CLPD Newsletter No.63

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CLPD Newsletter

No.63 (Labour Party Conference Edition) September 2001

Stop Labour's Privatisation

When we won in 1997 Tony Blair pledged that Labour's victory was "not a vote for outdated dogma or ideology of any kind". In fact New Labour in government has proved highly ideological, albeit in a Thatcherite way. At every turn it has promoted private sector involvement in public services under the rubric of the Public Finance Initiative (PFI) and Public-Private Partnership (PPP).

Thus the leadership's alarming claims during the 2001 election campaign that it would finance the much-wanted improvement in public services through private sector involvement is no new departure. Public agencies are already forced to rig "public-versus-private" comparisons to ensure they get approval of schemes which the government will only fund under partnership arrangements.

Why is the leadership obsessed with pursuing this unpopular policy? One key argument for private involvement is that the supposedly greater managerial skills of private entrepreneurs will result in "greater efficiency". No evidence to substantiate this claim is proffered. It flies in the face of the ruinously inefficient impact of cost-cutting in water and rail.

Private sector takes the money, public sector takes the risk

Government spokesmen frequently extol PFI/PPP on the basis that the private sector will take on the risks involved in new projects and service delivery. But research shows that when problems develop this simply doesn't happen. Generally there is no realistic alternative supplier that can be substituted for a poorly performing contractor. Faced with this dilemma, even if contracts scrupulously provide for transfer of risk, governmental agencies don't enforce them for fear of damaging future relationships with the company involved. As in the case of "outsourcing" by the Contributions Agency and housing benefits in the case of local authorities, the public sector tends to forgo its legal entitlements to penalty payments for poor performance. This "locking-in phenomenon" means that, however strong the contract, the purchaser is virtually at the mercy of the outsourcer. Time and again when things go wrong public money has been used to bail out the private sector.

New Labour's legacy?

Above all, the escalating cost of PFI/PPP casts a shadow over future public service delivery. Like mortgages, PFI/PPP spreads repayment over a long period, and, like mortgages, costs far more than paying up front. In the NHS the high cost of PFI has meant drastic service reductions. For instance at the Edinburgh Royal Infirmary, PFI has meant a 25% reduction in staffing; at Worcester Royal Infirmary it has meant 32% fewer ancillary workers and 17% fewer nursing staff. The end result will be that individuals become increasingly responsible for paying for their health care. Under PFI/PPP the government in effect guarantees to collect tax from its citizens on behalf of the private sector over the next thirty years. But there is no such guarantee to protect public services such as health and education.

There is an alternative

The evidence shows that with significant private sector involvement the improvement of public services just won't materialise. Instead there will be further deterioration. The political effect would be that at the next election many voters who gave Labour the benefit of the doubt in 2001 will refuse to vote, and many who abstained this time will vote for rival parties.

But there is an alternative to the government's privatisation programme. Improvement in services could be financed through the reintroduction of progressive taxation, together with the government raising finance directly on capital markets. The time has come to be honest with the electorate: we cannot improve public services unless we are prepared to pay for them. If we are to safeguard services and assure the Party's future electoral success, we cannot allow New Labour to carry on as the privatising cuckoos in the Labour Party nest. Massive support for the Contemporary Resolution suggested by CLPD is the only way to signal to the government that it should dump a disastrous policy.

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