Private Sector Fails and the Public Sector Pays Again

Carillion’s board are accused of presiding over a “rotten corporate culture” in a report by two parliamentary committees. The company collapsed earlier this year with £1.5bn of debt leaving the public sector to pick up various public contracts. Rachel Reeves MP said the directors “drove the company off a cliff.”

The joint report, by the Work and Pensions and the Business, Energy and Industrial Strategy select committees, also criticises the UK government concluding that they lacked the decisiveness or bravery” to address the failures in regulation that allowed Carillion to become a “giant and unsustainable corporate time bomb”.

The bulk of the criticism is pointed at the company’s board who are clearly responsible for the company’s spectacular failure, despite the directors attempt to portray themselves as “victims of a maelstrom of coincidental and unforeseeable mishaps”.

The report calls out the directors’ “recklessness, hubris and greed and describes a business model that was “a relentless dash for cash, driven by acquisitions, rising debt and exploitation of suppliers”. It als suggests that their accounting practices “misrepresented the reality of the business”.
The report also raises questions for the company’s auditors: All of the big four accounting firms (KPMG, Deloitte, Ernst and Young and PWC) had done work for the company and had clearly not provide the degree of independent challenge needed to prevent the problems highlighted in teh report.

The report states that that by failing to question Carillion’s financial judgements and information KPMG complicit in the companies questionable accounting practices. They are accused of “complacently signing off its directors”. “Deloitte was paid over £10m to act as internal auditor but were either ‘unable or unwilling’ to identify ‘terminal failings’. They report also indicates that the lack of completion in the audit market creates conflicts of interests at every turn

This collapse illustrates the risks of outsourcing vital service to the private sector. The risk remains with the public sector who then have to pick up the tab for private sector failures.

It's Public Services Stupid

Public services are the top issue for the vast majority of Scottish voters.

We are publishing a full scale poll, undertaken by Survation for UNISON Scotland, that asked voters to tell us their priorities for the local government elections. Public services were the top priority followed by the economy and job security.

The results were clear over 70% of those who took part place public services as one of the three most important issues facing them and their families ahead of the upcoming election. The economy was second chosen by just over fifty percent (51%) of respondents and job security and availability came in third with 40%. There was very little variation when results were broken down by party affiliation with public services coming highest among all party voters. Jobs came second for SNP voters while the economy was second for Conservative voters equal numbers of Labour voters picked jobs and the economy.

Voters were also clear about whom they believe delivers the best quality services. Half of all voters chose public sector organisations with only 19% supporting the private sector and even fewer (13%) choosing charities. Even amongst Conservative voters only 31% picked the private sector and 10% charities. UNISON hopes that candidates from all parties are now clear that the people of Scotland want high quality publically delivered services.

Trust and accountability are important issues in a democracy. The polling figures indicate that people trust publically delivered services and believe them to be more accountable than private of charitable delivery: 71% of respondents believed public sector organisations are accountable for the services they deliver while for charities and the private sector the scores were 52% and 44%. Our survey reveals low levels of trust towards politicians and the media. Only 27% of respondents stated that they trust Holyrood politicians as sources of information about public services and 42% stated that they distrusted them. Only 20% trust the media with 47% stating that they distrust the media. Trade unions remain a relatively trusted source of information with 32% only topped by “friends and family” and academics. Friends and family are by far the most trusted source of information on public services (72%), academics achieved 56%. Academics were only distrusted by 11% of respondents.

Budget cuts are having a serious impact on local services: only 6% of respondents believed that services have improved in recent years and a further 30% that they had stayed the same while 59% felt they had declined. When asked where they blame lay 26% blamed local councils, 35% the government and 36% blamed both. SNP voters were the least likely to blame council alone but even then it was still 23%, with 36% of Conservative voters blaming the council and 30% of Labour voters. Nearly half of respondents want more of their taxes to be spent in their local areas and councils were the body most trusted to deliver local services with 41% picking the council and only 8% the government and 12% private companies. The poll summary is available here and tables here.

