Outsourcing: destroying state welfare, creating new multinationals

Outsourcing of public services within Britain has become a vast business. Driving it is the need for British imperialism to create new sources of profit out of state welfare and other services. As part of this process it must foster the emergence of new monopolies capable of operating across the world, as both underdeveloped and developed capitalist countries are forced to privatise what remains of their state services. Outsourcing is therefore a new form of looting, the precedent for which was set by the wholesale privatisation of state utilities and other industries over the past 30 years; across the world these sectors are now dominated by a handful of monopolies. The corollary of outsourcing is an intensification of the war on the working class: those who are employed in the outsourced services face redundancy, lower wages and poorer working conditions, while those in receipt of services receive less and less or nothing at all. Tom Vincent reports.

Creating multinationals

At the pinnacle stands G4S. Based in Crawley, it has become the world’s third-largest private employer with 657,000 workers worldwide, 72% of whom are employed outside Europe and the US, in other words, in underdeveloped capitalist countries. Its annual turnover was £7.5bn in 2011. Next is Serco, based in North Hampshire, which employs 100,000 people and had revenue of £4.6bn in 2011. It runs contracts ranging from air traffic control in the United Arab Emirates, Canada and US, rail and metro systems in Dubai, Copenhagen and Southern Australia, prisons and immigration detention in Germany, Australia and New Zealand, and all of the above in Britain together with health, education and defence.

The activities of these companies are now vital to the interests of British imperialism, which relies on its surplus from trade in services, £76.4bn in 2011, to offset its deficit in trade in goods, a record £100.3bn in 2011. Without the surplus on export of services, the living standards of the British population would have fallen further. This is why Home Secretary Theresa May spoke out in defence of G4S following the embarrassment of its Olympic failings, ruling out a review of the company’s current government contracts, which total £1bn, and encouraged police forces to continue with their current outsourcing programme with the company.

Big business in Britain

Outsourcing is big business in Britain itself. In April 2011 a report commissioned by the Business Services Association, a membership organisation for outsourcing companies, estimated the total annual turnover across all outsourced sectors in the UK to be around £207bn, 40% of which is outsourced from the public sector. Outsourcing of public services allows companies the freedom to manage them in the interest of profits, but is distinguished from outright privatisation in that the state retains ownership and shoulders responsibility when things go wrong such as the G4S Olympics security fiasco. In just one example of the financial cost of such failures, in Barnet, north London, a contract for Connaught to manage repair for Barnet’s social housing cost the council £1.5m when the company went bust; and a contract for Catalyst to provide care homes, which locked the council into a contract from which it had to withdraw, cost £10.5m in compensation and costs (see nhs article p2). The cost of the G4S Olympics security contract rose from £10m to £125m, with the police and army drafted in to fill the gaps in its provision. Outsourcing is therefore particularly attractive to capitalists because it is risk-free: the state remains a guarantor.

With far more serious consequences, there have been major failings in new contracts awarded to outsourcing companies G4S, Serco and Reliance (part of Clearel Ltd) to provide housing for asylum seekers, worth £600m over the next five years. In Yorkshire and the North East, where G4S holds the contract, there have been widespread reports of G4S evicting asylum seekers from their current accommodation in order to move in a larger number to increase its revenue, and of families being moved into filthy and even flooded properties, of a lack of basic furnishings and cooking utensils, faulty electrics, and missing or broken crockery. The award of housing contracts to companies who are also responsible for detention centres and escorting detainees represents a move toward further extending the detention of asylum seekers. Research with residents of a G4S hostel for asylum-seeking single mothers and their children in Stockton reported that ‘they constantly returned to phrases about living in “cells”, in conditions like “a prison”, with no respect for their dignity, privacy or different cultures’.*

Outsourcing state repression...

G4S is one of six companies currently shortlisted to take over services for West Midlands police including detaining suspects, contributing to investigations and managing high-risk offenders, in an initiative with 40% funding from the Home Office. Surrey police authority was previously also involved in the contract, but withdrew following G4S’s Olympic failures. G4S already delivers contracts for the Home Office and police totalling £686.2m overall, not including its contracts for five prisons. At the start of November it was announced that G4S would lose its contract for the Wolds prison in East Yorkshire, which will return to the public sector in July 2013. However, a bidding process is currently underway to outsource the running of a further five prisons that will be combined to form HMP Northumberland and a South Yorkshire prison cluster. The new contracts are worth over £2bn, and Serco, Sodhexo and MTC/Amey are in the running. Ministers also recently announced plans to outsource resettlement, maintenance and other ancillary services at all 120 public sector prisons in England and Wales.

