No, the private sector is not better at providing public services

Canterbury City Council's refuse contract is with Serco (stock image, Regency Place, Canterbury)

So where were we?

Last week’s column ended on a thought about whether outsourced services might be brought back into the city council’s control.

That’s worth further consideration because so many residents are thoroughly fed up with the current poor levels of service, especially on refuse collection.

To justify that decision and to make sure it doesn’t just create more problems requires some careful thinking. Dogma, from either side, won’t help prevent another debacle.

In most cases there is not a scintilla of evidence for the idea that the private sector is simply better and more effective in providing services than councils.

Canterbury City Council’s Military Road office

But what the private sector is good at is doing things cheaper. How has it done that? Mostly by cutting the wages and conditions of its staff, cutting investment, reducing service levels, and coming back to its client councils with a begging bowl when things go wrong as a result.

Serco, locally and nationally, has followed this formula, as have many of its rivals. But economic efficiency does not equate to service quality. Not a single thing has improved.

Which is annoying, because in theory there ought to be some benefits of scale that can be gained through outsourcing which individual councils can’t achieve.

Those are around things like buying or leasing vehicles, uniforms and equipment more cheaply through volume discounts; sharing back office administration functions (HR, payroll, head office costs and so on); improved sharing of good practice and innovation; and better shared use of facilities like refuse disposal sites.

One problem is that those savings end up as extra profit for the service provider rather than in reducing our council tax bills.

Here’s why: public services need a lot of staff to carry them out. The cost of those staff can be as much as 85% of the total value of the contract.

Now, if around 3% – 5% is profit – which it often is – then all those things listed above only amount to 10% of the total, so that even if you save 10% of that the net impact is only 1% of the total cost.

The biggest cost is staffing, which is why in this austerity driven age, the sole focus has been on eroding wages and benefits.

As a result the staff have in effect been subsidising the service we get through wage cuts. Which is something that we as their customers should be ashamed of.

There are other problems with the idea that the private sector is more effective. Firstly, anyone who has worked extensively in both public and private sectors will know that there is inherent inefficiency in both, as in all large organisations.

The private sector simply hides that behind its profits, until, it gets wrong and companies end up going bust, like Carillion.

No one in the private sector has any idea about how to measure or report productivity, so they can’t justify claims that they are more efficient.

Private companies just make sure that their income is more than their costs. And the means they use to do that are not available to the public sector, which has to be accountable for everything it does and is, moreover, under a statutory obligation to provide key services.

As an example, one way a business controls costs is by not doing things it can’t make a profit on. Companies can also sell off parts of their business, close shops and factories, move production overseas, set up shell companies to avoid tax, raise money from banks and share sales, and reduce competition by buying up rivals. Councils cannot do any of this.

In fact, the mantra that we hear from Conservatives that councils and government departments should be run as businesses is utter nonsense.

Structurally and strategically, councils have almost nothing in common with business. They are run by people who are democratically elected to represent the residents, not for their business skills.

They are required by law to deliver a highly diverse set of services in a geographically prescribed area with no scope for growth or acquisition, are subject to high levels of public scrutiny and accountability – which creates costs and slows down speed of decision making – and have little or no control over their income base.

None of this is to suggest that councils shouldn’t be businesslike. They have a duty, which most take very seriously, to use the money they are given carefully and for the most benefit for residents.

A Serco bin truck

Which leads us back to the question of whether services should be brought back to direct delivery by the council. Doing this would give us back the 3% to 5% profit being made by Serco, which would be helpful. And it would satisfy the calls from many residents if, at least, Serco was replaced by a more responsive and accountable organisation.

But costs would almost certainly rise. Why? Well, to start with, because one of the root causes of Serco’s many service failures is that they have under resourced the service.

So it is obvious that the real cost of providing the service required is higher than is currently being paid, even after our council’s astonishing generosity in providing Serco with an extra £300,000 to do the job they were already being paid for.

We might in any case want to provide better services than the basic level we get at the moment. More supervision in the parks, faster graffiti removal, better cleaning of the high streets and public areas are all things people are demanding.

These bring benefits in terms of tourism, public safety and quality of life which would not only be a step change for our district but save public spending elsewhere, for example in policing – prevention, rather than cure, being a good investment.

None of this extra cost is the result of inefficiency. It’s actually hard to see how a council owned and run service could be worse than the current position, in which almost none of the supposed benefits of outsourcing have been achieved.

Since the service would be built from a blank sheet of paper it could be designed in a much more innovative and exciting way, as well.

If we want to have control over the services which impact the daily lives of residents and the image of our city, bringing services back into the council makes perfect sense. Making the financial investment should not deter us when the benefits are so obvious.


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