Category Archives: Privatisation

On the 4th July, the National Health Service will celebrate its 70th birthday and there will be much fanfare and celebration. The NHS has been described as one of the greatest social achievements of the 20th century with its promise to care for the British people from cradle to grave. But all is not well.

Intense financial pressure

The NHS was established as a publicly funded, publicly provided and publicly accountable service but the systems and mechanisms which ensure health care for all are now being progressively dismantled and NHS funding is being reduced and diverted to private operators and their shareholders.

Despite a rising tax base – the population has increased by 2.5 million and is predicted to grow by 440,000 a year over the next ten years health care needs are not being met. This is because the government has taken a political decision to reduce NHS services so that those who can pay will pay and go privately.

The visible signs of reductions in funding and diversion of funds to private operators are the closures of hospitals, GP surgeries and community services and sales of NHS estate. NHS England has cancelled tens of thousands of hospital operations, much needed operations which in turn are creating the biggest backlog in the health service’s history. A&E services are in a near permanent state of crisis on a daily basis and on many days some hospitals report having no hospital beds available with bed occupancy levels over 100 per cent.

All the key indicators within the NHS worsened over the last few years, with waiting lists reaching 10-year highs. A shortage of doctors, nurses, beds and care packages for elderly patients means that black alerts, trolleys in corridors and dangerous safety levels for patients are at a peak. What was once confined to winter is now an all-year-round occurrence.

As financial and operational performances deteriorate any additional resources allocated to the NHS by the government are being used to bail out hospitals with large deficits and enormous annual PFI charges. Precious NHS resources are being squandered on management consultants, lawyers, accountancy firms, PFI contracts and commercial contracting. Commercial contracting creates waste and fragmentation of care and risks are passed from commissioner to provider to patient like a sinister game of pass the parcel.

Faced with large financial deficits NHS managers holed up in their offices and board rooms look at how they can use their new powers to generate private income – now that NHS foundation trust hospitals can generate up to half their income from private patients and other sources. At the same time Foundation Trusts are undertaking more privatisation and entering into joint ventures and creating companies to transfer staff.

Dismantling the NHS

The fear of the financial costs of ill health is rapidly returning. The principle of a universal healthcare system free at the point of use is broken. This government has ushered in a creeping reduction of universality, with the withdrawal of entitlements and demonisation of ill people, old people, immigrants, asylum seekers, refugees alongside the incremental rationing of care, for example Windrush migrants and introduction of health care migrant charges. For 70 years people were treated on the basis of need not screened for their eligibility.

The government’s new plans for health care, which are being rapidly introduced and without proper public debate or parliamentary scrutiny, turn on new models of care are drawn from the US – the most expensive and unfair system in the world.

These new models labelled and relabelled ACOs, STPs, ICS, ICPs, MCPs PACs have one endpoint – the Accountable Care Organisation. The government plans to drum up billions of pounds and award giant contracts for at least ten years to private for profit providers.

The government calls this integration. The reality is that commercial contracting will involve transferring statutory decision making for planning and resource allocation to non statutory bodies. In this way risks and costs of care are shifted to patients are shifted to patients.

The NHS is being fragmented, undermined and decimated. There are no countries that provide universal healthcare on this basis. The legal basis for shifting commissioning functions to non-statutory bodies is currently being challenged in the court and the hearing of the judicial review will be heard on 23rd and 24th May, funded by the public.

The Health and Social Care Act 2012 removed the duty on the Secretary of State to provide universal health care throughout England and ushered in market competition. It dismantles the NHS. Only parliament can restore what parliament has taken away and this needs legislation.

Reinstating the NHS in England

This is why it so important to support the NHS Bill which will be tabled as a private members Bill on 11th July by Eleanor Smith MP.  This Bill reinstates the NHS. It will reintegrate services within contiguous geographic area based statutory health bodies making them publicly accountable to local people and to parliament. It will reinstate the duty on the Sec of State to provide universal health care throughout England. It will restore the principles of fairness for all which has been the hallmark of the NHS. It will restore needs-based planning for geographic populations. It will abolish marketisation and commercial contracting. It will abolish the internal market and Foundation Trusts and centralises PFI debts making them the responsibility of the Treasury.

The intergenerational unfairness which has made individuals responsible for long-term care must be remedied and means testing and privatization of care ended. Mechanisms for public accountability must be renewed.

We should restore the founding principles of the NHS through national terms and conditions of service for doctors and all NHS staff. Above all, we must allow professional standards to thrive since these are the basis of public and patient trust.

In its 70th anniversary year, what the NHS requires is not reform but revolution – a quiet, collective revolution that brought the NHS into being in the first place.

By Kailash Chand and Allyson Pollock

first published in Political Quarterly 1st May 2018

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The NHS, perhaps followed by the education system, is the part of the welfare state that we value the most; in fact we tend to forget that health and education are only a part of the whole welfare system; social security (or benefits) social care and social housing are the second class citizens of the welfare state – forgotten or devalued.

Part of the reason that we value the NHS so much is that it touches the lives of all of us when we are most in need of help and it takes away a disgraceful fear – that we might die, unable to pay for the care we need.

My Grandad, a working class man from Manchester, wrote this in the memoirs he wrote for his grandchildren:

We had a National Health Service by now, it was introduced by the Labour Government who swept to victory after the war was finished. This was a great innovation. Free medical attention, dental and ophthalmic treatment and free medicine, no more doctors bills to worry about. I paid for a stamp which was deducted from my wages each week. This covered the whole family and also provided unemployment pay if I came out of work, which luckily never happened to me.”

Since the emergence of  Real Changes UK Public Spending (2008-15neoliberal ideology, promoted by Thatcher and her followers the NHS, along with every other part of the welfare system has been under attack for the last 40 years. Today – in the era of austerity – where ordinary people paying the price of the corrupt financial practices of politicians and bankers – these attacks have become even harsher.

Compared to other parts of the welfare system, the NHS has been relatively protected. For as this graph shows, the primary targets of austerity have been people on benefits and local government, which funds social care.

However this does not mean the NHS is actually protected andthe current NHS settlement is as poor as it was during the worst of the Thatcher years:

NHS Expenditure

But money is not the only issue. In fact, I think that we’d be wise to move beyond a simplistic notion that the more we spend on the NHS the better. Part of the reason that the NHS is so good is that it provides universal healthcare far more efficiently than many other healthcare systems.

In 2016 the UK spent 9.7% GDP on healthcare, while the US spent 17.2%. However, many countries (like Finland, Australia and New Zealand) spend a little less than the UK; while others spend a little bit more, with Switzerland on 12.4% and Germany on 11.3% at the top of the range. You could conclude from the data that, as long as you avoid the crazy excess of the US system, then it is possible to design a decent healthcare system with the money we currently spend on the NHS.

And surely there must be some limit to how much of our national income we want to spend on healthcare. Healthcare is not the only good thing and the NHS doesn’t teach us, feed us, house us or even take care of us – except in emergencies.

Given all this, it is perhaps surprising that the only models ever promoted by government as an alternative to the NHS is the crazily expensive and inefficient US system. The latest nonsense promoted by the Government is the Accountable Care Organisations, a US system for organising healthcare. Simon Stevens, the current head of the NHS, also spent many years working in the US system. There is a strange infatuation with the US in the halls of Whitehall.

However, I am going to suggest, perhaps controversially, that the main threat to the NHS is not the cuts, but is instead privatisation, especially as privatisation is a much more complex, widespread and toxic problem than it might at first appear.

The many forms of privatisation

Privatisation remains a dirty word – even in a Tory-run NHS – however privatisation is very real, it has just been disguised by:

  • Complex technical changes and misleading jargon
  • Offering phoney solutions to imaginary problems
  • Bejewelled with shiny rhetoric that it’s churlish to reject

In fact, many working in the NHS, people who love the NHS, find they must adapt to the new language, because it is now the new ‘state-imposed’ bullshit. And the painful paradox is that it is the state that is the delivery system for the technologies of privatisation. This did not even stop when Labour was in power; in some respects New Labour even accelerated the problem by pushing targets and increased management control. Paradoxically it is the power and uncontested authority of the state that helps to give authority to what, in ordinary life, we would easily identify as bullshit.

