Selling Off the UK Government to the Lowest Bidder

Government outsourcing–contracting private companies to provide public services–can produce amazing results. The process links government revenue with business tools. When a government’s own in-house capacity is limited, contracting private companies can be an essential solution, whether it’s providing stationary or building bridges.

Outsourcing can also be a stressful exercise, as John Glenn, American astronaut and the fifth person to go into space, responded when asked how he felt sitting in a space capsule getting ready to launch and listening to the countdown: “I felt exactly how you would feel if you were getting ready to launch and knew you were sitting on top of two million parts — all built by the lowest bidder on a government contract.”

Shadow State by Alan White XX, pp.

Shadow State: Inside the Secret Companies that Run Britain
by Alan White
Oneworld, 320 pp.

Following the free-market philosophy of Margaret Thatcher, successive UK governments (whether Conservative or Labour, under Major, Blair, Brown and Cameron cabinets) have increasingly relied on massive private companies to provide essential services, like health care and prisons, previously handled by government departments. Research suggests the market for public service outsourcing has an annual turnover of £72 billion: about 24 percent of the spend on public services in the UK. Four companies dominate this landscape: G4S, Serco, Atos and Capita.

They also pay little in taxes. In November 2013 the National Audit Office (NAO) found that, despite holding government contracts worth around £4.5 billion, Atos and G4S paid no corporation tax at all in the UK in 2012. Capita only paid between £50 million and £56 million, while Serco paid £25 million.

In chapter after chapter, example after example, Alan White’s book Shadow State shines a light on the murky, highly lucrative world of government outsourcing and privatization in the United Kingdom. In addition to revealing the inner workings of the largest companies that perform public services, White examines the government’s responsibility to the public who use these services.

As Mark Fox of the British Service Association notes: “when you outsource or privatize…you don’t outsource political responsibility for things” (pp. 215). On the difficulty of holding the UK’s highly centralized government accountability, White notes: “sometimes things go wrong because of contractors, sometimes it’s almost entirely the government department’s fault, and most of the time it’s a combination of the two. But what’s most important is that if blame for poor performance often seems difficult to disentangle between state and private contractor, that’s hardly helped by the mechanisms we have in place to assess such projects” (pp. 151).

The state and the private contractors it hires wield incredible power in pursuit of profits and reduced budgets. Decisions are often tailored to the benefit of businesses and not citizens. White’s book shows why the private sector isn’t democratic, accountable or transparent. It doesn’t give the people who use the services a say. As shown in the cases below, these flaws lead to wasteful spending, injury and even death.

Outsourced Immigration: Dangerous and Unaccountable

In October 2010 Jimmy Mubenga died “a very public death on the last row of seats on a full British Airways flight that was sitting on the runway at Heathrow airport” (pp. 16). The flight was waiting to go to Luanda, Angola.

Handcuffed behind his back, Mubenga was saying “I don’t want to go” and “I can’t breathe” while three guards restrained him: two were sitting either side and held him down, pressing his head between his legs, while a third leaned over the passenger seat from the row in front and occasionally did the same when he managed to pushed back up. The three guards worked for G4S, which at the time had been contracted to oversee Home Office deportations.

Mubenga, who had fled Angola with his family in 1994 after the government killed his father-in-law and threatened him, was now crying for help. The technique used to restrain Mubenga, which is strictly prohibited because it could result in a form of suffocation known as positional asphyxia, was nicknamed “carpet karaoke” by G4S guards. According to one witness, Mubenga called for help around 50 times as he slowly suffocated. He soon lost consciousness and died of cardiac arrest.

In 2014, the G4S guards were acquitted of manslaughter, despite evidence of racism and denying pushing him down; they claimed that he put himself into that position, bent over in his seat.

Jimmy Mubenga is not the only person to have been restrained to death by guards from outsourcing companies. The use of force during deportations is now commonplace, as are serious injuries sustained by asylum seekers and other deportees. The 2008 Medical Justice report, Outsourcing Abuse, documented the numerous injuries sustained by asylum seekers in detention and during forcible deportations. G4S came out as the worst ‘offender’.

Physical harm, including death, has been reported in several sectors operated by outsourcing companies. Yarl’s Wood, an immigration removal detention centre operated by the outsourcing firm Serco, is a case in point. Located in Bedfordshire, this centre houses adult women and adult family groups awaiting immigration clearance. It also houses “a culture of abuse, racism and violence” according to a Daily Mirror undercover investigation. Women are subjected to sexual advances, abuse and assault by the male security guards, including a guard getting a woman pregnant. Guards use the threat of deportation to silence women forced to have inappropriate relations. One woman had been held for four years, which, when one considers the fact that none of these people have been charged with an offence, seems needlessly cruel. Despite these stories and investigations, Serco’s contract to run Yarl’s Wood was renewed in 2014 for eight more years, and it was paid £70 million for the job.

White notes that “there’s a clear need for our legal and political systems to improve the standards of accountability and it extends far beyond this case or other assaults.” As Clare Sambrook pointed out to White in 2013: “G4S [and other outsourcing companies] operate[s] in many countries where such matters don’t come to light” (pp.26).