The poll clearly shows that people value public services, that they want them delivered in the public sector and that they want them delivered local by their council. UNISON agrees.

Big questions over increasing private financing for Scottish PPP programme

A strong investigation by the Guardian’s Severin Carrell today shows the Scottish Government is bringing in extra private sector funding and control to its multibillion pound infrastructure programme.

The aim is to keep key projects off balance sheet to ensure the Scottish Government meets European statistics agency Eurostat rules on measuring state spending.

Companies set up to deliver hospital, roads and other projects are being restructured, with greater private sector control and funding.

This is bad news for taxpayers and for accountability. Conventional funding with full democratic control and proper financial transparency is the best way to finance schools, hospitals and other infrastructure.

The changes have caused delays to contracts being signed off and are a major setback for the so-called Non Profit Distributing model and hub programme, which the Scottish Government tried to claim heralded the end of disastrously expensive Public Private Partnership/Private Finance Initiative schemes.

UNISON Scotland said such claims misrepresented the continuing widespread use of private finance in public infrastructure.

We have highlighted for years the ways in which the Scottish Futures Trust and the NPD model and hub, which it promotes, merely continued PPP/PFI with some ‘slight financial tweaking’ – PFI lite.

Indeed the SFT this year again won the Government PPP Promoter of the Year Gold Award.

However, the structures it helped set up seem to have fallen foul of the European System of Accounts 10 (ESA 10), applied in September 2014, despite seeking external financial advice five times since 2010 to ensure the correct classification for NPD/hub projects.

Interestingly, the increased dependence on private sector borrowing, as pointed out in the Guardian: “allows Holyrood to load up its balance sheet with more debt”, making it “far easier for Nicola Sturgeon’s government to borrow at least £2billion to fund further capital project and bolster its anti-austerity stance using new powers from the Scotland Act 2012.”

Finance Secretary John Swinney said in Parliament on June 18 that ESA 10 “is designed to provide a comparable estimate of the level of debt that is carried country by country across the European Union so that the levels of debt can be assessed on a comparable basis.

“Frankly, those definitions are constantly changing and are also then the subject of reinterpretation. The issues broadly relate to the governance of projects and whether they are controlled by the public sector or the private sector, and the acceptability of the approach to profit capping that is implicit in the NPD programme.”

He said in a letter to the Finance Committee on 1 June that the SFT has developed proposals for changes to contractual and shareholder arrangements for hub projects “which further strengthen the case for a private sector classification” and he has instructed the changes to be implemented across the hub programme, which should take 6-8 weeks.

The Guardian report says that a leaked SFT document shows that “for Hub projects affected by the changes, a 20% stake previously held in each by public-sector partners will be transferred to a new private-sector charity. That will give the private contractors the right to increase their shares in the new companies set up to deliver each project from 60% to 80%.”

The document says that “any perception of public sector control over the (project) delivery company must be avoided.”

Labour’s finance spokeswoman Jackie Baillie has tabled a series of questions in the Scottish Parliament, scheduled to be answered on Friday.

These include asking whether the Scottish Futures Trust’s revised structure for design-build-finance-maintain projects halves the public sector share of the project from 40% to 20% and, if so, for what reason.

And for what reason the construction of (a) Our Lady and St Patrick’s High School, (b) the North West Edinburgh Partnership Centre, (c) the Royal Hospital for Sick Children in Edinburgh, (d) the Dumfries and Galloway Infirmary and (e) the Aberdeen Western Peripheral Route has been delayed and what the (i) length and (ii) cost of the delay is.

There must be full transparency on the costs and effects of these changes, which clearly reinforce our reasoned opposition to PPP/PFI. And the Scottish Government should be using its coming, far too limited, extension of Freedom of Information law to cover all companies and other bodies providing public services.

Public water contract - ultimate in market madness

Paying a privatised English water company to provide Scottish public water to Scotland’s public services has to be the ultimate in market madness.

An article in yesterday’s SundayTimes reports that the Scottish Government is about to award a massive contract to provide water and waste water services for most of Scotland’s public bodies to Anglian Water, which is based in Huntingdon.