There are also very many different varieties of privatisation, all dressed in different clothing:

1. Outsourcing – Outsourcing is the most obvious form of privatisation, when public services are provided instead by private companies. Usually private firms, like Virgin, who offer ‘efficiencies’ – which is only code for lower salaries for frontline staff, while at the same time providing profits and higher salaries for those at the top. In other words the NHS now pays for the same service, delivered in a more inegalitarian way.

Currently 15% of the NHS has been outsourced and private contractors win most of the new bids:

NHS spending on care provided by private companies has jumped by £700m to £3.1 bn with non-NHS firms winning almost 70 per cent of tendered contracts in England last year. Private care providers were awarded 267 out of a total of 386 contracts made available in 2016-17, including the seven highest value opportunities, worth £2.4bn. (Harry Cockburn, The Independent, 30 December 2017)

2. Social Care – The NHS is also privatised along its boundaries, particularly the boundary with social care. The concept of social care was created by Mrs Thatcher’s government and it provides poorly funded, privatised and means-tested services for people with disabilities (including the frail elderly). The services are partially funded by local government and partially by people themselves. If people can be supported at home, or if institutional care can be recategorised as social care, then charges and savings limits can be imposed to make people pay for their own care.

For example, in 1992 I was involved in one of the biggest privatisations of the NHS at the time, when NHS services for people a learning difficulty in group homes: staff were transferred to nonprofit charities and funding was transferred to local government. Of course, over time, funding for these services has tracked at the lower level of local government services, which, even in the good times, lagged far behind the NHS, and is now in rapid decline. Today funding for social care has been radically reduced and the publicly funded system now support 50% of the people it did in 2009.

3. Charges – This same kind of boundary-line privatisation has happened with dental care and with prescription charges for medication. In fact the first prescription charges were introduced by the Tories in 1952. A survey in 2007 found that 800,000 people failed to collect their prescription in the year, due to its cost. Free NHS dental services have radically declined and the even bigger charging scandal is in social care, where charges mean that most people are either not entitled to social care, or find that they have to further impoverish themselves by paying high charges to the council just to receive the most basic services. Older people sometimes even impoverish themselves on purpose in order to ensure they will still be entitled to social care should a crisis strike.

4. Private InvestmentPrivate Finance Initiatives (PFI) are systems to make communities pay for short-term ‘gains’ in investment gains by entering into long-term damaging contracts for services, by means of which the private company make back their initial investment, plus a handsome profit. These arrangements make no economic sense, for Government can borrow money much more cheaply than any private company, but they tie the public sector into a relationship of dependency with private firms. There are 107 PFI contracts across the NHS in England.

5. Selling off Property – Public sector land and buildings can also be sold off and this process is continuing at an ever increasing rate.

6. Commissioning and contracting – Even without outsourcing the NHS is entwined in what is called the ‘internal market’ which involves a complex web of contracts for services between so called commissioning organisations (like the CCG or Clinical Commissioning Group) and so-called NHS ‘providers’. or Trusts This model was built on the ideological assumption of the 1980s that if the NHS aped private sector arrangements then it would increase efficiency. There is no evidence that this has worked, instead the process has discouraged cooperation between professionals and organisations as public sector bodies are set against each other.

7. Trusts and Spin Outs – As well as creating different kinds of commissioner the NHS has for 30 years been attempting to shift services into real or mock private sector companies. Not only are private sector companies consuming parts of the NHS, but the NHS is also converting itself into a private sector business. For example Barnsley Hospital is currently shifting a large part of its own services into a private company that it has created itself:

This initially involves the out-sourcing of estates maintenance, portering, procurement and other non –clinical departments, but will eventually involve all non-clinical staff. However the directors of the private company – Barnsley Hospital Services Limited (BHSS) – are directors and non-executive directors of Barnsley Hospital NHS Trust…”

Note that out-sourcing always tend to focus on shifting people with the lowest status out of the NHS. This is never for their benefit, and it further increases overall inequality which further increases inefficiency.

8. Regulation – There has been an enormous growth in the external regulation of care, from CQC, Monitor, NICE, local Healthwatch services and from the Department of Health and NHS England itself. These practices are supposed to drive up standards and to reduce the risk of abuse, and they have tended to increase hand-in-hand with the supposed freedoms of the new market economy. However, in practice, they seem largely to have reduced innovation, trust and camaraderie within the NHS. The presumption of regulation of course is that we – the citizen, now deemed consumer – must be protected from the NHS by these agencies. Instead of encouraging local conversations between citizens and professionals, complaints and disputes are lost in the labyrinth of CQC. None of this increases real quality – instead it increases alienation and demoralisation.

9. Tariffs and targets – The paradox of the ‘internal market’ is that there is no real market, because there’s only one customer – the state. Moreover, over time we’ve seen more and more decisions move away from local communities into the vacuum at the heart of central government. If you want to get a sense of how crazily bureaucratic the NHS now is then you can examine the tariff payment system which was partly designed by current NHS chief, Simon Stevens. While local commissioners are supposed to control local services, in fact they work within a complex web of targets and tariffs which shape most of what happens locally.

10. Personalisation – Operating in the other direction is the personalisation policy which aims to put NHS funding into the hands of citizens using Personal Health Budgets. Personally, having originally invented the personal budget model, which is supposed to (but doesn’t really) operate in social care, I am not opposed to the general idea of empowering citizens with budgets. However, given the toxic character of NHS reforms overall, I am not satisfied that these arrangements, as they currently stand, are safe for the NHS. Personalisation might make sense when the NHS is properly funded and when there is no clear threat of encroaching means-testing – but without those guarantees it is a risky policy.

11. Private beds and private work – Increasingly the NHS is working with consultants to sell private beds and services as part of its own income generation. One estimate suggests a 33% increase in the last 5 years.

12. Salary inequality – Perhaps it is also worth considering salary inequality as a form of internal privatisation. Currently NHS cleaners can earn as little as £6.65 per hour. The CEO of the NHS earns about £100 per hour (15 times more) and the highest paid doctor earns nearly £750,000 per year (60 times more). Not only is this inefficient, it is also bad for our health, as high levels of inequality increase morbidity and mortality, even for the wealthiest themselves.

13. Centralisation – Another dimension to the privatisation of healthcare is its centralisation. Power is pulled to the centre in order to make decisions that would not be accepted in the community. Local government has next to no influence over decisions within the NHS, instead its services now rely on hand-outs from the NHS and this helps ensure compliance with central government policy.

At a recent event in Barnsley, Dan Jarvis MP, in response to the varied complaints and fears of local people about planned changes in Barnsley said:

Please bring your concerns to me. I and the other local MPs from Barnsley are in the privileged position of meeting with the Chair of the CCG every 3 months.”

Dan Jarvis’ intentions are good. But it is worth reflecting on the systemic failure of accountability, local democracy and transparency that is revealed in the phrase “privileged position”. A quarter of million citizens of Barnsley must hope to influence decisions about public services in Barnsley, in their own NHS, by contacting an MP, who is meeting with an unnamed civil servant, who works for an agency most people will not even know exists.

The current relationship between central Government and local communities is best described as a form of colonialism.

14. On-going structural reform – One of the other ways we as citizens are also disconnected from the NHS is by the ongoing structural change, or chaos, that is unleashed by one leader after another. The NHS has been centralised, regionalised, localised, marketised, de-markestised and re-marketised in rapid succession. The only constant is change and the level of confusion and waste that only adds to the incomes of management consultants and senior managers (and I speak as someone who was trained as an NHS Manager). There is a Biblical injunction which is relevant here:

Do not move an ancient boundary stone set up by your ancestors.

This not just about respecting private property, it’s about ensuring that social and political structures are stable enough to enable people to work together with trust and transparency.

15. Cuts – Of course, to come back to where we started, cuts are also part of the process of privatisation. Not only does extreme financial pressure help legitimise the technical and legal changes that we’ve described above, but it also helps to sow seeds of disenchantment and lower expectations about what the NHS can deliver. This means we all start to have less faith in the NHS and some start to look elsewhere for security.

