Interserve May Still Be Breathing But It's Time The Government Smothers The System That Gave Birth To It

Rather than encouraging private contractors to write 'living wills' and wait for their downfall, the government must reform this broken system.
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Creditors may have agreed to spare Interserve from collapse, but just a year on from the demise of Carillion, hasn’t the time come for government to kill off the system which has created these spectacular corporate downfalls?

It’s impossible to give the exact moment when the current system emerged but its origins begin in the 1980s. The practical problem was that regular clashes between Government and unions were undermining the ability to provide effective service delivery. The solution: get business to run them. The private sector, less likely to have unionised staff and able to get rid of staff easier, would be able to maintain more disciplined work forces and deliver services more reliably.

But this clash with the unions masked a more existential problem. It is the original sin which the current model of outsourcing has been cursed by ever since. In short, the government wanted high quality public services, but didn’t want to pay for them.

The government believed that private businesses could be the Fairy Godmother, turning under-resourced pumpkins into beautiful public services which would win public support. This wishful thinking then became an ideological pillar of the establishment when thinkers such as Nicholas Ridley, Conservative Environment Secretary in the late 1980s, wrote that: “Competition is a spur to efficiency and value for money wherever it operates”. This was an ideology readily adopted by New Labour.

During the late 1990s and 2000s, when government spending rose, the tension at the heart of the model appeared to be resolved. Ill-conceived schemes such as the Private Finance Initiative attracted even more private companies to the feeding trough. But there were still bailouts, even in that period of plenty. In 2004, for example, the government had to bailout Serco in order to stop the collapse of education services in Bradford. And the failures were numerous, from failed IT projects to the paralysis of child support agencies. Billions were spent bailing out PFI contracts even before the financial crash took place.

Yet somehow, the myth has remained that somehow private businesses can do more with less and make the books balance. This has been driven to extremes since 2010, with mergers and takeovers delaying inevitable collapse through the creation of “mega-outsourcers”. Fast forward to 2019 and we have lost one of those big companies (Carillion) and another, Interserve, is on its knees.

But what do we do about it? The first is not to throw the baby out with the bathwater. Provision of services from outside the public sector has its place, but it needs to be properly resourced. Government doesn’t have expertise about everything and there are organisations out there that can provide high quality services which the state isn’t able to do as well. But this doesn’t mean that it can be done on the cheap.

Cheaper isn’t better. How many billions are lost through bailouts? And how many thousands of hours have been spent keeping doomed services alive to spare the blushes of ministers and officials? The constant attention paid by government in keeping this rickety car on the road is distracting from the real work of serving the public better.

Introducing proper and transparent “Open Book Accounting” and improving the use of social value within procurement would also help to shift practice. This will encourage government to consider the true costs of services and the ensure that we are realising the full benefits to society and the environment.

Second, we need to stop being blind to the types of organisations which provide public services. If we are going to have services delivered by entities other than government, then we need to make sure that they are in it for the right reasons and have the best interests of service users at their heart.

The only reason why big business has been interested in delivering public services is because they see an opportunity to make a quick buck. The allure of profit has led many businesses to their demise and left the public without the services it depends on. They will say whatever they can to win a contract and extract as much money out of services whilst they can. This cannot continue.

Alternatives, such as social enterprise, are already out there delivering services in health, education and transport. Businesses such as HCT, which delivers bus services throughout the country, reinvesting its profits back into the community funding things like refugee services and accessible transport for older and disabled people. They are financially sustainable and socially driven. This is the model for the future. Government should stop pretending that organisational structure doesn’t matter and favour those types of organisations which have a track record of success.

Rather than encouraging private contractors to write “living wills” and wait for their downfall, the government must reform this broken system.


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