This essay, on the scandal of public sector outsourcing in Britain, was my Observer column this week. (The column included also a short piece reflecting on the debate about the Christchurch terror attacks.) It was published in the Observer, 17 March 2019, under the headline ‘We scoffed at Grayling’s ‘ferries’ but his way is now a public service norm’.
Oh, how we laughed. Failing Grayling, the transport secretary, Chris Grayling, the Mr Bean of contemporary politics, had awarded a cross-Channel ferry contract to Seaborne, a company that had no ferries and had never run a ferry service. Six weeks later, the contract was torn up.
The trouble is, the laugh’s on us too. For it’s not just Grayling who’s failing. The Seaborne style of awarding contracts – never mind the competence, just get the signature – has long been the public sector norm for outsourced work. The result has been scandalous services and collapsing companies.
Consider Interserve. It’s another of those corporations, like Capita, Carillion and Serco, with bland names, barely visible to the public, but which have become a kind of shadow state, providing much of Britain’s essential public services.
Interserve’s projects include repairing motorways, refurbishing bus stations and upgrading sewers. It also runs ‘welfare to work’ programmes and is the biggest provider of probation services in England and Wales. On Friday, it went into administration after its shareholders rejected a rescue plan.
Interserve began life as the London and Tilbury Lighterage Company, a barge and dredging operator, before moving into housebuilding and construction after the Second World War and in the late 1990s into facilities management. After a series of name changes, it finally became Interserve in 2001, ready to exploit the lucrative new market for privatised public sector work.
The outsourcing of public services began as a Thatcherite policy in the late 1980s, became turbocharged under New Labour and was pushed further still by the coalition government after 2010. An Institute for Government report last year calculated that a third of government expenditure – £284bn – was disbursed to external suppliers handling everything from parking permits to immigration control to the maintenance of nuclear warheads.
But why should the same company be deemed capable of motorway construction and probation management, of sewer repairs and hospital catering? And why is this not as scandalous as a company with no ferries being awarded a ferry contract?
Interserve is not unique. Take Serco, which began life as the British arm of the US entertainment firm RCA. By the late 1980s it had changed its name and aggressively moved to take advantage of the market in government outsourcing. Within 25 years, it was running everything from out-of-hours GP services to asylum detention centres.
It’s not uncommon for companies to change strategy or seek new markets, but this usually involves having some expertise in the subject. When it comes to public service contracts, however, expertise appears to mean primarily the ability to win contracts. Serco’s ‘panache in the bidding process’, one account observed, allowed it to ‘beat out competition from specialist firms’.
Inevitably, this has led to a constant stream of debacles. From charging for the tagging of nonexistent criminals to accusations of neglect and sexual assault at Yarl’s Wood migrant detention centre, from allegations of data falsification in an out-of-hours GP service to disastrous work capability assessments, the one thing that outsourcing companies have never been able to outsource is the stench of scandal.
A decade ago, such companies were boasting about reaping the rewards of the financial crash. Paul Pindar, CEO of Capita, told the Financial Times that he’d be ‘deeply disappointed’ if the company did not double revenues from government contracts within five years. In fact, within a decade, Capita was knee-deep in debt and issuing profit warnings. Serco’s profits had already plummeted. Carillion collapsed. And now Interserve is in administration.
Government cuts may have opened up new markets, but they also squeezed profit margins. Combined with greed and overstretch and never-ending scandals, outsourcing companies have been forced into a ‘bankrupt’ business model of chasing new public sector contracts to make up for the razor-thin margins in the old ones.
Shareholders have seen assets disappear and creditors have lost money. But the real losers are NHS patients, benefits claimants, asylum detainees – and the tens of thousands of workers employed by such companies, often in gig-economy conditions.
It’s time we recognised that the policy of giving construction or facilities management companies power over health provision, welfare assessment or prisoners is as rational as awarding a ferry contract to a company that’s never ferried a bugger in its life.
The photo is of an Interserve cleaner; it’s a creative commons licence via the BBC (photographer unknown).