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26 March 2001

They’re selling off your council

Libraries, leisure centres, home care: such local authority services are being handed over to privat

By Judy Hirst

Best value. We keep hearing about it, but what is it? It started out as a back-of-an-envelope, new Labour platitude. Now it threatens to take over the world. Every council service, from meals on wheels to wheelie bins, has to justify its further existence by proving that it “provides best value”. A new 300-strong inspectorate is touring the length and breadth of the land, checking that “best value performance indicators” are being met. Every local authority must draw up best value performance plans and conduct annual best value reviews of its services. All this inspecting, monitoring and enforcing is costing councils an extra £175m a year.

Big business is right behind best value, and it is easy to see why. First, it has taken the heat out of selling off local government services: a market potentially worth £93bn. By common consent, its predecessor, compulsory competitive tendering, was a failure. Its crude approach – based on the enforced contracting out of services to the cheapest bidder – upset the unions, produced endless legal wrangles, and led to few substantial deals. Under the new regime, local authorities are free to draw their own conclusions about the fate of local services, after applying the litmus test of “the four Cs of best value”: challenge, consult, compare, compete. It is a consensual and altogether more effective approach.

Second, and this is a big bonus, everything – schools, social services, libraries, daycare, fire services, the lot – must pass the best value test. Under the previous system, only a limited number of local government services, primarily blue collar, had to be put out to competitive tender.

Third, and most usefully, nobody really knows what best value is. Wendy Thomson, the head of the Audit Commission’s new inspectorate, says that it is all about people and community involvement. The local government minister, Beverley Hughes, stresses quality, outcomes and continuous improvement. It doesn’t really matter. So long as everyone – chief executives, councillors, officers – buys into best value, and doesn’t mention the dread word “profit”, it makes for much more cordial relations all round.

Like most stunningly banal management ideas, best value has been around for a long time: much longer than the Third Way modernisers – who like to present it as a consummate piece of blue-sky thinking – will admit. Its roots lie not in the touchy-feely realm of new Labour psychobabble, but in the hard-nosed world of corporate America’s munitions industry. It was General Electric, in the 1940s, that discovered how ball-bearings could be supplied just as successfully for the war effort using less costly components: how, miraculously, its workforce could produce more for less.

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The theory was generalised from guns to butter, and wrapped in such grandiose titles as “functional cost analysis”. By the 1950s, it was firmly established in US business. More recently, it spread to the public sector. Since 1993, it has been mandatory for US federal departments to apply value-management methods that demonstrate “the best relationship between worth and cost”.

When new Labour came to power in 1997, central government departments had already been subjected to market testing. Extending the exercise to the entire public sector was the logical next step. Liverpool, Middlesbrough, Lincolnshire, Bedfordshire, Norfolk and Blackburn are but a few of the authorities currently engaged in “strategic partnerships” with BT, Hyder, Capita and other big firms. Benefit services, housing offices, libraries, leisure centres, accounts departments: all these and more are being handed over to private businesses to run, under multimillion-pound contracts that last as long as ten years. Many deals are done on the back of large-scale redundancies and involve transfers to the private sector of more than 1,000 local authority jobs at a time. Many of the job losses are in the poorest areas of Britain: 1,500 in Liverpool in the past 12 months, with 435 planned for Newcastle and 260 for Salford. Where does best value leave joined-up thinking on social inclusion?

There is a simple explanation for this cornucopia of opportunities for private service providers. Local authorities are too broke to maintain, let alone expand, existing services: £4.5bn too broke, according to the Local Government Association, with an additional backlog of housing repairs estimated at £19bn. Plus, under best value rules, they are meant to save another 2 per cent each year. So is the wholesale outsourcing of services the only option left? Does the private sector, when it comes to managing public services, know best?

Best value proselytisers would have us believe that, unlike those lumbering dinosaur local authorities, the business world has the acumen and flexibility to run services fit for the 21st century. The government claims that councils can save up to £1.5m a year without affecting services. But the track record tells a different story. As the Centre for Public Services in Sheffield has documented, there is a dismal trail of services which have suffered “failures, delays and spiralling cost overruns”, some involving the same firms bidding for major deals. Fourteen local authority revenues and benefits contracts have run into big problems, hitting more than half a million tenants. Four contracts have been terminated, with a flood of complaints to the local government ombudsman, and some services returning in-house; Lambeth, for example, has a backlog of 40,000 housing benefit claims. A Commons committee has reported severe failures with eight major IT projects provided for government agencies, including the Passport Agency, the Inland Revenue and the Ministry of Defence. The privately provided National Insurance computing system has done pensioners out of £43m.

The government expects many more councils to outsource their homecare and residential services. Here, the problems with the more-for-less mantra could not be more starkly posed. Looking after frail, vulnerable people is not the same as manufacturing ball-bearings. As social-care consultants admit, the impetus behind selling off care homes, and putting home-help services out to tender, is largely financial. After all, careworkers in the private sector earn even less, and get even less training, than their local authority counterparts.

Service-users invariably want these services to remain in-house. In Birmingham, 96 per cent of people polled by an elderly residents’ group rejected the council’s “best value” proposals to outsource care for old people. According to the residents, the plans, drawn up by Deloitte Touche, “place a high value on financial comparisons and cost reductions and little value on the quality of service provided”.

As services are sold off, councils risk becoming “virtual authorities”. Councillors are unhappy that any democratic accountability is being lost. But the best value roller-coaster is rolling. Nobody will risk saying the unsayable: that less means less; that, as well as the four Cs, there is a fifth called cuts; that best value only works for the companies with their bulging order books. As every schoolchild knows, the best value of all is the kind you don’t pay for.

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