Ross Clark

The worst of both worlds

Ross Clark says that the government’s PFI deals allow private companies to prosper at the public’s expense

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Ross Clark says that the government’s PFI deals allow private companies to prosper at the public’s expense

Imagine you are a left-leaning Guardian reader with a social conscience. You are not a communist, but your attitude towards private enterprise is less one of enthusiasm than grudging tolerance. If we are going to let private companies run things and make things, you believe, they must at least follow a Will Huttonesque paradigm of virtue, looking after their staff and the local community before distributing a few crumbs to their shareholders. And, of course, capitalists must be kept away from the things which really matter. It is one thing your local Indian takeaway being run for profit, but it is quite disgusting to think that greedy capitalists and idle shareholders should be raking in riches from your knee operation and your children’s education.

If these are your views, you have only one sensible option: put your children down for Eton and take out Bupa health insurance. Paradoxically, it is state schools and hospitals which are now run as slot machines for private entrepreneurs, while the private health and education sectors mostly still operate along high-minded, non-commercial lines. Take Bupa, which proudly declares ‘as a provident association Bupa does not have shareholders, and reinvests its surpluses into improved health and care facilities’. Or take Nuffield Hospitals, which runs 43 hospitals, ‘the largest network of not-for-profit independent acute hospitals in Britain’. Would these mission statements not even slightly warm the heart of Will Hutton?

Bupa and Nuffield Hospitals certainly make a contrast with the University Hospital of North Durham, an NHS hospital which was built and will be managed for the next 30 years by Balfour Beatty (pre-tax profits last year £130 million) under a Private Finance Initiative contract. Here patients have been charged to hire vases for flowers brought in by well-wishers and made to pay £25 a week to watch the bedside televisions, while WRVS members have been obliged to pay rent for their stand. Or contrast Eton, that great not-for-profit educational charity on the Thames, with secondary schools in the London Borough of Merton, whose premises will be managed for the next 25 years by Atkins Asset Management. Catering services have been subcontracted for the same period to Scolarest Catering, an arm of the Compass Group (pre-tax profits last year of £260 million), which owns Burger King and Harry Ramsden’s Fish & Chips; a contract from which, somewhat to the annoyance of parents who have expressed concern at the healthiness of the food being served, Merton council cannot seem to extract itself.

Of course, few Spectator readers will object to the principle of private companies being involved in, and indeed making profits from, the provision of health and education services. Nor is there anything wrong in the concept of schools and hospitals outsourcing certain services to specialist companies: it is plain common sense, for example, that hiring the occasional taxi is going to work out cheaper than keeping an entire fleet of chauffeur-driven cars on standby for occasional use by senior managers. It is also true that many private companies outsource building management. Yet the terms of some of the deals done under the government’s public-private partnerships, and in particular its private finance initiatives, cause astonishment among businessmen. What private school or hospital, for example, would do what the Norfolk and Norwich University Hospital NHS Trust has done: sign a contract with a consortium of private companies to manage and clean its buildings, and to feed its staff and patients for the next 60 — yes 60 — years? It is akin to guaranteeing your cleaner a job for life at her interview — before you have even watched her mop a floor. What happens in 30 years’ time, when the now-gleaming Norfolk and Norwich hospital is shabby and obsolete? Taxpayers will still be under contract to pay for it, that’s what.

According to independentschools.co.uk, an information service for the private education sector, no more than a handful of schools have contracted out the management of their premises, and only about half have contracted out their catering services. But among those who have entered into such arrangements, the terms on the contract are short. ‘We wouldn’t sign a contract with a supplier for more than three to five years,’ says John Bridger, senior director of Gems, a private company which runs 13 schools in the UK. ‘And even then we would want a clause to break the contract if the company’s performance was not up to scratch. When we wanted to put up a new school building, we appointed an outside firm to manage the tendering process, who reported to us on a weekly basis. But on completion of the building process we took over the management of the building. In the United Arab Emirates, where most of our schools are, we have even set up our own construction company.’

While in the private sector contracting-out is done out of pragmatism, in the public sector it has become an ideology which is practised to the point of absurdity. What is the point of an NHS Trust, stuffed with local worthies drawing generous salaries and pensions, if it is not going to run its own hospitals? It is like the now-defunct Railtrack, which civil servants decided ought to contract out, er, the building and maintenance of rails and tracks. One of the arguments for Private Finance Initiative deals is that they free civil servants from a task at which they have never excelled: making business decisions. The trouble is that they are no better at negotiating contracts for outside companies to take their business decisions for them. The result is that PFI companies have been able to run rings around them and extract extra payments for things which NHS trusts failed to specify in their contracts. In one hospital, accountants specified that the PFI consortium, which will run all services in the building for 25 years, should provide toast for patients’ breakfasts, but forgot to mention marmalade, for which the NHS is now paying extra. The NHS Trust forgot, too, to make any mention of litter clearance, so the NHS is having to pay extra for that, too.

In negotiating contracts with private companies, the government and its agencies have failed completely to bring about the entire raison d’