We need an approach that places the user at the fore of all decisions on who should provide a service, argues Margaret Hodge MP – and that starts we these four reforms

The collapse of Carillion will impact on service users, workers and the taxpayer. The government keep telling us that they are not bailing out the private company – but that is only partly true. With 450 different contracts in schools, prisons, hospitals, army accommodation, road infrastructure and so on, the extra costs associated with the disruption from both the liquidation and from finding new providers, is bound to run into hundreds of millions of pounds – money the taxpayer will have to find.

There are many outstanding questions that the government must answer. Why, for example, did they ignore the concern hedge funds clearly demonstrated as far back as 2013 when Carillion was already delaying payments to sub-contractors?

Why did the government award the company new contracts, not just for High Speed Rail 2 but for building new schools, providing catering services to the Ministry of Defence and upgrading the railway network between London and Corby after the profit warnings were made public?

Why did they not see the damning report from the National Audit Office in June 2016 as a red flag? That report chronicled Carillion’s failure to provide basic heating, hot water and cooking facilities for the accommodation for service families that they managed.

These may be specific questions arising out of this liquidation, but Carillion’s failure raises systemic issues that we must also address.

Our dependence on the private sector to deliver public services is immense.

If we just look at public services and ignore expenditure on pensions and benefits, over half of the services funded from the taxpayer’s pound are now provided by third parties. Schools, hospitals, employment support, probation work and even social workers working with vulnerable children, many of these services are now often not provided by the state, but by private and voluntary providers.

The idea that these can all be renationalised is completely unrealistic. And anyway, I am not sure we are asking the right question. The Tories have always believed in cutting the size of the state and they buy into an ideology that claims that the private sector provides better and more efficient services. The studies we undertook when I chaired the public accounts committee proved that wrong. The private sector are just as guilty of wasting money as the public sector and too often they simply lie to meet their performance targets or secure payments. Think of the claims for payment by G4S for tagging ex-prisoners who had actually died, or Serco falsifying data on a contract for out-of-hours GP services to show they were answering the phone and visiting sick patients in good time.

The traditional ideology on the left is that the state should be the sole provider of public services funded by the taxpayer. In my view that is old-fashioned and leads to a focus on the interest of the producers, rather than the users of public services.

The old ideologies of both the left and the right are misplaced for the modern context. The citizen’s interest should be at the heart of the decision on who provides. Flu jabs provided by the local (private) chemist may be more convenient for elderly people. A private welfare-to-work adviser might be able to be more innovative in helping someone who has been out of work for years because of mental health challenges. The client may simply need a new suit for an interview and spending taxpayer’s money on that is much more difficult for Job Centre Plus than it is for a private provider.

So a centre-left ideology should focus on placing the user at the fore of all decisions on who should provide a service.

That means that on both ideological and practical grounds we need to develop policies that will improve outsourcing so that it better serves the interests of citizens.

The Tories may be using outsourcing inappropriately, but we cannot plan on the basis of renationalisation of all public services.

I would suggest that requires reforms in four areas. First much better transparency is essential. Private providers who choose to work in the public realm need to accept that they cannot hide behind commercial confidentiality when they are funded by the taxpayer’s pound. The National Audit Office should have the powers to assess both probity and value for money in these contracts. We should be able to use freedom of information powers to interrogate those parts of the business that are involved in the contract. Greater openness might have alerted us to the vulnerability of Carillion at a much earlier stage.

Second, the Tories always claim that they have successfully created markets with a range of private companies competing for public contracts. The reality is that they have helped to destroy, rather than create markets. Small and medium sized enterprises with real expertise have been destroyed by the large oligopolies that have emerged – like Capita, Serco and G4S.

These companies are expert at winning contracts and often prove less good at running services. Government should change how it tenders for public services so that a real market exists with a diversity of providers and with small and medium enterprises actively engaged in running services.

The lack of appropriate competencies among civil servants responsible for running public procurement exercises and monitoring contracts is a continuing running sore. It is not that difficult to train the talented young people who choose to come and work in the public sector to develop the commercial, financial, IT and project management skills required. It does require a change in culture so that contract work is valued and seen as being as important and interesting as dreaming up new policies in the corridors of Whitehall.

Finally we need to overhaul the corporate governance rules and demand ethical standards from those companies who want to play in this market. They should not lie. They should pay their workers properly and put them on legitimate employment contracts. They should play their part in training through apprenticeship schemes, they should be responsible about how they manage their supply chain and they should pay proper taxes on the profits they make.

Carillion might be a watershed moment if the government grasp it as an opportunity to reform outsourcing. If it simply becomes a moment to exchange extreme ideological positions then it will become an opportunity lost for citizens who depend on services that working well for them.


Margaret Hodge is member of parliament for Barking