The general line held by the leaders of the NHS and Conservative politicians is that none of these changes threaten the basic principles of the NHS. For example, the most recent change proposed by Simon Stevens and Jeremy Hunt is to create a new set of, so-called, Accountable Care Organisation which will supposedly better “integrate” care – “integration” being one of those plausible buzz words that nobody feels able to reject. When challenged by the late Professor Stephen Hawking in a forthcoming legal case the government spokesperson said:

The NHS will remain a taxpayer-funded system free at the point of use; ACOs are simply about making care more joined-up between different health and care organisations. Our consultation on changes to support ACOs is entirely appropriate and lawful. We believe it is right that local NHS leaders and clinicians have the autonomy to decide the best solutions to improve care for the patients they know best – and any significant local changes are always subject to public consultation and due legal process.”

However you can compare this statement with an analysis of the current situation by Spire Healthcare (second largest private provider in the UK). This reveals that private healthcare companies aim to pick up business in a number of ways:

  • by direct referral from the NHS
  • by working in partnership with NHS doctors in their ‘private’ time
  • by increasing numbers paying directly for care as waiting lists for the NHS grow

Ultimately this creates a situation where the principles of the NHS are undermined by stealth, as the better-off realise they cannot afford to wait for the NHS to meet their needs, so they use their own money to opt out. At the same time they can invest in the destruction of the NHS, by holding stocks and shares in private health care companies.

How to take back control

Of course it is right, as the Socialist Health Association has argued, and is now confirmed by the Labour Party, that the NHS should be fully renationalised. However that is not enough.

State control, on its own, is not strong enough to protect the NHS. We need constitutional guarantees, and that means change at multiple levels:

  • Our human right to free healthcare must be put, alongside our other human rights, at the centre of our constitution. Ideally in the form of a written constitution, if not, in the form of legislation which requires a super-majority to change.
  • Local boundaries and statutory bodies must also be fixed at a constitutional level and must be made very hard to change.
  • Democratic accountability at a local level must be radically increased, perhaps not just with elections, but also with sortition – a form of jury service.

But even this is not enough. Privatisation is not just about the governance of the NHS, it is about the culture and spirit of the NHS. If the NHS is to be truly Our NHS then we cannot simply transfer it back into the hands of whichever Minister of Health time allots us, and hope that everything will be alright. That’s how we got in this mess in the first place.

To a large extent the NHS has been privatised from the inside out. We are rushing into an era where, even if most people do continue to get free healthcare, funded by taxation, it will feel like a second-class service delivered by the tired, the over-worked and the increasingly mistrusted. As the pressure on the system grows then the relationship between citizen and service will further decline into one of mutual mistrust and suspicion. A phrase I heard many times when I worked within the NHS was:

The NHS would be great if it wasn’t for the patients.”

We do not want this alienation between the citizen and the NHS. What we want is a truly public NHS, which need to be a radically different NHS, both for those who work within it, and for all of us as we work with it. This is a brief overview of some of the elements of a new and better public NHS:

Local – People need local GPs, local hospitals, local nursing services and these services need to be run with a high degree of professional autonomy and in a spirit of mutual cooperation.

Trust – The hierarchies of control, regulation, target-setting and contracting need to be dismantled. Funding formulas need to be made clear and transparent and local decisions need to be made along with local citizens.

Equality – The NHS as an employer should be leading the way in reducing the salary ratios between the lowest and highest paid employees. At the moment the NHS is an Inequality Polluter – it adds to the high level of inequality in the UK. If other community organisations can work with salary ratios of 1:3 then why can the NHS not improve on its 1:15+ ratio.

Partnership – Instead of exporting profits and power out of our communities, through outsourcing and centralisation, we should be building partnerships within local communities. Peer support groups, expert citizens, community groups – both those directly focused on health and others – are the true engine of health improvement in our communities.

More broadly we need to start thinking about the whole welfare state and to focus on the real social and environmental problems that the NHS can do nothing about on its own.

  • End tax evasion and avoidance and impose proper taxes for the wealthy
  • Take means-testing out of all public services and explore the idea of basic income
  • Increase income equality across the whole of society
  • End pollution and create green and public spaces for everyone
  • Encourage citizen involvement and action in every domain

We have confused public services with state control. We forget that, while the state is meant to work for us and to be accountable to us, it is really a system in its own right and often a pretty hostile system. We need to exclude the corporate, tame the state and take back control of our shared public world.

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NHS rally in York, 7.4.18

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Government policy on Accountable Care Organisations remains confused and confusing. The Health Select Committee’s recent grilling of Simon Stevens and Stephen Barclay shed little light on critics’ concerns, while the relative responsibilities of the Accountable Care Organisation and its commissioners remain murky, and subject to legal proceedings.

What is clear, however, is that Accountable Care Organisations will be responsible for deciding most of the issues that really matter to the public in the provision of health and care services. This will be even more the case if commissioning is on the basis of long term health outcomes. It will be Accountable Care Organisations which take the difficult decisions about thresholds for treatment that we know are currently pushing more and more patients to seek private treatment to avoid lengthening NHS waiting lists.

Map of Accountable Care Organisations

  1. South Yorkshire and Bassetlaw
  2. Frimley Health and Care
  3. Dorset
  4. Bedfordshire, Luton and Milton Keynes
  5. Nottinghamshire
  6. Blackpool and Fylde Coast
  7. West Berkshire
  8. Buckinghamshire
  9. Greater Manchester (devolution deal)
  10. Surrey Heartlands (devolution deal)

Accountable Care Organisations will also be hybrid providers of both health and care, and therefore, able to redefine various care packages and draw on both health and social care legislation to legitimise how they are to be funded. Simply spouting that healthcare will remain free is no reassurance at all; there are many services at the hospital/community interface that can be classed as either health or care, depending on who is providing them.

Yet because ACOs are to be established by a commercial procurement process their legal form cannot be specified. They can be partnerships that include private health and care providers, and private insurance and property companies, which will make money from charging. We could easily end up in a situation where it is in the financial interest of an Accountable Care Organisation to progressively reduce care provided free from public funds, in favour of means tested care packages.

The commercial partners within the Accountable Care Organisation would no doubt step forward to fill the gaps so created with services and offers of insurance policies. This is not some fevered fantasy – look what is already happening in dental care. And just because Manchester and Dudley, the two frontrunner ACOs, are NHS based does not remove this threat for even the near future. Other vanguards make great play of their public private partnerships.

Nor does the recent assurance from David Hare, chief executive of NHS Partners Network, that private providers “are not expecting to be commissioned” to take on responsibility for running any Accountable Care Organisation contracts “in the immediate future” address the real threat. And indeed, why should he?

The clear and present danger posed by the Accountable Care Organisation model on offer is that it can import organisations focused on profit making into the heart of NHS decisions about who provides what, and at what cost to patients and families, and cement those arrangements in place for 10-15 years.

History doesn’t repeat itself but it often rhymes

The story of the Private Finance Initiative should make us pause and reflect. Originally sold as a pragmatic public-private partnership to build and run much needed hospitals, the recent National Audit Office report confirmed that not only has the NHS paid well over the odds for many projects and been fleeced on related services, including insurance and fees for external advisors, but now finds itself tied to long term service contracts that it can’t afford, but can’t afford to get out of.

This sorry history should surely convince us that if there are opportunities to profit from the NHS, they will be ingeniously and enthusiastically exploited by those whose priority is profits rather than public service. Yet the Accountable Care Organisation contract will create these same irreversible long term opportunities.

It might make sense to seek fox advice on henhouse security, but not to put them in shared charge of the coop under a management agreement that cannot be reversed, even when chickens mysteriously start to go missing.

There is a simple way to deal with these concerns. Accountable Care Organisations should be set up as democratically accountable public bodies. Scotland and New Zealand have done this. The argument that legislation is impossible in the present climate has been used to justify introducing complex long term commercial contracts, with all their attendant dangers, as the only way out of the fragmented commercial morass that successive NHS Acts have created.

But at the recent Health Select Committee hearing, Labour MPs offered cross-party cooperation on simple legislation to block these dangerous loopholes. That both the minister for health and Simon Stevens ducked this offer may simply reflect a disintegrating policy on autopilot.

In the wake of Carillion and the PFI it seems scarcely believable that such long term contracts are seen as the answer to anything. The alternative of simple legislation needs to be vigorously pursued. Accountable Care Organisations are far too dangerous to introduce without water-tight safeguards.