If you thought we had a public water service in Scotland, you might be a bit confused at this stage. Well we do, but it’s looking a bit frayed at the edges.

Scottish Water is a public corporation (even if it often wrongly calls itself a ‘company’) accountable to Scottish Ministers and the Scottish Parliament. Scottish Water is responsible for the provision of water and waste water services to almost all domestic and non-domestic properties and for maintaining the public system. There are some small scale privatewater supplies, largely in rural areas.

However, there is competition in the provision of customer-facing activities such as billing, charge collection, meter-readingand complaints handling for non-domestic customers in Scotland. This means that Scottish Water levies a wholesale charge on licensed retailers for non-domestic customers. Licensed retailers can agree their own charges with customers, subject to them being no higher than a default tariff set by the Water Industry Commission Scotland(WICS). Scottish Water is also a retailer, through its own retail arm BusinessStream, which provides a service to the vast majority of non-domestic customers in Scotland.

As the public bodies are non-domestic customers they come under this system of retail competition and the Scottish Government, actually the then Infrastructure Secretary Nicola Sturgeon, put one big contract for public bodies out to tender last August.

The driving enthusiasm for non-domestic competition was the WICS CEO – a well known supporter of privatisation. So keen that he promoted the scheme’s extension to England and Wales. UNISON has always argued that this arrangement is an expensive waste of effort. The WICS claims it has resulted in savings, but in practice these savings are all about water efficiency, not marginal differences in billing systems.

Non-domestic competition is not the only area of privatisation. Last year the insider web site ‘Utilities Scotland’ submitted FoI requests to ascertain the extent of privatisation in the delivery of the water and wastewater capital programme. In the last four years, 92.5% of Scottish Water’s capital programme has been delivered by private contractors, 7.5% by ScottishWater staff. By any standard that is substantial privatisation. This is on top of PFI schemes run by a variety of privatised water companies.

Weare also concerned about the impact the Transatlantic Trade and Investment Partnership (TTIP) could have for Scotland’s public service model. The greater the privatisation, the easier it will be for overseas corporate interests to challenge our public water system.

There is a certain historical irony in the Scottish Government exporting Scottish jobs to Huntingdon. The Earldom of Huntingdon was held by Scottish kings, most famously by David 1 in the 12^th century. He used the revenues to build several abbeys in Scotland and generally spruce up public buildings. On the other hand, Oliver Cromwell came from Huntingdon and he knocked down quite a few public buildings in Scotland. Also, a later Lord Huntingdon was a custodian of Mary, Queen of Scots – that didn’t end well either!

ScottishWater is a public sector success story, but we are only too aware that there is a powerful lobby for privatisation. As I said in yesterday’s Sunday Times, the gradual drip of privatisation will have reached a new high if this contract is awarded to Anglian Water. The privatisation sharks are still circling ScottishWater and we need to remain vigilant.

 

Why Scotland and the UK should oppose TTIP

Politicians can be so fixated by the benefits of free trade that they are missing the real dangers of the Transatlantic Trade and Investment Partnership (TTIP).

TTIP is a series of trade negotiations being carried out mostly in secret between the EU and US. In my view TTIP is primarily about reducing the regulatory barriers to trade for big business, things like food safety law, environmental legislation, banking and labour regulations. It is, as John Hilary, of War on Want, said: "An assault on European and US societies by transnational corporations."

I was giving oral evidence to the Scottish Parliament's European and External Relations Committee last week on TTIP. It's not often in parliament that I find myself on the same side as the NFU, but that just demonstrates how broad the coalition concerned about TTIP is.

There is an argument, put forward by an academic lawyer at the committee, that we are worrying too much. There can be no provisions in the treaty that are outside EU competences and the EU has no powers to direct how, for example, our health service is organised. With respect, this academic view of the law is simply naive.