The Guardian, which broke the story of Mubenga’s death, only realized there was something up because its reporters tracked posts from passengers on the plane who were using Twitter. Because private companies are accountable to their shareholders and not the taxpayers who fund their contracts, transparency is often lacking. In the aftermath of Mubenga’s death, shadow justice minister Sadiq Khan wrote to the four companies responsible for most of the outsourced work involving detaining and transporting suspects and criminals. He got mixed results (pp. 167):

“Serco responded in the most detail, closely followed by Sodexo. GEOAmey refused to divulge any information, instead directing my request to the Ministry of Justice. G4S did not provide any information directly, instead mentioning that the Ministry of Justice and Home Office would respond formally. Unfortunately, neither did.”

It needs to be said that government also has its role in these failures. As White notes, many problems are due to chaotic governance, not the agents of the state. An exchange from the “Atos Work Capability Assessments”, 17 January 2013, between Labour MP Kevan Jones and Conservative MP Robert Halfon is helpful in highlighting both the lack of accountability by government officials who sign outsourcing contracts and their inability to stop subsequent contracts to under-performing firms (pp. 54):

Mr. Jones: The hon. Gentleman is correct in saying that the first contract with Atos was introduced by the previous government, but why did the preset government renew and extend that contract even though they knew about all the problems that he and others have raised in the House?

Mr. Halfon: This is where I agree with the hon. Gentleman. I was very disturbed when Atos got the contract for the personal independence payments.

Mr. Jones: That happened under this government.

Mr. Halfon: Yes, that is what I am saying. The reasons that were given included the fact that the infrastructure was already in place, and the cost of changing the contractor.

The current system is clearly in a dysfunctional state.

Criminal Justice For Sale: Making Things Worse

The private sector’s role in delivering detention services, for adults and children, is growing but not leading to improved conditions, as Chapter 4 shows. Once people leave detention, they face a probation system that is flawed and seems to be working against them.

In April 2012, HMP Oakwood, in Wolverhampton, opened at a cost of £180 million. The G4S-run prison would house more than 1,600 inmates. The jail was soon branded “Jokewood” due to repeated negative news headlines. There was stories of prison gangs running the institution and protests, where inmates accessed the roof for more than five hours. One prisoner told the Guardian (pp. 83):

“I’ve been in jails all over the country. But this was the worst. It’s a shit-hole staffed by kids who should be stacking shelves.” He added that it was easy to get drugs and alcohol: “It’s easy to get hooch, even easier to get Black Mamba [synthetic cannabis]. The parcels are chucked over the fence.”

Of the 13 private prisons in England Wales, “Oakwood and Thameside in London received a rating of one out of four (‘overall performance is of serious concern’), who two others had a two rating (‘overall performance is of concern’)” (pp. 84). This amounts to 30 percent of private prisons being of concern. What is the figure for publicly run prisons? Nine percent. Of the 121 publicly run prisons, only one received a ranking of one (0.8 percent), and only ten achieved a rating of two (8 percent). “Violence is four times higher at Serco-run HMP Doncaster that at a comparable-sized state-run prison” (pp. 85).

The ratings come after private security companies G4S and Serco came under fire for overcharging the government by “tens of millions of pounds” for providing electronic tags for criminals. It triggered a government-wide review of all contracts held by the two firms.

Services within the courts have also been negatively affected by the injection of private companies. A 2013 statistical bulletin from the MoJ showed that courts weren’t being provided with interpreters nearly once every ten times. On each occasion this led to days being lost at crown court, it cost around £10,000–by December 2013 it had cost the Crown Prosecution Service around £17 million in total (pp. 93). These costs and delays were widespread following the government’s move away from the National Register for Public Service Interpreters, an independent voluntary regulator for the 2,200 qualified, largely self-employed, interpreters to private companies.

One such company was Applied Language Services (ALS), which was acquired by Capita before their £90 million, five-year contract was signed. ALS/Capita immediately started to cut pay to interpreters, resulting in a boycott. Staff shortages impaired the courts weekly: murder cases were delayed, friends had to interpret for each other and cases were adjourned due to lack of interpreter. The government eventually admitted its failure, as one Liberal Democrat MP said (pp. 92):

“The department did not have an adequate understanding of the needs of courts, it failed to heed warnings from the professionals concerned, and it did not put sufficient safeguards in place to prevent interruptions in the provision of quality interpreting services to courts. The MoJ’s handling of the outsourcing of court interpreting services has been nothing short of shambolic.”

In a similar vain, the Probation Service were being outsourced to a handful of private providers, without any meaningful piloting or testing, while also severing the working relationship with local authorities, the health service and the police. Shadow justice minister Sadiq Khan wrote about the dangers to public safety that privatization has brought to the Probation Service (pp. 105):

“I’ve heard some truly alarming reports on the chaos privatization is causing: staff shortages caused by rocketing sickness levels and dozens of unfilled vacancies are crippling the service.

