Tuesday, 4 December 2012

Capita and the Outsourcerers: And Poof! Goes the Welfare State




In just the first half of 2012, Capita: The British Government’s Favourite Outsourcerer, won over £900m of contracts to provide services previously delivered by the public sector.  This is three times the business it won during the same period just one year earlier.  However, the latter half of this year has seen this ‘achievement’ dwarfed by the news that Capita has been selected as the preferred bidder for a £1.7bn contract to provide ‘educational support services’ for schools across Staffordshire. With Capita poised to gobble up even more of Britain’s public services, today’s article shed light on who Capita are, how much of Britain they own, and why we should all be paying better attention to the rise of the Outsourcerer.

Capita Who?



Capita provide a wide range of services for private and public sector clients under the guise of allowing the client to a) save money and b) focus on providing their ‘core’ offering.  So let’s say you are a police force like the Met. Why would you employ an in house IT team when Capita, IT specialists, can run things for you?  They’ll be cheaper and you can focus on catching criminals, as is your core ‘offering’.  But as we shall see, both these promises can be found wanting.

Beginning with just two people within the Chartered Institute of Public Finance and Accountancy in 1984, Capita became an outsourcing giant which last year posted a turnover of £2.9bn, with pre tax profits of £385.3m and 46,500 employees[1].  But how did they get here? 

The Conservative governments of Thatcher and Major were good times for Capita.  They saw their profits and turnover doubling year on year through the early 90’s.  By 1996, in the dying days of the Major government, Capita were posting a turnover of £112m, pre tax profit of £12.3m and had grown to 3,500 staff.  They bought Recruitment & Assessment Service from the Government and in so doing expanded their recruitment business.  They also won their biggest contract to date to manage the Teachers Pensions Agency and administer the driving theory test for the Driving Standards Agency.

However, at the arrival of New Labour, bright eyed with ‘modernising’ zeal, Capita heard the whistle blowing for the gravy train and rode it all the way to Valhalla.  Just one year into the first Blair government, Capita were boasting a turnover of £238m, pre tax profits of 27.1m and a staff of over 5000.  From here on in, the growth in exponential and based in large part on acquisitions of formerly government organisations, and contracts to deliver central and local government services.

Year
Turnover
Pre Tax Profit
Staff

2000
£453m
£51.2m
8,500
2003
£1.08bn
£121.2m
19,000
2005
£1.4bn
£169.6m
24,000
2008
£2.4bn
£277.2m
36,000
2010
£2.7bn
£364.2m
37,000

In summary, in the ten years of New Labour between 2000 and 2010, Capita turnover increased by a multiple of fifty nine.  During this time they took over the following services:

Pensions Service for the Metropolitan Police
HR for Westminster City Council
BBC Information Centre
Constructionline - the public sector online register of approved construction contractors and consultants
The Congestion Management Scheme for Transport for London
Service Partnership with Birmingham City Council
Strategic Partnership with Harrow Council
Installer Registration Scheme for the Health & Safety Executive
Strategic Partnership with Sheffield Council
Extended and expanded ICT and contact centre contracts with Birmingham City Council

The ‘Strategic’ or ‘Service’ Partnership deals are the biggest hitters, where a council basically invites Capita to provide a whole host of services for the Council over a number of years. 

One might ask: if Capita and their Outsourcerer friends can provide a lower cost solution to a non core service, allowing more public money to be spent on the services that matter, what is the problem?  The problem is, that the services are more often than not MORE rather than less expensive (particularly when taking into account the bigger picture) and as time moves on, the definition of what constitutes a ‘non core offering’ seems to have lost all foundation in sense.

The Lie of More for Less



The so called cost effectiveness argument for outsourcing is driven under the assumption that a private ‘specialist’ can deliver a more efficient service than the public sector.  Or, as some in the trade might put it, deliver more for less.  The fact is that in most cases, while the bidding stage presents a short term saving, the longer term picture is quite the opposite. 

Firstly, the profit motive.  The corporation is out to make a profit from the service they provide, unlike the public sector provider.  Secondly, in order to make any substantial reductions on providing the cost of the service, the brunt is most often met in the terms and conditions of the workforce, meaning low pay, lack of job security and ultimately, another bill for the government to pick up down the line
 Speaking of changes in Health and Social Care services in an interview with the New Statesman, an anonymous worker puts it perfectly:

“No local authority should make that deal: even just on the pragmatic basis that it will be their own residents who are on the receiving end of that low wage, their own housing benefit department making up the carer’s rent shortfall, their own health and children’s services that come under strain when poverty is rife.”