There are plenty of examples of states signing up to similar treaties only to find corporations challenging their democratic decisions. Australia over tobacco control and Slovakia over health insurance, highlights just two in the health sector. There are over 500 of these cases being heard across the world at present. It's not just the actual legal action that matters. The threat of legal action can result in 'regulatory chill' with risk adverse law officers worrying about any radical action that might result in a legal challenge. Scotland's recent Procurement Act and the living wage was one recent example of this effect. That Act also has provisions to tackle aggressive tax avoidance. Just imagine the plane loads of US corporate lawyers flying in to Edinburgh if TTIP was in place!

Effective challenges to the EU also have to come from the member state and for Scotland that means the UK. In England they are creating a US style privatised health service, so would they really complain to the EU to save Scotland's very different approach?

Some MSPs pursued the idea of a 'good TTIP' with us. I'm afraid that I don't hold out much hope for that. There are already very few trade barriers between the U.S. and the UK, so it's deregulation and privatising public services that interests rapacious American corporations. From a UK perspective there is little economic evidence of the benefits. When officials claim gains in the range of £4bn to £10bn, you know they are just making the numbers up. Even these figures take no account of job displacement and a further shift from wages to capital.

At a minimum TTIP a would have to unequivocally exclude public services, possibly using the positive list approach to avoid definitional problems over what a public service is. There should be no common regulatory standards, because the US ones are generally too low. Enforcement procedures that are in TTIP a should include all the ILO standards, particularly the ones that the U.S. hasn't signed up to, such a collective rights.

But the biggest issue is removing any Investor State Dispute Settlements (ISDS). These mechanisms give judicial protection only to foreign corporations and allow their massive legal departments to tramp all over democratically elected governments. In this way they would be able to reduce our food safety rules, privatise the NHS, challenge the Scottish Living Wage and weaken environmental regulations on issues like fracking.

If a 'good TTIP' like this was on the table, I strongly suspect the US would just walk away. That's fine, because that is just what the EU should be doing now.

 

 

Privatisation demolished

"Privatisation isn't working. We were promised a shareholding democracy, competition, falling costs and better services. A generation on, most people's experience has been the opposite. From energy to water, rail to public services, the reality has been private monopolies, perverse subsidies, exorbitant prices, woeful under-investment, profiteering and corporate capture."

This is the introduction to a an article by Seumas Milne in the Guardian. Arguably the finest destruction of the case for privatisation for some time and well worth a read.

He argues that "Private cartels run rings round the regulators. Consumers and politicians are bamboozled by commercial secrecy and contractual complexity. Workforces have their pay and conditions slashed. Control of essential services has not only passed to corporate giants based overseas, but those companies are themselves often state-owned – they're just owned by another state."

He gives examples of how time and time again privatised services are shown to be more expensive and inefficient than their publicly owned counterparts. Railways are a very recent example and he points to East Coast and Scottish Water as good examples of public service delivery in a largely privatised service.

He is scathing about Ed Ball's halfway house, where franchises continue, but the public sector is allowed to bid to run them as well as the privateers. He says, "That sounds like an expensive dog's breakfast. Rail renationalisation has the advantage of being not just popular but entirely free – as each franchise can be brought back under public control as it expires. To resist it in those circumstances can only be about the power of corporate lobbies or market ideology."

The alternative of tougher regulation is dismissed as "trying to do by remote control what's far better done directly and won't fix the problem on its own. Experience has shown that you can't control what you don't own". He references Glasgow University's Andrew Cumber's excellent work on this point.

He argues the case for new forms of public ownership in the banking sector and utilities – energy, water, transport and communications infrastructure. It's a policy that has support from the majority of the public and reflects experience across the world where privatised services are being brought back into public ownership.

He concludes, "in Britain the power of City and corporate vested interests engorged on the profits of privatisation is a powerful obstacle to this essential shift. Pressure for a genuinely mixed economy – something previously regarded as the commonsense mainstream – is bound to grow as the costs and failures of unbridled capitalism mount. Rail can only be the first step."

These issues will be addressed in Scotland at a conference, 'Re-inventing our economy for people and the planet' to be held this September at Glasgow University. More details to follow.