“As a result, a backlog of cases is building up, including offenders who have committed serious, violent crimes like domestic violence. Oversight of sex offenders has been handed to staff without the right expertise. High-risk cases aren’t receiving sufficient supervision. Court reports are going unwritten. Senior management time has been sucked into restructuring, neglecting day-to-day duties rehabilitating offenders. New software designed to assess the risk that offenders pose to the public was rushed into service without adequate staff training. It is a shocking state of affairs, which could have catastrophic consequences for public safety.”

Regarding the justice system in the UK, White concludes (pp. 108):

“Whether it’s in the courts, prisons or probation, the Ministry of Justice has outsourced at a breakneck speed in recent years. In part, it’s been done to save money–but all three cases there’s an earnest belief that private companies can bring imagination and creativity to the sectors within which they operate. However, the problem is that the decisions to outsource appear not to have yielded any particularly impressive results yet, while the rush to impose this brave new vision has upset established workers within the justice sector.”

Private Health Care: Poor Value for Money

A final sector to examine is health care. Founded in 1948, the UK’s National Health Service (NHS) has seen a steady shift towards private firms in recent years, with a rise in the proportion of the NHS budget going to firms such as Virgin Care, Care UK and Bupa. Department of Health figures show that the amount of its funding that has gone to “independent sector providers” more than doubled from £4.1 billion in 2009-10 to £8.7 billion in 2015-16.

One rationale claimed by politicians for the privatization of essential services, like health care, is reducing cost. However, as White shows, private contractors use complicated accounting techniques, networks of corporate partnerships and debt-inducing loans to shift their financial risk from themselves onto taxpayers. Private contractors seek to maximize the number of transactions regardless of demand. Many NHS provider operate a loss-leader model where they take annual losses, surviving on funding secured from investors on the promise of more NHS work. “What would happens if this model failed before it succeeded?” White asks. And answers (pp. 124):

“In 2008 Circle took out a £42 million loan from Barclays to open a new independent sector treatment centre at Nottingham’s Queen’s Medical Centre. It was to be repaid through income from the local NHS buying its services. It seemed Circle couldn’t meet the five percent interest rate, so the NHS paid the bill in full, as apparently the firm had an ‘unconditional right’ to compel it to do so.”

Circle Health is owned by a parent company, Circle Holdings plc, which in turn is owned by a series of hedge funds. In just one year, their profits have gone up 160 percent (!), from £64.6 million in 2010/11 to £170.4 million in 2011/12. This type of corporate welfare has become commonplace. Private businesses profit when things go smooth and taxpayers pay the price when things fail.

Social care is another area the government has been outsourcing, with troubling results. There are around five thousand young people in residential care homes–and around three quarters of these homes are run by private companies. In 2011, the top five providers had turned a profit of £30 million. Companies, like Sovereign and 3i, make these high profits by buying up cheap housing stock around the country, to which vulnerable children can be shunted. By shifting childcare from charities to private equity firms, staffing has reduced and children have been abused. In a 2012 report, published by Social Enterprise UK, figures show “that children’s homes in England–caring for 3,040 boys and 1,800 girls–had reported 631 suspected cases of young residents being sold for sex in the past five years. These are just the reported cases: the true figure is likely to be far higher” (pp. 130). The private sector’s business model of moving vulnerable children around exacerbates some of the problems they’re already facing.

Final Thoughts

Beyond the normal discussions regarding conflicts of interest and inaccurate contract pricing, the public (in the UK and elsewhere) need to question the fundamental theory of government outsourcing and privatization. Unlike public infrastructure, essential services are a matter of life and death. Immigration, criminal justice and health care are fundamentally human endeavors. As Peter Holbrook, the CEO of Social Enterprise UK, notes: “most public services rely on human relationships, so upscaling leads to a huge degradation in the quality of service” (pp. 131).

The growing dominance of a few private contractors has lead the UK government to label them as “too big to fail”, meaning that their financial risk is ultimately held by taxpayers. As the world saw with the global financial crisis in 2008, companies were making record profits while the general public went unprotected from corporate greed. Ultimately, the outsourcing of a wide variety of public services to a few bodies is a risk we can not afford.

Increased accountability and transparency are fundamental to preventing the problems discussed above. One of the best ways to achieve these ends in by implementing local solutions on a smaller scale. The Paddington Development Trust (PDT) is a great example of this. The PDT runs youth services, health centres and academies, has refurbished community centres, and has been involved in many more projects, most of which are designed to create employment and business opportunities to residents. The fundamental decision for a government is whether to let money go to companies or inject it into local organizations.

Alan White closes by balancing the gloomy present with an optimistic future (pp. 249-250):

“The general public barely knows this industry exists. Yet it’s an industry that has been responsible for such poor quality service that lives have been lost, that the nation was embarrassed on a global stage in 2012, that the government has been defrauded, that vulnerable people, young and old, around the country, have been repeatedly let down by the state, and still it remains one of the things on which the political class pins its hope for the delivery of public services. Without true transparency, accountability and a market that allows a proper diversity of providers to flourish, the same horrifying stories will be generated, time and again. Until then, the shadow state continues to thrive.”

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