Feature

Cock-up or conspiracy?

Labour’s enthusiasm for privatisation, especially in view of disasters such as Railtrack, is beyond rational argument, warns Ron Singer

Many predicted that Tony Blair’s government would be well to the right of centre – but few predicted the rush to privatise public services in his second term.

As I write, London mayor Ken Livingstone has agreed to call off his legal challenge to the privatisation of London Underground and pay up £4m in legal fees, which follows the previous week’s 24-hour strike against tube privatisation by rail union members. The same week also saw the biggest strike of council workers since 1979, the surprise defeat of Blair stalwart and privatiser Ken Jackson of the AEEU section of Amicus, the biggest fall in world stock markets for decades, large-scale pension reductions, and a significant anti-capitalism march in Genoa.

Even right-wing commentators were openly questioning the ability of capitalism in general and the private finance initiative/private public partnership (PFI/PPP) concepts in particular to deliver (see Mail on Sunday, 14 July 2002, ‘The great flaw in Lamont’s plan’ and ‘Many PPP contracts are poor value and overdue’).

So should the move from creeping privatisation under the Tories to galloping privatisation under Blair be seen as good news (‘you can have your schools and hospitals sooner rather than later’) or bad (‘the costs of servicing PFI debt will haunt us for 30 years’)? Has the escalation of the policy criticised by Labour in opposition yet trumpeted in government been thought through or is the government bumbling? In short, is it cock-up or conspiracy?

The Treasury was evidently attracted to PFI and PPPs originally because borrowing to build hospitals and schools via the private sector did not show up on government investment balance sheets and helped keep inflation down. The ‘rigour’ of the market would also help to drive down wages and avoid embarrassing strikes and displays of solidarity around public services.

Labour attacked the policy in opposition, but in government presumably found the civil service firmly wedded to PFI and PPPs. Labour’s new backers in big business also liked the vision of secure profits from money invested in government-backed schemes, so the ball has just kept rolling.

The conspiracy theory, which in this case appears compelling, starts and finishes with the World Trade Organisation and its complex new rulebook, the General Agreement on Trade in Services (GATS). The WTO is essentially the America’s way of policing trade between member nations to the advantage of global corporations. One of the key clauses in GATS relates to the provision of public services: it requires that states which have handed over any public services to the private sector are obliged to begin the process of offering the rest of those services to the market too. Yet once privatised, services are difficult or impossible to bring back into public ownership, even if they are failing.

The central claim of privatisation supporters is that PFIs and PPPs deliver faster and cheaper than projects funded directly by government. This is curious given that the private sector has always built the schools, hospitals, roads and railways anyway, with money borrowed at low interest rates by the state. But under PFI/PPP the private sector wants added return on its investment because of the financial risks it is taking. Curiously again, it is always this ‘financial risk’ that magically tips the value-for-money argument in favour of the private sector when compared with the direct funding route.

But Professor Allyson Pollock, of the school of public policy at University College London, has consistently argued that the private sector does not actually face any additional financial risk. The government would always have to bail out a hospital or school-building programme if it faced financial difficulties or a private consortium looked set to go bust, as occurred with the Channel Tunnel over-run and the pay-out to Railtrack shareholders.

So accurate is Pollock’s work and so dogged her criticism that her unit was singled out for two paragraphs of attack in a House of Commons health select committee report last July. Yet the Treasury select committee, which reported last month, came to the same conclusions as she did on the lack of financial risk to the private sector.

There is other evidence about the certainty of profit for the private sector. Care homes – the vast majority of which are now in the private sector – complained that they could not afford to meet new regulations, so the government has conveniently dropped the requirement that they should. Foundation trusts and schools are to be regarded virtually as companies, deciding what is best for them rather than for the people they serve. And companies that fall below contract standards can only be urged to improve, with the sanction of terminating the contract for failing firms likely to be invoked only rarely.

The formation of foundation trusts in the NHS is another example of the one-way privatisation route. The formation of NHS trusts back in 1991 was trumpeted as ‘trust status being awarded to the best hospitals’, but soon the policy extended to every hospital and community provider. And after a trust has achieved foundation status, nobody has explained what will happen if it then begins to fail.

The private financing of public services mortgages both our own and our children’s futures to profits for shareholders with no guarantee of high-quality services for the public. This really is ‘rip-off Britain’.