Article first published by the Health Service Journal

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NHS Providers has accused critics of trusts creating wholly owned subsidiary companies as being “inaccurate and misleading” in their arguments. The body, which represents NHS trusts, believes these companies help attract key staff, deliver VAT savings and increase oversight of previously low priority back office services. It has published a briefing note today saying trust leaders “are clear that wholly owned subsidiaries are a key tool” to deliver current strategic requirements.

Nonsense.  The reasons why dozens of Trusts moved to set up wholly owned subsidiary companies over the last 18 months is clear enough.  The change brings the immediate cash saving of less taxation and that in its turn allows accounting changes which also improve the look of the finances.  In the longer term it allows trusts to break out of what many regard as the straightjacket of agenda for change.

This has strategic implications in further fragmenting the NHS and in recreating the two-tier workforce, both damaging to the wider interests of patients and the public.  This is ignored.

The crisis in estates management and some other “back office” services is simply one aspect of the years of inadequate funding and trusts, 60% plus of which are in deficit, have used all kinds of accounting tricks, capital to revenue transfers and cut all kinds of services to try for balance.  Millions of pounds of savings from reduced tax is an offer too good to refuse.

To improve the NHS estate and its management requires investment.  Capital investment, but also investment in the staff that deliver the services necessary.  As the Naylor report illustrates it also requires a collective approach, bringing back some of the strategic planning skills lost by the Lansley reorganisation.  Every trust setting up its own little empire and alienating its staff by moving them out of the NHS, is a move in entirely the wrong direction.

If as is claimed these changes were actually all about improving services “to deliver current strategic requirements” the approach would have been very different.  Staff should have been consulted over what was required and sensible conversations could have been undertaken about what could and could not be achieved.  Instead staff were excluded; and the tax saving option was the only one developed.  This was never about service improvement.

In reality trusts worked on their plans in secret, refused to engage and consult with staff, defied FoI requests for even the most basic information and put out public information that was dishonest.  In private senior staff admitted that pressure had been applied and that the tax benefits were the big prize but that had to be played down.  Business cases which were eventually obtained (after decisions had been made) showed that 90% of savings came because of tax treatment changes.  The cases showed that without tax savings the change was not justified.  The cases showed that no options other than wholly owned companies were even tentatively considered.  What exactly would improve in terms of the services was not described at all.

The businesses cases are so generic some paragraphs are word for word the same.  They are backed not by analysis of the requirements of strategic needs for a better service but by extensive tax advice.

Service changes, better use of staff, recruitment and retention issues can be, and have all been, addressed in trusts without this artificial and damaging approach.  Claims that flexibility in staffing arrangements and easier recruitment require a move out of agenda for change have been debunked many times.  If service quality is an issue then the main causes of poor back office services are well known almost always simply lack of investment and poor management.

All sorts of claims have been made about improvements, especially by the organisations that make an income from promoting this change.  Actual evidence of this is absent from the business cases.  But to be fair if you put any group of staff into a spotlight and tell them they are important and the focus of some major project then it is no surprise when morale improves and satisfaction goes up – but you do not need to create a two tier workforce to improve morale.

It is sad that NHS Providers, which sometimes tells truth to power, has defended the indefensible.

 

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MAY AND HUNT announced that this winter the NHS was the best prepared ever – a claim worthy of Trump. As the New Year began, stories of horrendous delays – waits for and in ambulances, patients sitting, standing or lying on trolleys in A&E corridors, long waits for hospital beds and treatment – shocked the nation. Dozens of avoidable deaths resulted. Mental health crises have hit the news and 50,000 elective operations in January were cancelled, adding to the immeasurable misery. NHS staff have done their best – they are holding the NHS together by their exhausted commitment.

Why is government allowing this to happen? There are two linked mainstays of their ideology: firstly, a belief that market competition and privatisation will improve NHS efficiency; secondly, the belief that funding for public services should be cut back and replaced by private finance. Austerity is the method and justification for years of deliberate neglect.

The fallacy of this ideology is demonstrated by the collapse of Carillion: £900m in debt, a £587m hole in pension funds and 20,000 staff and projects costing £1.7bn in contracts at risk. Two new PFI hospitals, Royal Liverpool and Midlands Metropolitan, face an uncertain future. And now Capita is in serious financial trouble.

Notwithstanding the positive investment in the NHS 1999-2009, we must not forget the PFI years of the Blair government and the privatisation it promoted. But current Labour policy has rejected those mistakes. Labour’s re-commitment to the NHS, captured in composite 8 from 2017’s Labour conference, resonates with voters. Government claims to be spending more every year are a deception. Rising health need is predictable – more people, greater complexity of need and of treatments, which society both demands and welcomes. Since 1948, on average the NHS has required 4% more funding every year on top of inflation to keep pace with expanding health needs.

Government-imposed austerity has on average underfunded the NHS by 3% every year since 2010, reaching 30% by 2020. That is why, eight years in, there are more referrals than the NHS can manage, longer waits, more pressure on staff, more complaints, more human error. The NHS is the most cost-effective, democratic and accessible health service of a major economy worldwide.

Government ideology is breaking it. Sustainability and Transformation Partnerships (STPs) are being used as a Trojan horse for £26bn of cuts. Visionary claims without evidence that “excellent community-based care” will “reduce the need for district general hospitals by 30%”; plans to centralise hospital services in fewer ‘specialist’ hospitals – to an unnecessary and dangerous extent which will increase health inequality by reducing access: this vision not only lacks an evidence base but is delusional when set alongside the massive cuts that undermine those very community services.

Accountable care organisations (ACOs) are now being trialled under the radar in accountable care systems (ACS). But ACOs are undoubtedly the delivery vehicle for an NHS fragmented into 44-50 management organisations, put out to tender and ripe for further privatisation of management, financing and procurement of NHS services. Strict cost control limits will add impetus to diverting patients who can afford it into paying for treatment in the private sector. Hunt faces a judicial review on this.

Most hospital clinical care is still in public NHS hands. But many are unaware of the inroads privatisation has made, in PFI builds, catering, cleaning, portering, pathology, radiology and significant swathes of community healthcare. Virgin Care holds £2bn worth of 400 contracts and last financial year won £1bn of new contracts. Only 34% of tendered clinical contracts last year went to the NHS. The government has given £11bn of our current annual clinical budget to private companies.

And it has chosen where not to spend – with dramatic impact.

Evidenced by this winter’s chaos, far too many beds, 15,000 in total, have been lost since 2010 – 8,000 in acute care, and in mental health (25% lost) and learning disability, 7,000 combined. Comparable European economies spend far more than the UK, which has fewer beds per 1,000 (2.3 in England, 4 in Scotland, 8 in Germany), fewer doctors per 1,000 than the OECD average (2.8 compared to 3.3) and fewer nurses per 1,000 (8.2 : 8.9). Germany has close to twice as many doctors. We have 40,000 nurse vacancies -100,000 across all NHS staff – which explains why £3bn is spent on agency staff and why permanent staff are exhausted.

Some 120,000 excess deaths have occurred since austerity cut into essential health and social care services. Avon’s coroner concluded that the death of a 15-year old girl in September was the consequence of neglect due to the lack of resources of local community mental health services to support her.

A healthy well-educated childhood population makes for a healthy country. Research shows that state investment in healthcare gives a fourfold payback to the economy. The wellbeing of our children and adults is paramount: people are dying as a result of waits for critical mental and physical healthcare, bearing in mind that three-quarters of enduring mental health problems first present before age 18.

Keep Our NHS Public campaigns to defend our NHS, challenging government, using all means available. We reached out to other organisations and set up Health Campaigns Together (HCT) in 2015, building with the People’s Assembly for the 2017 demonstration and the NHS Roadshow during the June election. Our Emergency Day of Action on 3rd February held the government to account this winter with 60,000 marching in London and 50 events across the UK.

Our demands are: more beds, more staff, fund our NHS; no cuts, no closures, end privatisation; health and personal social care must be free at the point of use and, as in Scotland, not means-tested.