 

 

Posted with Blogsy

Private Sector Fails Again

The recent failures and subsequent closure of the private Hamilton School in Aberdeen show the important role that public services play in protecting us all. While many who opt for private over public provision don’t think they use the public sector its clear that their taxes turn out to be great value when things go wrong.

Investigations by the Care Inspectorate, Police Scotland and Education Scotland uncovered serious risks to children at the school which led to its immediate closure. Not only have these public bodies stepped in and removed the children from a risky situation, the local authority has taken the costly step of opening a building and providing teachers for those children to ensure that there is as little disruption to their education as possible.

The report from Education Scotland is breathtaking and concludes that:

“Due to the extreme and serious management failings, along with the endemic, negative ethos within the school, HM Inspectors are not confident that children at the Hamilton School and Nursery are safe. In addition, the wellbeing and welfare of staff is of major concern.
As a result of the on-going and negative impact of ineffective leadership and in the absence of open, fair and accountable arrangements for governance, The Hamilton School and Nursery does not have the capacity to make the wide-ranging and urgent improvements necessary to meet the needs of children and keep them safe and well-looked after.
HM Inspectors recommend that the Registrar for Independent Schools takes immediate and serious action with regard to The Hamilton School including reviewing its registration as an Independent School.”

The myth of the efficiency and effectiveness of private delivery is well and truly quashed.

Where the private sector fails to deliver essential services the public sector has to step in. This is why everyone must pay a fair share of taxes. You never know when you may need to call on public services, even when you explicitly opt out and choose a private provider, you may like the parents of Hamilton school, be very glad that the public sector came to your rescue.

Bumper Book of Government Waste

The tax cutting campaign group the Tax Payers Alliance have produced yet another one of their attacks on public spending. In their imaginatively title Big Book of Government Waste, they stick to their effective tactic of finding spending they don’t like at calling it waste. This year they have managed to reach a total of £120billion.


It’s a great laugh, mocking arts projects, awards ceremonies and councillor's lunches meanwhile, the Big Bumper Book of Private Sector Waste is still unpublished: The costs of failed privatisation, massive bonuses paid to chief execs for failure, billions wasted on PFI, private failures like Southern Cross and G4S and its Olympic security fiasco. As ever public sector workers terms and conditions are their first point of attack. Almost half of their waste total: £53billion comes from “overpaying on public sector pay and pensions”. This is not mistakenly overpaying. What they mean is that wages are too high in the public sector. So key to reducing “waste” in their eyes is reducing workers wages.


They claim that public sector workers are paid 8.2% more than private sector workers; this requires some deeper analysis though. The figures do not include bonuses or other perks which are far more prevalent in the private sector. Across the UK, particularly in England many of the lower skilled and paid jobs that were once in the public sector have been outsourced to the private sector. Outsourcing the lower paid jobs raises the average wage measure without anyone receiving any wage rise at all. This has also increased the number of low paid jobs in the private sector so decreasing the average wage point there.


Despite what the tax dodgers’ alliance claim the public sector is not where the fat cats are working. If you compare the pay of graduates, for example, in the public and private sectors then they earn less: 5.7% to be exact.


A trawl thorough their pages outlining figures from newspaper paper reports on council tea biscuit and train ticket bills can raise a smile but it’s not a serious analysis of public spending. It’s a shame that so many media outlets treat them as if they are producing high quality independent research. They are a right-wing body dedicated, not to value for money for tax payers, but to reducing the size of the public sector. They are currently campaigning to get rid of National Insurance, which no doubt suits their wealthy backers but may be a bit more tricky for the rest of us. “Behind the Mask” published by the Northern Ireland Public Service Alliance shows exactly who they are. Backers include: Tony Gallacher owner of Gallacher UK who has given £3million to the Conservatives since 2001; Christopher Kelly owner of Keltruck : Sir Anthony Bamford, of JCB who has also donated £1million to the Conservatives. and Stuart Wheeler who having previously donated £5million to the Conservatives has now endorsed UKIP. Remember who they are what they are trying to do the next time you here them on the radio.