The Shadow State
Peter Holbrook writes about the findings and ambitions
of Social Enterprise UK's new report
Decades of outsourcing by successive governments now means that £82bn, a third of spending on public sector commissioning and procurement, is spent with independent providers. Accelerated by recent policies, the health and social care act, the work programme and welfare reform act, this is predicted to rise to £140bn by 2014. But with the majority of contracts going to large firms and their shareholders, we're witnessing money moving out of the public realm and being turned into private wealth. The consequences of this are serious for both society and the wider economy.
The Shadow State provides evidence that, in the drive to maximise shareholder profit, sub-standard public services are being delivered by private firms in areas where it really matters – in care for children, the elderly and the disabled. As these companies seek to cut costs wherever they can, we're seeing staff wages being driven down and councils having to pick up the bill, whether in housing benefit or, in the longer term, great swathes of people who can't save for their retirement. In effect, taxpayers are subsiding multinational firms who are simply not paying their way.
At the same time, there is mounting evidence that some social enterprises and charities are being squeezed out of public service markets. Civil society organisations with a social mission in their DNA, which put people and communities first, and that reinvest their profits to improve the quality and number of services, are not faring well. Social enterprises and charities can't thrive in markets that have become toxic. The result is a lack of competition, leaving commissioners with little choice of provider.
Yet we have a once-in-a-generation opportunity to change the direction of travel. The public services (social value) act is throwing commissioners a lifeline to contract for community wealth, not private wealth. The culture of commissioning is such that councils are too often expected to make decisions based on lowest cost rather than 'whole community' prosperity. They're understandably following the lead of their peers – across the country, councils are opting to commission from private firms which vow to provide services at low prices. The danger is that when social enterprises and charities disappear, large private firms will put their prices up, and commissioners, service users and taxpayers will be held to ransom.
We are calling on government to strengthen the social value act. It's due to become law in January, it had the backing of the social enterprise sector and cross-party political support, and it has the potential to create more open markets. The legislation should help create a more level playing field for social enterprises and charities to bid alongside private sector providers by making sure that the additional 'social value' (social and economic well-being) they create is taken into account when contracts are drawn up.
Multinationals and other big businesses can't be blamed for gravitating towards the UK's public service markets – despite all the cuts, there is still a lot of money changing hands. Some services are perhaps best provided by expert providers in the private sector. But many of the services at stake are dealing primarily in human relationships, and economies of scale and shareholder value are often at odds with what is really needed in these markets. Currently, firms are being allowed to operate in a way that is harmful, and without full and proper transparency. All providers of public services should be open to scrutiny to allow the public to hold them to account. That's why we are calling on government to intervene. We're recommending open-book accounting on public sector contracts, and a range of other measures to help prevent excessive profiteering and increase transparency. These recommendations do not solely aim to improve the environment for social enterprises and charities. They seek to improve public sector commissioning and markets for all, but as a result we believe social sector organisations will flourish.
It's dangerous for the national debate on our public services to rumble on and focus only on state vs independent and whether marketisation should continue or be halted.
There's a huge market out there already and it could be dramatically improved with a huge impact on national well-being. The question now has to be: what kind of businesses do commissioners in government departments and in councils need to deliver services for citizens? How do we want these business to behave? At the moment too many are serving a wealthy minority, when they should be looking after the 99%.
Polling reveals little public support for shareholders making profits from public services
Polling for the Shadow State has identified public dissatisfaction about shareholders making profits from the delivery of public services. Two thirds of UK adults believe it is unacceptable for shareholders to profit from running hospitals and health services (66%), children's homes (66%), police services (66%), and care homes for elderly and disabled people (63%).
The poll suggests a lack of awareness about who is running some public services funded by the taxpayer. Almost half of UK adults (43%) believe the government runs the majority of children's care homes in Britain, whereas in reality the private sector now runs 65% of residential homes for children. Only 11% are run by charities.
Peter Holbrook is chief executive of Social Enterprise UK. The Shadow State is available to download here.