Campaigners have reversed plans for bed closures; hospital mergers have been slowed or prevented; STPs have been challenged; judicial reviews have forced concessions on ACO scrutiny. But Labour in local government must adopt national policy and oppose the undemocratic ACOs and cuts to health and social care, and come out fighting for our NHS before it’s too late.

» Please consider affiliation. www.keepournhspublic.com www.healthcampaignstogether.com » Tony O’Sullivan is co-chair of Keep Our NHS Public and member of Health Campaigns Together.

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We like to think that we own our NHS.  It’s a public service.  If we do own it, then the joke is on us.  The NHS is now an unaccountable secretive mess and our interests are not being protected.  The people tasked with looking after our interests are bullied or manipulated into amnesia.

We are supposed to have the most open and transparent health service in the world, pause here for prolonged laughter.  What we have is a howling mess with providers behaving like autonomous private companies and claiming commercial confidentiality over everything; meeting in private to keep things secret.

We have CCGs that commission £billions of services but have no accountability to the public they serve and who keep their business as private as they can.  They are even trying in some places, Staffordshire and Cambridge as examples, to evade all responsibility by transferring their responsibilities by contracting them out.  The next wheeze might now be Accountable Care Organisations (that could be private companies) and which have no accountability yet hold long term contracts to plan commission and deliver NHS services.  This is wrong.

We had the whole NHS being divided into 44 planning areas with Sustainability and Transformation Plans, making a brave attempt to overcome the chaos in the NHS caused by the dreadful Lansley Health and Social Care Act.  Most of these STPs came out without any semblance of consultation with the public, patients or staff or even with the local authorities they were supposed to have included.  Hardly a day goes by without some new idea for some new body yet none of them look like something we would be able to hold to account.

We have NHS bodies which are supposed to be public and which are paid through public funds behaving like the worst in the private sector.  There was the legendary Strategic Projects Team spending years advising on half baked schemes to privatise services, all of which failed.  The award winning SPT, set up initially to manage the Circle deal in Hinchingbrooke went from failure to failure but was never held to account.  A proper record of what they did and on what authority will never be made public, good luck with any FoI request.

QE Facilities

Now we have the new SPT – QE Facilities.  Again, an NHS body, again with insider status, going around the country charging Trusts for advising them about how to evade VAT by setting up a wholly owned company.  This publicly owned company has just refused an FoI request to list those Trusts it has spoken to.  This is commercially confidential – we are not allowed to know if one part of the public sector has spoken to another part.

The saga of forming wholly owned companies to avoid VAT has been the latest stain on the NHS.  Boards have gone down this route in secret, refusing to engage with the hundreds of staff involved – who will move out of the NHS.  They make public claims about improving services which are wholly untrue – their own figures show all the savings come from tax changes and service improvement does not feature.  They refuse to provide documents, meet in secret and refuse even to consult with their alleged partners in their local STP.

This behaviour by Foundation Trusts who do not even bother to involve their own Governors ( as they are not trusted) probably signals the end of the experiment with trying to get public bodies to behave like private companies.

These are the same Trusts that sign up to Sustainability (all the Transformation plan money has been nicked) Plans that are not sustainable and to control totals they know they have no chance of achieving.  We live in the fantasy world where Boards are too weak to say no, they just play the game.  Since almost every other Trust is in some kind of trouble retribution is unlikely.

Of course all this is in part a reaction to the absurdity that the legislative background is totally incoherent and is being largely ignored.  Yes, there are examples of people coming together and trying to do their best for patients by trying new ways of working.  All good.  But none of this gets us anywhere unless we make the funding available to make sustainable changes possible.  We get nowhere without decent workforce planning.  We fail if we don’t address the yawning gap in accountability.

We will fail unless we get better Boards that tell the trust not just to power but to their own staff!

As waiting lists grow and cancellations increase satisfaction with the NHS is beginning to fall; more people are opting to spot purchase private care, the clear signs of a system in deep trouble.

So if we are the owners how do we get our say?

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Dozens of hospital trusts across the country are looking at (or already have) set up private companies in which to transfer swathes of vital NHS staff and assets. The moves are supposedly to save money through a supposed VAT loophole designed to promote outsourcing, as well as on staff pay. They are also – an aspect overlooked in the coverage to date – supposed to promote a greater focus on “commercialising” hospital assets. More of that in a bit…

“By the time people realise it’s been a catastrophe, it will be too late to undo”

Unions and staff are up in arms about the damaging impact of these subsidiary companies in creating a two tier, demoralised workforce whose goodwill and co-operation our doctors and nurses rely on every day to keep hospitals clean, safe, and well-equipped. In Wigan, Harrogate, Bradford, and Calderdale, Unison members are already close to strike action after union ballots overwhelmingly rejected the plans. Gloucestershire – where around 700 staff are affected – is also about to run an indicative ballot, Unison announced at an NHS activists conference in the county on Saturday.

Some hospital governors are deeply unhappy too – one in Gloucestershire told OurNHS, “by the time people realise it’s been a catastrophe, it will be too late to undo.”

There’s been no public consultation about any of the plans to create private NHS subsidiary companies (known as SubCo’s), it seems. In Gloucestershire, Hospital Chief Executive Deborah Lee told Stroud Labour MP David Drew that “this is not a matter for public consultation as agreed with the Gloucestershire Health Care Overview & Scrutiny Committee (HCOSC)”. However Stroud Council leader Doina Cornell, who sits on the county’s Scrutiny Committee, told OurNHS, “We’ve not been consulted. There’s been a lack of input into it from any councillors.” OurNHS asked Gloucestershire Hospitals about this apparent discrepancy – and about a number of other points in this article. They have so far declined to comment.

Cornell adds “Surely this is not the sort of thing we should be doing…. this is a high-risk project.”

“…a gambit, a pretence, an illusion and make believe…

Indeed it is high risk. Whilst staff understandably worry about pay, pensions and conditions cuts – and unions argue that any guarantees from employers are worth little given weak employment law and their stated intent to take on new starters on lower conditions – for the public, it gets more worrying still.

Many experts suspect the plans could collapse altogether, with the corporates waiting in the wings of course. Respected health commentator Roy Lilley has called the SubCo plans “a gambit, a pretence, an illusion and make believe” and on the same subject comments, “an astonishing number of Trusts are heading down Carillion Street”.

Certainly, it’s worrying that many of the SubCo plans seem to emphasise this VAT “gambit”. Gloucestershire, for example, told staff it would save £35m over 10 years (whilst the staff savings were merely “unquantifiable”) through this ruse. But the biggest similar scheme to date, UnitingCare in Cambridgeshire, collapsed spectacularly – and one of the major reasons (according to both NHS England and the National Audit Office reports) was because they signed the contract on the basis of incorrect advice about their VAT position, meaning an unexpected £5m a year was added to their costs and the arrangement collapsed.

Selling off the hospital buildings?

And – perhaps most worryingly of all – now OurNHS openDemocracy has uncovered considerable grounds for concern about what is happening to hospital buildings around the country as part of these plans. We’ve also uncovered a little noted aspect of the Health and Social Care Act 2012 that might partly explain the rush to these new schemes.

In existing SubCo’s, tens of millions of pounds of assets appear to have transferred out of the NHS. In Northumberland, Tyne and Wear for example, one of the few SubCo’s where the business case is publicly available, the plan states that £33.5m of land and buildings will be transferred from the NHS to the SubCo. But in most of the plans about to be signed off in the coming weeks and months staff appear to have been given little more than hints of asset transfer (often highly self-contradictory, see for example Gloucestershire’s leaked staff Q&A, and Airedale’s (which they’ve taken down in the last few days, but you can read the cached link here).

Neither staff or public appear to be being told anything about what hospital buildings are involved, and what this means. Whether or not asset transfers are key to the supposed VAT savings in Gloucestershire and elsewhere is one of the unanswered questions. Some of the other SubCo’s appear to anticipate noVAT savings, according to the Health Services Journal (paywall). Meanwhile, other established SubCo’s – notably Warwick and East Kent – have been set up to provide clinics and wards for private patients, OurNHS has uncovered. What is going on?

