/PFI. There is an urgent need for a public enquiry into PPP/PFI. UNISON led the way in calling for an enquiry at the Labour Party Conference earlier this year, which was supported by conference, though ignored by New Labour.

How Outsourcing Operates

Private companies that take on contracts to run public services have a business plan. Frequently, they take on contracts from the smaller local authorities, invest in technology and improve the pay of very senior staff whilst the rest can expect poorer terms and conditions of service.
Typically such contracts can include IT, benefit services, payroll, personnel, call centres, admin and support services, et al. For example, Capita (dubbed Crapita by Private Eye magazine) have secured, amongst a whole host of other contracts, contracts with Cumbria County Council (value £70M) and another with Blackburn (valued at £190M).

Next, using the contacts they've made in local government plus the revenues of these small contracts, they tout for business from larger authorities. Ultimately, the game plan is to become monopoly providers of services (if not by securing contracts themselves, then by buying out the competitors that do). And given these contracts run typically for 15 years, the amount of money (and damage) that such private companies can make is truly frightening.

Crapita, in particular, is a firm with a top track record of turning tax payers money into massive pay cheques for its bosses, while proving an abject failure at providing good public services. It was behind the Individual Learning Accounts fiasco, and it fouled up the computerisation of the Criminal Records Bureau leading to schoolkids being sent home as background checks on teaching staff hadn't been completed.

If you want a future where public services are run for profit, where pay inequalities between senior managers and the rest increase, and where your democratically elected local representatives have even less control of services and unemployment rises then you might welcome outsourcing, PFI and PPP.

Alternatively, if 'what matters is what works,' then it's clearly a bad idea to let profit-driven private companies take over any more of our public services. The alternative - high quality, in-house public services delivered by well paid, well trained and motivated staff - has proved to be a more efficient, responsive and democratically accountable method of providing decent public services. For more information on UNISON's Positively Public campaign, get in touch with the Branch or click here.

Who benefits From Privatisation?

• Amec is involved with 12 PFI contracts valued in total at £2,740M. The Chief Executive, Sir Peter Mason, was paid £744,000 in the last financial year.

• WS Atkins is involved in 18 PFI contracts with a total value of £1,021M. Robin Southwell, the Chief Executive, was paid £361,000 in the last financial year.

• Balfour Beatty is currently involved in 16 PFI contracts totaling £1,559M. Chief Executive Mike Welton was paid £519,000 in the last financial year.

• Compass is currently involved in 4 PFI contracts with a total value of £765M. Chairman Francis Mackay was paid £1,204,000 in the last financial year.

• Jarvis is involved in 21 PFI contracts with a total value of £565M. Paris Moayedi, the Chief Executive, was paid £595,000 in the last financial year.

• Mowlem is working in 8 PFI contracts totaling £826M. Chief Executive John Gains was paid £388,000 in the last year. Nice work if you can get it.
  

UNISON Lends it's Support to the Fire Brigades Union

The National Executive Council (NEC) of UNISON, the UK’s largest union, expressed its solidarity with the Fire Brigades Union and called on the Government to make real investment available to end the dispute. The NEC criticised Government interference in the negotiations when a settlement appeared close on 22 November. It also reiterated its support for improvements in public services, but not at the expense of fewer jobs and poorer terms and conditions for the workforce.

“Throughout the public sector we condemn policies that lead to poorer services, fewer jobs, and poorer terms and conditions for the workforce. We support the Fire Brigades Union in its view that modernisation of the fire service should not be at the expense of public safety, nor if it means fewer fire fighters, fewer fire stations and fewer fire engines.

“We call on the Government to resolve the current dispute by making real investment available now, and condemn those within the Government who see the dispute as a way of taking on public sector trade unions. Confrontation with public sector workers cannot be the way forward for a Labour Government. It will not lead to the improvements in our public services which we all seek.

“The NEC welcomes the decision by the FBU Executive to take part in exploratory talks with ACAS to look at a mechanism for a positive way forward. We call on the Government and the Employers’ side to use this opportunity to find a settlement agreeable to all parties concerned.”

For more information on the dispute, click the link.