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FINANCE - FOR THE PRIVATE GOOD

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Privatisation is not the only answer, says Stephen Hughes. ...
Privatisation is not the only answer, says Stephen Hughes.
The government wants a step change in the quality of public services - hence best value, local public service agreements, the inspection explosion, the comprehensive spending review and many other initiatives.
But, so far, delivery has lagged behind expectation, and politicians are showing their collective frustration.
Martin Taylor's Institute for Public Policy Research proposals re-open the debate about the private sector contribution to improving services.
There are three reasons why public sector bodies turn to the private sector - reducing costs, increasing investment and/or improving management.
CCT and the competition test in best value aimed to reduce costs, while the private finance initiative was designed to increase private investment. Neither policy has been spectacularly successful. For example, the average cost of outsourced council tax services in London is£23.72 per home compared with£19.68 for in-house services. As well as the higher cost of outsourced services, they only achieved 90.1% collection, while the in-house services reached 92.8%.
Privatisation of management is not a policy tried explicitly before; it was always assumed to be a by-product of private sector involvement. There is no doubt there is a need for better service management, but I am unconvinced public is inherently bad and private good.
Public services were stripped of their middle management during the 1980s and 1990s and as a result lost the capacity to respond rapidly to initiatives.
Management capacity has been further diverted by new statutory requirements to produce strategies and respond to wall-to-wall inspection.
Resources are increasingly targeted for new initiatives rather than being available to support core services.
The private sector has good management where there is a mature market condemning bad management to bankruptcy. Bad managers can still make a sizeable profit where there are few competitors and a sellers market, which is where the public sector management market will be if this policy forces unconditional externalisation.
There are significant obstacles to successful public\private arrangements.
Competition occurs only at the point contracts are awarded. After that, public bodies are faced with a monopoly supplier where services have to change to meet changing circumstances. Partnership comes secondary to contractual terms.
There is a growing role for the private sector to help deliver public services, but one size does not fit all. The public sector has got to invest in management capacity, but that means resources not privatisation.
-Stephen Hughes, director of finance, Brent LBC.
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