The concerns about hospital buildings come in the light of huge pressure on Trusts to sell off or commercialise parts of their estate, under both the Carter Review and the Naylor report that Theresa May endorsed last year. Those hawking schemes to encourage sell offs are impatient with the NHS holding on to their assets “like the family silver” and preventing housing developers or rival private health companies getting their hands on these ‘strategic locations’. And all the plans – as elsewhere – are clear on one thing – that there will be “new people” with “commercial expertise” running the SubCo’s – perhaps with a different attitude to the family silver?

Tax expert Richard Murphy echoes campaigners’ suspicions. Reviewing the Northumberland, Tyne and Wear SubCo business case, he told OurNHS “”Reading between the lines as to the true motive of this arrangement, it looks like a precursor to the sale to commercial third parties of the underlying buildings and the service contracts associated with them”. Whether this is the intention – or an unintended consequence, particularly the financial models don’t otherwise stack up – remains to be seen.

Sneaky legal changes post-2016?

OurNHS has also uncovered that a little spotted legal change seems to be driving the rush to the SubCo model of estates management. In an article written in May 2017 by SubCo advisors DAC Beachcroft (who are advising Gloucestershire amongst others), the solicitors firm describes how “the foundation trust sets up a wholly-owned subsidiary company. The estates workforce works for the company” but they go on to explain that “the outsourcing involves transferring the estate across into a wholly-owned subsidiary company.” And intriguingly, they add “These are only now possible because of recent changes in legislation that have enabled NHS foundation trusts to transfer their legal rights in operational property”.

What “recent changes in legislation” is this? OurNHS has spoken to top NHS campaigning solicitors who are unsure but have suggested it may be a change that follows on from the controversial Health and Social Care Act 2012. One little noted aspect of the Act made it easier for the NHS Foundation Trusts to sell off assets, even where those were previously protected because they were used to provide essential healthcare services (known as “Commissioner Requested Services”). There were some transitional arrangements to protect these services and the buildings used to provide them, following the 2012 Act –but these arrangements ran out in April 2016.

And certainly, the government’s attitude to these SubCo wheezes seems a little slippery. On the one hand, the government’s “NHS Providers Finance Director” Chris Young wrote an apparently strongly worded letter to Trusts last September (and seen by OurNHS), which stated that “HMRC are actively investigating the health sector in relation to tax avoidance schemes” – though perhaps with a chink of a get out clause about such schemes being “acceptable” if there are also “genuine commercial reasons”. Meanwhile numerous parliamentary questions about the SubCo’s have been met with bland indifference from ministers. Whilst some – like Labour’s health spokesman in the Lords, Phil Hunt – have suggested ministers’ relaxed demeanour means any tax savings are likely to be clawed back from the overall NHS budget, NHS insiders have also told OurNHS that their strong impression is the main NHS regulator (NHS Improvement) is quietly promoting these schemes.

So what can campaigners do?

In Gloucestershire, experienced NHS campaigners – who 6 years ago took NHS Gloucestershire to Judicial Review and reversed the planned transfer of nine local hospitals and 4000 staff to a so-called “social enterprise” company – have written today (letter here) to the local Hospital Board of Directors, who are due to agree the project on Wednesday (28 February), raising detailed questions regarding all the above issues. The campaigners warn the directors that the Trust risks being negligent with public money and assets if they rubber stamp the plan before they have clear answers to all these questions – which, campaigners point out, should be shared with the public.

So what can Trusts do?

It’s not good enough for Trusts to rely on unpublished advice from the likes of DAC Beachcroft and KPMG. Gloucestershire for example has set aside £200,000 for this advice, OurNHS has learned. And let’s not forget KPMG’s role in Carillion – a role which prompted Peter Kyle MP to tell them last week in a parliamentary Carillion investigation, “I wouldn’t trust you to do an audit of the contents of my fridge”.

Nor does it seem wise for other the twenty or so Trusts who are relying on advice from QE Facilities Ltd, a SubCo created by Queen Elizabeth Gateshead NHS Foundation Trust. As Unison’s Michael Sweetman drily told OurNHS, “they are selling this deal on the basis that they’ve found it very lucrative – for them – but it’s lucrative for them partly because they’re going around selling their consultancy on how to do it, back to other parts of the NHS.” (Did anyone say “pyramid scheme”?).

Of course Trusts are in impossible financial positions, with soaring waiting lists and problems compounded by heavy fines levied if they miss targets, and – as exposed by last week’s File on Four – an absurd government fixation on capital controls as hospitals crumbleGloucestershire is in the same financial black hole as most Trusts – and also in special measures following a recent huge accounting cock-up.

Trust Chief Executives have even taken to Twitter to defend their adoption of SubCo’s models, for example Sarah Jane Marsh, CEO of the Birmingham Women and Children’s Hospital Foundation Trust who also have a SubCo due to go live next month, commented earlier this month “It’s a real head/heart issue – but the reality is if we don’t, we will have to reduce further posts as our CIP [Cost Improvement Plan] for 18/19 is £17 million.”

But it’s not good enough for Trusts developing these plans to attempt highly risky ways to wriggle out of these constraints, remaining tight-lipped about what they could really mean. It’s not good enough for Trusts to hope that no-one’s going to weep for the procurement teams, estates managers, cleaners, safety staff and the other workers who keep the NHS show on the road – and ignore vital questions about the hospital buildings and financial models, the quality of the advice they’re getting, and the loss of accountability and control these plans entail. Given the secrecy around these models, it’s particularly unhelpful when Trust Chief Executives then blame “irresponsible” unions for causing staff anxiety with “political” opposition, as Gloucestershire’s Chief Executive Deborah Lee was spotted on camera doing last week.

Instead, all Trust CEOs should be being as outspoken about the government’s failure to fund the NHS as a few brave ones have been – and as honest about the obscure tricks the government is using to push ever more outsourcing, even as the failures of Carillion, Grenfell and PFI come home to roost.

OurNHS openDemocracy will keep investigating. Whatever the intent of Trust directors, the reality is they tend to move on to pastures new within a few years – only one of Gloucestershire’s current directors has been there for any length of time, for example.

Meanwhile local people, currently frozen out of decision making, may be left in a few years wondering how our precious hospitals were sold from out under our feet.

First published on the Our NHS website

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The outsourcing of public services to private companies is a model in disarray. The impetus for challenge has been the collapse of the outsourcing giant Carillion but concerns have also been raised across a number of other public services including probation, the prison service, forensic science service, and the NHS. Much less interest has been paid to the longer-standing privatisation of adult social care, where the debate tends to be focused on levels of funding and the respective obligations of the state and citizen to contribute to individual care costs. This relative absence of policy interest in examining the ownership structure of adult social care may be due to three related factors – market penetration, market fragmentation and market fragility.

Market Penetration: The longer the period over which outsourcing has taken place and the greater the penetration of the market, the more difficult it is likely to be to reverse the situation. This is the situation with adult social care, where the process has been in train for over 30 years and the current structure is deeply embedded. In 1979, 64% of residential and nursing home beds were still provided by local authorities or the NHS; by 2012 it was 6%. In the case of domiciliary care, 95% was directly provided by local authorities as late as 1993; by 2012 it was just 11%.

Market Fragmentation: There is no compact adult social care service that can be easily repatriated into public sector ownership. Rather the sector is characterised by a multiplicity of fragmented, competing providers. The care home sector supports around 410,000 residents across 11,300 homes from 5500 different providers. The situation in home care is even more diverse with almost 900,000 people receiving help from over 10,000 regulated providers. Nor is it any longer the case that the state is even the dominant commissioner of these services – the privatisation of care alongside tighter access to local-authority-funded care has resulted in a large growth of self-funding ‘customers’.

Market Fragility: The third complicating feature of the adult social care market is its fragility and the politically toxic consequences of market failure. The first major casualty was Southern Cross in 2011 – a large national care home provider which had 9% of the market nationally but a much greater share in certain regional areas. Much of the Southern Cross provision was eventually taken over by another major provider, Four Seasons, which is itself now at high risk of going under. Either through financial collapse or strategic withdrawal the market model is at tipping point.

There is a growing view that the problems associated with the outsourcing of adult social care need to be addressed, but if no ‘big bang’ change is feasible, what are the alternative options? Better and fairer funding is a prerequisite but the local state (as the biggest commissioner of services) and national government (as policy-maker) can also act in other ways that could create better care quality and reshape the provider mix. Four dimensions can be identified: commission local and small; commission holistically; commission individually; and commission ethically.

