What begins with mutuals could end with privatisation

It is not controversial to observe that, under this government, the UK’s public sector is in rapid retreat. The coalition’s massive reductions in departmental expenditure and civil service operating costs ensure that public spending as a proportion of GDP is set to fall for years to come. Hammering away in the media, ministers endlessly portray this as a rebalancing of the economy – repeating statistics designed to show that public sector spending is simply returning to the levels of a few years ago – and talk up the benefits of handing service provision to third parties.

These statistics are somewhat slippery. Public spending as a share of GDP did rise abruptly in the last few years – but rather than spiralling spending on services, the main cause was the addition of the bank bail-outs, economic stimulus, recession-related costs and PFI liabilities to the public spending side of the equation, while GDP shrank. Few would argue against the need for cuts, but it’s misleading to pretend that cuts on this scale don’t represent an unprecedented challenge for public services.

In facing that challenge, the government has talked up the benefits of handing service provision to third parties. Now, it is obvious to many of those at the frontline of service delivery that voluntary sector organisations often do a better job than the overstretched arms of government. Many DWP contractors have real expertise in – and passion for – the job of helping people back to work; community groups and grassroots charities understand local communities far better than any civil servant. But these providers are rarely much cheaper than public sector delivery; the advantage lies in the fact that they are more effective.

If voluntary sector bodies and SMEs could get their costs below those of big private sector contractors, there would have been no need for the endless series of Cabinet Office-based initiatives which have for many years – and with few discernible results – tried to persuade government departments to put more business their way. The reality is that while voluntary sector organisations may do a better job, they often do so in ways that are hard to measure; when the focus is on the bottom line, big companies will generally trounce smaller and charitable bodies.

Here lies a risk within the mutuals agenda. Cabinet Office minister Francis Maude tells us (see Civil Service World, p1 & p8-9, 26 January 2011) that saving money is a key policy aim; that mutuals will be exposed to full competition when a functioning market exists; and that mutuals may be at least part-owned by the private sector. In that context, many new mutuals may soon lose their contracts to private competitors, or end up in private hands.

In the latter case, the mutuals’ staff might come out as winners, but this would clearly be a victory for the free market rather than the mutuals movement. And either way, the result is clear: part of the public sector disappears and is replaced by a private contractor. That may, in some cases, be the best solution. But this policy is ostensibly one about fostering the Big Society, not privatising arms of the state. As it stands the mutuals agenda, for all its potential benefits, may lead to a place that will surprise many observers – and it won’t always be a pleasant surprise.