The proof of the pudding is after all in the eating, so one might expect after the wave of outsourcing that occurred under new Labour, that we would have seen a drop in public spending on noncore services (infrastructure, IT, support services etc) and an increase in that spent directly on the service, e.g. welfare support for the vulnerable. In fact during the tenure of New Labour the costs of providing the public services they outsourced rose astronomically, and with it, government borrowing.  As the Institute for Fiscal Studies highlighted in 2010, whilst public spending on investment (transport, the NHS and education – on these services contracts) rose sharply, the increase in benefits provided to the elderly, sick and unemployed  was achieved without as significant an increase in spending as during  the previous Conservative government.   In short, the 4.4% per annum average rise in public spending under New Labour (compared to 0.7% under the Conservatives) went not on handouts to the needy or ‘bribes for the electorate’, but in fact funded the rise of the Outsourcerers. 

However, despite the public disdain the Tories showed in opposition for these contracts, once in office the Coalition achieved the unimaginable: they outsourced as a faster rate than New Labour.  And here we come to the second issue of outsourcing – the creation of a shadow state.

A Hollowed Out State


 
As the rise of Capita and her fellow Outsourcerers Serco, G4S and others continues apace after the Coalition Government took over in 2010, the nature of the services they were providing moved from peripheral to what one can only describe as Core.  In recent years the government has farmed out contracts to the private sector to run hospitals, to transport prisoners, to run prisons, to build and run police stations, to build and manage schools, and now even to teach lessons.

To anticipate the results of all this outsourcing, one can look to the emerging legacy from the New Labour period.  First to the NHS, where a vast majority of the hospitals whose construction was outsourced through Private Finance Initiatives, which often included conditions which meant the outsourcing of services to the Private Partner are now facing a financial apocalypse.  A recent study found that in London alone, twelve of the eighteen healthcare Trusts were financially viable.  Worse than that, seven Trusts had to be issued with a £1.5bn bailout from government to cover the unsustainable costs of the PFI contracts.

 There is also the matter of transparency in the spending of public money.  The Public Accounts Committee, which is responsible for ensuring value for money to the British Tax Payer, is but one body raising the issue.  One recent report stated clearly that companies providing public services for profit refuse point blank to answer questions on the subject of value for money by hiding behind the cloak of commercial confidentiality.

Finally, the giant Outsourcerers get to wield so much power that they, like the super banks before them, become too big to fail.  Capita itself recently received no more than a ‘censure’ from the Financial Services Authority after its Financial Management arm lost its investors £144m by betting their investments on high risk endeavours whilst promising the investments as risk free.  Whilst Capita’s culpability was unchallenged, only £32m was requested in damages for the investors.  This, together with recent slapped wrists for G4S after the Olympic understaffing issue, and A4E for its work programme scandal, leave a bitter taste in the mouth.
In essence, these companies are responsible for such a swathe of service provision, that it seems they no longer face any existential threat by fine or sanction, as the resultant impacts on the public services would be unacceptable. 


Enough is Enough



The simple truth of the matter is that unless we start to pay more attention to the superficially turgid topic of public service commissioning – or the privatising of public services – there may very well not be a state left. 

This might seem something that doesn’t necessarily trouble you, but there is reason we went down the route of democratic statehood in the first place; In order to protect the individual, to guarantee a standard of service provision and treatment of the staff delivering those services, all delivered under a mandate provided by the electorate every four years.

Today, the outsourcing market for public services stands at over £80bn, with the Coalition Government announcing a further £70bn of services soon to be opened out for tender.  This, together with the visceral attacks on the provisions of the welfare state, is somewhat reminiscent of the Poor Law Amendment Act of 1834, which heralded the Workhouse.

Indeed, what is happening today in the UK, rather than being a modernisation, as it is billed, is infact a regressive step back in time.  The ideas of private companies delivering education, health, transport, post, energy and other services is not new.  It is old.  It is how things used to be done.  It failed miserably.  The idea that private services operate fairly and that philanthropy, charity and voluntarism can deliver a fair society belongs in the past along with its workhouses and its pauper lists.
The Welfare State rose out of the failure of this approach, to ensure that through our contributions in tax and national insurance, every citizen was guaranteed access to healthcare, education and all the other supporting elements of the social contract.  If this was breached, the electorate could hold those offices of state to account.  Not so in 2012.  So, it seems, we are called to repeat history and take back the services which we all need, out of the hands of private interests, and into the hands of those with a stake in the public interest.

Get Involved

Join Residents of Barnet to protest Capita’s ever growing slice of the Council Budget – here
Keep up to speed on the latest sell offs at Corporate Watch – here
Organisations to watch:
















[1] All figures and information in this section sourced from: http://www.capita.co.uk/about-us/pages/our-history.aspx

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