Commission Local and Small

The trend, especially in the residential sector, is for small operators to be replaced by large provider chains with more than fifty care homes which in turn house up to a hundred residents each. A focus on smaller and more local commissioning is needed to counteract this trend. Small organisations hold vast expertise about the issues affecting people locally and can serve very specific communities of interest. Moreover, much of what they do focuses on bringing people together which ties in closely with the policy focus on loneliness, ideas around Asset-Based Community Development, and on supporting communities to rebuild their own social infrastructure by harnessing community businesses.

Complementary to this is the concept of Local Wealth Building, a growing movement in Europe and the USA based on the principle that ‘places’ hold significant financial, physical, and social assets of local institutions and people. The key here is local ‘anchor’ institutions (public, social, academic, commercial) and their procurement role in supporting the local supply chain. This will include opening markets to local small and medium enterprises rather than looking to national and international chains. Central government also has a role to play here, for example by minimising corporation tax rates for small local businesses.

Commission Holistically

It no longer makes sense to think of social care commissioning in isolation. Rather the focus is upon ‘holistic’ or ‘place-based’ commissioning. Most social care is commissioned separately from other place-based interventions. However, market-shaping is a much broader strategic task spanning several council departments and other partners – social care, transport, housing, economic development, health, community safety, training providers and more. Coordination on this scale would require significant investment in capacity, skills, and structures – in effect, the reinvention of robust local governance.

Commission Individually

Policies on access to social care support have created two groups of ‘individual commissioners’: those who fund their own care and those whose care is funded via an individual budget. Both are in need of greater support. A market requires ‘customers’ who seek and digest information to inform their choice of product. From this perspective the care home market in particular has some characteristics of an inefficient market – entry is often unplanned, made in response to a personal crisis and with very low rates of switching to a different provider in the event of dissatisfaction. The Competition and Markets Authority  raises the prospect of enforcing consumer law, but others will take the view that it is simply not possible to replicate a market with informed ‘consumers’ in the social care sector. However one option that can work for some people is that of personal budgets and more recently personal health budgets, though here too there are issues to be resolved around matters like making choices and decisions; receiving information and advice; budget management, monitoring and review; and risk management and contingency planning.

Commission ethically

Ethical commissioning could include the following dimensions.

Commission from ethical employers: Commissioners need to be able to distinguish between the workforce practices of different providers and prioritise those acting as ‘good employers’. This might have several components such as prioritising providers that comply with minimum standards around workforce terms and conditions, have effective training, staff development and supervision, and encourage staff to participate in collective bargaining.

Commission from transparent providers: A ‘transparency test’ could stipulate that, where a public body has a legal contract with a private provider, that contract must ensure full openness and transparency with no ‘commercial confidentiality’ outside of the procurement process. All providers of public services should – at a minimum – publish details of the funding they receive, performance against contractual obligations, the suppliers to whom they subcontract services, the value of these contracts and their performance, and user satisfaction levels.

Commission from tax compliant providers: The ownership of all companies providing public services under contract to the public sector, including those with offshore or trust ownership, should be available on the public record. At the same time, a taxation test could require private companies in receipt of public services contracts to demonstrate that they are domiciled in the UK and subject to UK taxation law.

Commission from not-for-profit providers: A fresh approach to adult social care offers the opportunity to rethink the role of other sectors. Whilst wholesale renationalisation seems unlikely there is every reason to encourage local authorities to begin to build up their own in-house provision and to support all organisations with a social purpose, whether in the public, private or voluntary sector. This could include encouragement for user-led organisations, social enterprises, mutuals and others to recruit and train service users in innovative ways.

The privatisation of adult social care in the UK has an unusual policy trajectory compared with other sectors. Devoid of any real debate or stated purpose, a 30-year process of outsourcing has grown unabated and unchecked. The scale of penetration and the dismantling of alternative providers have resulted in a situation that fails to meet ordinary market standards around choice and control. And now, as a result of austerity politics, there is every chance that the private sector will lose interest and leave the market with serious consequences for those in need of services and support. Whilst it is not feasible to simply eliminate a model that has become so deeply embedded, a combination of better funding and smarter commissioning can, over time, reshape ownership structures, increase provider stability, focus on ethics rather than cost, and enhance the quality of care.

First published on the British Politics and Policy blog

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Following the collapse of Carillion comes an authoritative judgement by the National Audit Office that – it uses accountancy speak but the message is clear – the Private Finance Initiative has been a gigantic rip off. The nostrums of New Public Management stand exposed. The mantra “private good, public bad” sounds like it always was a pro-market ideology that has dominated British public life for over three decades.

Public services in England (and to varying extents in other parts of the UK) have been stigmatised and eviscerated not just by austerity but by the enforcement of market-inflected doctrine, especially New Public Management. More a body of precepts and reflexes than an elaborated theory, New Public Management is a derivative of the global project (“neoliberalism”) to expand markets and crimp, cull, and confine the social state. In the UK, Thatcher was the doctrine’s high priest, but the gospel was actively propagated by Tony Blair and Gordon Brown and set out canonically in David Cameron and George Osborne’s 2011 ‘open public services’ white paper.

A central precept of New Public Management was “steering not rowing”. Public bodies should step back from providing services and outsource to private, often global, companies. Outsourcing, along with the expansion of opportunities for financial intermediation in private finance initiative, simultaneously secures a route to corporate profit and diminishes the state.

Contracting is not new and there is an untidy continuum in the state’s relationship with private markets, as suppliers of goods, finance, and services. But most people see a difference between a council buying disposal gloves from a firm, and contracting for HIV support services. The differences are principled but also practical: the former can be fairly straightforwardly specified and delivered, the latter is necessarily much subtler and much less susceptible to corporate finance accounting.

None the less, outsourcing has been driven into the further reaches of human services. Under perennial financial pressure – now acute – councillors and NHS trust boards reach for the seductively cheaper options offered by companies based, usually, on worse conditions for their staff. Outsourcing has been a perfect match for British administrative empiricism and short termism; it has been both cause and consequence of the dismembered condition of the British social state.

The model has now come unstuck. Grenfell Tower exemplifies the opaque accountability of ‘arm’s length’ management (the Royal Borough of Kensington & Chelsea seemingly neither steering nor rowing). That disaster follows a series of high profile failures, starting with the inability of G4S to meet the terms of its contract to police the 2012 Olympics, followed by large gaps in performance on benefits assessment, refugee housing, offender supervision and so on. The collapse of Carillion is the latest, but not the last.

As for PFI, it was a mixture of pandering to financial institutions that saw state projects as a means of making money and (unevidenced) assertion that private management secured lower cost infrastructure; the first and second generation of PFIs bolted on outsourcing arrangements for facilities management, adding to the profitability of deals. Now the NAO – not for the first time – has redone the sums and found PFI has delivered the profit, but added no discernible public value.

Failure hasn’t tempered dogmatism; alienation of service delivery remains the default option across central, local, and devolved government and, enforced by Cameron-era legislation, the NHS. Cameron pressed ahead with outsourcing probation services. For example, despite immense practical difficulties and, as it turned out, scant opportunity to make the kinds of profit companies had expected; Tory ministers adjusted the contracts to accommodate them.

But the sheen has undoubtedly come off the outsourcing project. In austerity, companies can’t make enough – the problem in social care. Companies that have turned themselves into outsourcers – the construction company Carillion, for example – have fallen apart, discovering that schools and prisons are really quite different places. Investors are realising that there are limits to how far public services can be commodified. Labour has declared it would enter into no new PFI deals. But PFI was so evidently a bad deal for the state that in austerity, the number of new deals has wound down to single figures. Labour’s bigger issue is outsourcing and the reconstruction of the state that would be implied if, once again, the default were public provision of public services.

In our new report, Out of contract: time to move on from the love in’ with outsourcing and PFI, we argue for the primacy of information and analysis. We simply don’t know how far private interests have inter-penetrated and eroded the public space. In a market society, public bodies buy in markets: there’s a continuum in the relationship of the state to external suppliers. This relationship runs from the purchase of goods that public agencies would never make themselves to the transfer of entire service sectors to profit-seeking companies.

