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Pete Hoskin

Peter Hoskin: Reform is creating a state outside the state — and reformers should question that

Have you heard of Serco? It’s certainly becoming harder to ignore this private company’s existence. There was another story at the weekend about how they are poised to benefit from government contracts, these ones for overseeing David Cameron’s National Citizen Service. They already administer to our nuclear deterrent; help deliver the government’s Work Programme; tug Royal Naval vessels out of harbour; inspect schools; care for… oh, the list goes on and on. Indeed, they won £3.9 billion worth of contracts in the first five months of this year, a 144 per cent increase on the same period last year. In an age of austerity, they are getting along just fine.

I’m not saying this out of grouchiness — far from it. Involving the private sector in public services is a necessary and worthwhile political pursuit. As we have seen recently with Hinchingbrooke Hospital, the introduction of profit and tenacious management can bring about astonishing improvements. But the nature of Serco and other mega-contractors still ought to make reformers pause and think. There is cause to wonder whether they are developing into a state outside the state, with all the problems that suggests. And that’s not just because around 85 per cent of their UK staff are former civil servants.

The main problem with Serco is that it wins contracts almost by default. This is not its fault, of course; it is obliged to chase the money, and it has the resources, capacity and experience to do so. But it does put smaller companies, as well as those charities and voluntary organisations whose budgets are slim to the point of starvation, at a major disadvantage. What many are compelled to do — as in the case of these National Citizen Service contracts — is partner up with Serco just to get noticed. Sceptics say that Serco encourages this because it makes their own bid look friendlier and more inclusive in the process. But, even if that’s true, there are plenty of smaller organisations that would be grateful to be Serco’s “bid candy” (as Polly Toynbee calls it) when the alternative is a drought in funding. Many are being shut out altogether.  

The CEO of Serco, Chris Hyman, once said that “power is always controlled by a level playing field of contracts” — but that “level playing field” is still a distant prospect. The government keeps trying to make contracts more accessible to SMEs and charities, by pruning the regulation around them and making them more transparent, but it’s proving more difficult than once foreseen. As one charity boss put it to me, “at the end of the day, we’re still selling homemade lemonade from a stall; they’re still Coca-Cola” — there are imbalances there that may be impossible to overcome. But so long as those imbalances remain, we may be missing out on the flexible, tailored services that small organisations can sometimes provide.     

Of course, all of this matters less if the mega contractors are doing a decent job. At which point, I should probably enumerate all the good things about companies like Serco: they are often more efficient and effective than the public sector, which is why governments employ them in the first place. And the bad things too: there is persuasive evidence that some of them are on course to miss their Work Programme targets, as well as a thousand other infractions. But the truth is that it’s difficult to tell whether they offer the best possible service because they eclipse others who might also provide that service.  

We can, however, glimpse the full extent of taxpayer exposure to these companies when things go really, really wrong. The Olympic security debacle, presided over by G4S, is a supreme example. Not only was the government wrapped up in lots of expensive contracts, but the public sector — in the shape of the Army — still had to be deployed in the end. It’s huge cost on top of huge cost, and all because the contractor failed to deliver in the first place. In that context, the boss of G4S’s £1.2 million a year pay packet starts to smell more like those “public sector fat cat” salaries we rightly criticise.

“Ah,” you say, “but G4S’s failure is G4S’s loss — they won’t even get hired for children’s parties now.” But, sadly, as we’ve seen with the nationalised banks, free market ideals don’t always prevail. I do wonder whether companies such as Serco are becoming too big to be allowed to fail. What would happen if one of these monolithic organisations went bust, sunk by the vicissitudes of the market? Would the government have to bail them out as well as continuing to pay out on contracts? Such questions may be little more than dystopian speculation on my part, but they still bear considering.  

Naturally, big private companies do bring big benefits. Their scale is often suited to the scale of the tasks they are asked to perform. And they generally have well-honed procedures in place for financial reporting, for uncovering misdeed, for incentivising their staff, and so on. In fact, there could be a place for more bargaining between government and big business. Surely a company such as Google would do a better, quicker, cheaper job of delivering computer systems than we have become used to.

But big is not always best, and nor is it intrinsic to public service reform. The idea was always that public, private, charity, voluntary, big and small would start to matter less, with the main considerations being quality and value. As it is, we’ve got Serco. And if they disappeared tomorrow, we wouldn’t know what to do.


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