‘Privatisation exposes Government to heavy bail-out risks’: Report for Unison

Posted on September 18, 2008 · Posted in Unison

UNISON SHINES SPOTLIGHT ON MURKY WORLD OF THE PUBLIC SERVICES INDUSTRY

The seismic shift towards private companies providing public services is exposing the Government and taxpayers to enormous financial risks, warns UNISON, the UK’s largest public sector union today (18 September). The union is calling on the Government to ditch its fair-weather friends in big business and call a halt to damaging privatisation.

An investigation by the union* shines a spotlight on the murky world of the public service industry which boasts a massive turnover of £79bn. It shows the powerful lobby and considerable sums of money spent to create a “sympathetic” environment for increased privatisation.

UNISON’s new report – The Rise of the Public Services Industry – examines the wider social, economic and political impact of the public services industry (PSI). It highlights the economic reality of the marketisation of public services that increases the Government’s financial exposure to the credit crunch and presents a potential personal catastrophe for vulnerable service users.

Dave Prentis, UNISON General Secretary, said: “This hard-hitting report shows that the Treasury is at risk of having tens of billions of pounds of liabilities heaped on it, because of the way public services are now delivered and funded. Much of the money used by the public services industry has been borrowed from the banks and, with borrowing costs rising, our schools and hospitals are being exposed to the credit crunch and financial bad weather.

“The reality is that the Private Finance Initiative and Public Private Partnerships are costing the country a fortune. It is a case of buying one hospital for the price of two.

“Labour’s fair-weather friends in big business will soon be heading to Birmingham to woo the Tories. It’s time for the Government to listen to their true friends in the Party. Call a halt to private companies reaping excess profits from public services. It’s time to focus on policies that will strengthen public services and win widespread support.

“Most of the public is blissfully unaware of the vast scale of private sector involvement in public services, which raises the question of who owns what. The taxpayer would be rightly dismayed to learn that we have switched from a public sector that owns assets such as hospitals, prisons, land, equipment etc. to one that often leases them – paying a high price for doing so.” There is a growing band of former ministers and civil servants who hold senior positions in private companies that have contracts in they were previously responsible for. UNISON is calling for stronger rules governing the movement of senior civil servants and ministers to the private sector.

The UNISON dossier highlights a number of key areas at risk from the global meltdown. In the care home sector for example, private equity firms have borrowed heavily against over-valued property prices and are now running into difficulty re-financing because banks don’t want to renew their loans. The report gives examples where councils have had to step in to protect residents following the collapse of firms such as Sedgemoor.

The hard facts show that, all too often, the marketisation of public services fails to produce value for money for either the public sector, or for the citizens who pay for and depend on the services. Key Concerns * Public service delivery markets are undergoing a process of consolidation, creating risks of market dominance and manipulation.

* Public services are generating high levels of profits for PPP consortia and private equity houses – often far beyond what might be regarded as “fair” returns on investment.

* Reliance on debt finance by PFI, PPP and private equity investors has heightened the exposure of key services and the Treasury to economic risk resulting from the “credit crunch”, at a time when government finances are under severe pressure.

* Although promoted as a means of avoiding capital expenditure, private investment generates additional costs through higher ongoing fees and charges for services.

* Transaction costs generating by the complicated process of tendering, bidding, contracting and monitoring are substantial. * Pressure to extract profits and pay dividends to shareholders can persuade contractors to prioritise cost-cutting at the expense of investment and service quality.

* Public service delivery contracts are inflexible and costly to alter, making it harder for services to respond to changing needs or revised policy priorities.

* Public bodies can be poor clients, not properly monitoring contracts – undermining public service accountability.

* The claimed advantage for PFI and PPP of risk transfer is entirely notional – contractor failure must ultimately be bailed out by the taxpayer, as major schemes cannot be allowed to fail.

* The rise of the “public services industry” – A report for UNISON by Paul Gosling

UNISON – The public service industry