We know that in some instances contractors have become the public sector. However, this is merely an accountants’ illusion. The state is the last resort; it can mitigate but not eliminate risk; as for the banks, outsourcing carries an implicit and uncosted guarantee of bail out. It has become big business. The UK state spends £200bn a year on goods and services from third parties. About half of this – up to £100bn – is paid in service contracts. But some of those contracts go to charities and some for specialist services that were never regularly part of the public services offer. Private sector involvement is heaviest in IT, construction, waste management, building maintenance, social care and defence but also includes prison, probation, ambulances, diabetes care, blood testing, trimming shrubs in Royal Parks and applications for UK visas.

We ask for a Domesday Book spanning central government, the devolved administrations, the NHS and local government. We simply don’t know – now – which companies work where, let alone how they book costs and profits; their performance is only recorded at points of crisis and failure. Academic studies have largely failed to elucidate a phenomenon that involves organisations, structures of power, markets and (administrative) cultures. Polemic and anecdote abound, but do not substitute for a dispassionate explanatory description of public bodies’ relationship with third-party suppliers. Even taxonomy is lacking, without which it’s hard to understand make or buy decisions and the commodification of public bodies’ functions.

In our report we start with an immediate pause on any further outsourcing while existing contracts are reviewed, renegotiated or terminated. A central registry should list details on all significant public sector contracts. That sounds like the Cabinet Office, but historically it has been blind to local government and the NHS and it’s critical that outsourcing be view panoptically, drawing in evidence and comparison from all sectors.

Public bodies will make supply decisions that involve companies – but the legal framework must allow them to impose public interest conditions. Among relevant factors are a company’s market share, previous performance, company ownership, tax practice and avoidance, directors’ remuneration as well as staff employment and conditions and union recognition. These criteria should inform contracts, which should be as open as possible and no longer be concealed behind “commercial confidentiality”, with the Freedom of Information Act extended to provider and public sector clients.

Such information is not readily available. Acquiring and deploying it imply public service commissioners get a lot smarter than they have been. An overhaul of contracting doesn’t absolve councillors or ministers from the Sisyphean task of ensuring public services serve the public with maximum efficiency, effectiveness and – a clincher if Labour is to secure approval for tax increases – economy.

By John Tizard and David Walker.  First published on the British Politics and Policy blog

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This illustrated video lecture – 60 minutes plus 30 minutes Question and Answer – gives a comprehensive overview of the background to the continuing dismantling and privatisation of England’s NHS.

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Jeremy Warner, an editor at the Telegraph, once said there are either ‘big state’ people or ‘small state’ people. I felt the same way following the reaction to the collapse of Carillion: there are either ‘private good, public bad’ people or ‘public good, private bad’ people. Of course, reality is somewhere in between.

Carillion went bust because of cost overruns or delays in three large construction projects. The nature of such projects involve that kind of risk, but clearly the company – despite its size – was not resilient enough to withstand those failures. It did not go bust because of privatisation of public services, unless you think the government should build its own hospitals or roads. If anything, it shows that those contracting out public contracts were getting a good deal.

There will always be public projects contracted out to the private sector. Much of the increase in public investment planned by Labour if it wins the next election will be undertaken by private firms. Getting the contracting relationship right is difficult and fraught with dangers.

The government clearly has questions to answer about why it continued to award contracts after the profit warning, and we need some informed analysis to determine whether the government, as they claim, had fully protected all but one (!) of these projects and will not lose any money as a result of the collapse. As David Allen Green suggests, this smacks of ministerial failure. (The link also shows public procurement can have its funny side.)

Also, why was the position of the ‘crown representative’ (who was meant to be overseeing scrutiny of, among others, Carillion) left vacant? The government should also ask whether companies should be allowed to pay large dividends when their own pension fund is underfunded. And why Carillion’s auditors, KPMG, gave it a clean bill of health when its balance sheet was already showing signs of stress.

To see what lessons the collapse of Carillion does have for the debate over whether the public sector should privatise certain of its activities or do them in house, we need to go through some of the pros and cons.

There is one main benefit of contracting out public services, which is that it can save money. To mention ‘the market’ here is not very helpful, because with one buyer and only a few sellers for something (the contract) agreed once every few years, this is hardly a normal market. It is instead about the incentives faced by managers and workers, both in achieving efficiency and fostering innovation. Managers have a clearer incentive system in a private sector firm to maximise profits, and that incentive is provided by the need to bid low to win the contract and nevertheless make a profit. As Carillion shows, margins on most public sector outsourcing are not large. In that sense, Carillion confirms that part of this mechanism is working. A single public sector entity cannot replicate this advantage, unless it too is in competition with private sector firms. In short, competition improves incentives.

One important qualification to this argument involves information. The temptation of a bidding system based on the lowest price is to cut quality. So the public sector has to have a clear means of not just specifying quality in the contract, but of ensuring the contract is being fulfilled once it is awarded. Sometimes politics can get in the way of that happening. For activities where quality is difficult to observe, contracting out is not a good idea.

Another qualification involves the attitude of public sector workers before privatisation. If they, for whatever reason, internalise the need for efficiency and innovation, because for example they can see how both improve the outcome for customers, then contracting out to the private sector will achieve little. The NHS could be a case in point.

A further problem with privatisation is finance. When people argue that public money should not be wasted paying the shareholders or creditors of private firms, they are both right and wrong. They are wrong in the sense that without contracting out the same amount of money has to be raised by the public sector, and so it “wastes” money by having to pay interest on government debt. But they are right in that the rate of interest on government debt is much less than the rate of interest a private firm has to pay on any debt, or in the form of dividends to shareholders. The reason for this is that investors do not like risk: people who lend to the UK government know they will always get their money back, while as the shareholders and creditors to Carillion have just found this is not true for private sector firms.

This is why Private Finance Initiative (PFI) projects undertaken just so that the borrowing is done by the private rather than the public sector are costly from an economic point of view. It is why it makes sense to exclude public investment from any fiscal rule: fiscal rules that restrict public investment are an open invitation to politicians to undertake PFI type financing. In my view, the best constraint on public investment is the expected social return, assessed with the help of an independent body. It is often said that PFI type projects ‘avoids risk to the taxpayer’. Again this is the wrong way round. It is far easier and cheaper for the public sector to take risks than the private sector, so PFI projects are paying far too high a price to avoid risk to the public sector.

Another problem related to risk is the interrelationship between what the private company contracts to do and what actually happens when government forecasts go wrong, as they always will. This may have happened with the East Coast line “bailout” (but if it was, we should be told), and it did happen with privatising the probation service. Public sector contracting out forces each side to commit to guesses about the future, whereas if everything remains in-house there can be much more flexibility. There is also the cost of having to train more civil servants in the art of writing good contracts.

One further problem that Carillion reminds us of is that privatisation runs the risk of a degree of interruption if the company goes bankrupt. Disruption is nothing new. If privatisation is to have any benefits, the contract from the public sector has to come up for renewal every few years, and if the private sector provider is changed that will involve some dislocation of service.

One final point, which is contingent on what I hope will be a temporary state of affairs. Nowadays, the management overheads for private sector firms are likely to be far higher than in the public sector, for reasons that have little to do with management quality. Ben Chu sets out how much management was being paid at Carillion compared to equivalent public sector managers. And what on earth were shareholders doing allowing the directors to relax clawback conditions on management’s pay if things went wrong, which even the Institute of Directors described as “highly inappropriate” and “lacking effective governance”. In truth the public sector is much better at stopping managers using their monopoly power to be paid over the odds than the private sector appears to be.

So the economist’s answer on public sector outsourcing is, it depends: on all the factors outlined above and probably more I have momentarily forgotten. (Like economies of scale and expertise: no one would ever suggest the public sector makes its own paperclips.) Where the balance will be is bound to be case dependent. But it would be incredibly surprising if at least some of the outsourcing undertaken by this government was not ideological rather than evidence based. This suggests that Labour, if it wins the next election, should undertake a thorough independent review when it has all the facts at its disposal. That at least might ease fears that we will lurch from one ideological position to its opposite.

This first appeared on the British Politics and Policy blog

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