... and state welfare

Outsourcing of welfare services is already well-advanced, with increasing concentration of ownership with companies such as CareUK, which announced on 6 November their acquisition of the UK’s largest GP out-of-hours provider, Harmoni. CareUK is owned by London-based private equity firm Bridgepoint Capital, and pays out £41m per year in profits to shareholders, which includes interest on the massive debts incurred when Bridgepoint purchased the company, and taxes avoided by channelling money through the Channel Islands. This represents £41m that is not being reinvested in services. The inevitable consequence is a collapse in standards of care. Such parasitism involving another private equity firm, Blackstone, led directly to the bankruptcy of Southern Cross, the largest provider of care homes in the UK, in 2011.

Cornwall’s out-of-hours GP service, which was recently outsourced to Serco, was found by the Care Quality Commission in July to be providing staffing levels which were so low as to be unsafe and to be failing in other key areas, and has been blamed by the Royal Cornwall Hospitals Trust for a spike in admissions to A&E, after Serco introduced a new screening procedure for calls to its out-of-hours service, involving staff who lack any medical training but instead deliver computer-generated scripts by phone. In September a consortium which included Serco and four non-profit organisations was awarded six out of 19 regional contracts for delivering the ‘National Citizen Service’ aimed at 16-17 year-olds. This aims to recruit 90,000 young people a year by 2014. G4S’s massive portfolio of services also extends to health: it delivers contracts for ‘non-emergency’ ambulances across the UK. Other companies such as the notorious A4E and the equally notorious Atos hold contracts to manage welfare benefits, their profits being in direct proportion to the oppressiveness of the regimes they impose on the unemployed and disabled people.

Labour set the scene

The last Labour government was a champion of outsourcing. A report published by Unison in 2008, The rise of the ‘public services industry’, documents the creation of powerful lobbying organisations with close links to the Labour government and media. The list includes:

CBI Public Services Strategy Board (established 2003), with representatives of 19 companies including Jeremy Stafford, Chief Executive of Serco and David Taylor-Smith, Chief Executive of G4S for UK, Ireland and Africa;

PPPForum (established 2001), the ‘Industry body for public private partnerships delivering UK infrastructure’;

Business Services Association (established 1993), with 28 companies as full members, including Serco and G4S, and a combined worldwide turnover of £80bn, £50bn of which is generated outside of the UK;

NHS Partners Network (established 2005), representing 23 for-profit and not-for-profit providers of outsourced services to the NHS;

English Community Care Association (established 2007), representing for-profit and not-for-profit independent care providers, which claims that it ‘is represented on key government and regulatory policy groups and we receive copies of all relevant sector consultation documents’;

Scottish Care (established 2000).

Supporting these lobbying activities, companies have sponsored research promoting outsourcing, and in some cases have set up their own ‘research institutes’, for instance:

Serco Institute, which publishes reports ‘intended to enhance understanding, in governments and the wider community, of the role that competition and contracting can play in improving public services’;

PricewaterhouseCoopers Public Sector Research Centre;

Aldridge Foundation, which was established through a £2m share transfer from Capita and went on to set up the Centre for Public Service Partnerships at Birmingham University together with Balfour Beatty, and directed by John Tizzard, former Head of Strategic Relations at Capita.

Incorporating charities

Outsourcing state welfare provision has involved replacing professional decision-making with a focus on contractual compliance. Charities have been incorporated into this process as the line between ‘for-profit’ and ‘not-for-profit’ organisations has become increasingly blurred. A shift from grants to ‘payment-by-results’ contracts for funding charities has required them to put forward large up-front capital investments as a precondition for delivering services. This has put pressure on them to merge into larger interests and to act increasingly like businesses, a development masked by the relabeling of the voluntary and community sector as part of a ‘third sector’ under Labour and now ‘civil society’ under the coalition, the first term encompassing social enterprises and the second also including for-profit companies. Many charities are now moulding themselves into ‘social enterprises’, charging for services that were previously free.

The partnership of Barnardo’s with G4S to run the Cedars ‘pre-departure accommodation centre’ – an immigration prison for asylum-seeking families – is an example of the convergence of for-profit and not-for-profit independent providers. A recent report by the Chief Inspector of Prisons found over half of the families detained at the centre had been detained in dawn raids, force had been used against children, and in one case a heavily pregnant woman was tipped up with her feet held in the air to force her into a wheelchair, yet concluded that it was ‘an exceptional facility and has many practices that should be replicated’. Barnardo’s involvement provides a veneer of care, and campaigners are calling for its withdrawal from Cedars (https://network23.org/barnardosout/).

Organising resistance

Government hopes that outsourcing would divert popular anger at welfare cuts towards private providers have proved so far ill-founded. Anger at Atos, for instance, has also been directed against the Department of Work and Pensions and the government for agreeing a contract which so clearly penalises disabled people. StopG4S, which brings together activists on asylum rights, Palestine and workfare is a welcome addition to the number of campaigns against these parasitic multinationals. FRFI encourages its readers to get involved with these movements and to ensure that they become a militant challenge to imperialism and the state which serves its interests.

* Much of this information is drawn from research published on www.opendemocracy.net/ourkingdom.

FRFI 230 December 2012/January 2013