Michael Meacher MP

Mrs. Thatcher csrried through a huge programme of privatisation of industries, Blair attempted the same (though with only limited success) in respect of services, and now the Tories are hell-bent on achieving what Blair failed to do, but using a different route – the austerity drive.   By shrinking the State on the ostensible pretext that the budget deficit makes this ‘unavoidable’, the Tories have the perfect excuse to complete the ideological anti-State revolution to reverse once-and-for-all the post-1945 hegemony of social democracy.   They are certainly approaching the task with relish on tghe evidence of just 2 months of coalition government. (more…)

After Clegg’s absurd hyperbolic puff about his (welcome) civil liberties reforms being the most radical programme since the Great Reform Act of 1832, the Cons-LibDems are now facing reality on several fronts – three in particular.

First, the Eurozone nightmare is ominously beginning to lap round the shores of the UK.   Having defenestrated Greece, the bond markets are now prowling round their next potential victims – Spain, Portugal, Ireland, UK.   Within a year or two the UK could well have the largest public deficit as a proportion of GDP in the EU.   The bond markets are assessing, not the rhetoric of ‘savage cuts’, but what the coalition actually delivers – where exactly they draw the line between cutting the short-term cost of debt to restore market confidence whilst not putting economic recovery at risk.   They will be looking at UK growth prospects where Government forecasts of 3.5% are widely seen as uproariously optimistic.   They will be judging whether the Eurozone can survive without either greater fiscal harmonisation or much closer moves to political union to safeguard the currency, and how an alternative new Stability and Growth Pact might impact on UK economic prospects. (more…)

TIME TO RE-ASSERT A ROLE FOR THE PUBLIC SECTOR?
Now that the financial markets have imploded and the New Labour/Tory mantra ‘public sector bad, private sector good’ has been well and truly flattened, attitudes have predictably polarised. The nationalisers think they’re back in fashion, and that full-scale nationalisation is the answer (to whatever the question is), as though public ownership by itself alone offered a solution to everything. The private marketers think once the current glitch is over, it’s back to business as usual.
Both these extreme responses are absurd. But the current breakdown does prompt a serious re-think of what new model is now needed – not an ideological ultimatum, but a hard-headed look at where the balance between the public and private sectors should now be drawn so as best to redress the problems that have been exposed.
The problems in banking have been revealed to be a flocking into worthless financial derivatives because they were thought to offer super-profits, a readiness for speculative trading rather than their core function of lending to businesses and individuals, a growing shift to offshore operations to reduce transparency and tax, and a resort to massive bonuses which promoted recklessness rather than innovation and dynamism in banks’ proper functions. They also extensively promoted mortgage lending to a huge number of low-income households who could obviously never afford it – the UK’s very own sub-prime market scandal. There is clearly a very strong case for at least one publicly owned bank as an exemplar to transform the whole ethos of banking practices which have now become seriously corrupted, quite likely beyond the reach even of tighter regulation.
Moreover, when the Government (or at least Mandelson) is thinking of part-privatisation of the Post Office, there is also a strong case for pursuing the opposite course of re-establishing a new Girobank and bolstering the Post Office Card Account within the Royal Mail. The former would provide universal access to banking which the private sector never will. Britain has only 180 bank branches per million inhabitants, against triple that number in France, Germany and Italy and five times that number in Spain. The latter also deals with another private sector failing – financial exclusion for over half the population – when POCA provides a basic bank account for 5 million people while the private banks offer less than 2 million.
The fashion for outsourcing transport contracts to the private sector also needs to be reviewed. Several rail accidents (including the Clapham train disaster) have been traced back to faulty work passed down the line to over-stressed contractors forced to work too long hours or to loss of managerial control through myriad sub-contracting. Notorious losses of highly sensitive IT data (including 2 CDs containing a mass of personalised data about half the entire population) as well as large passport batches have been due to private couriers. Bringing this work back under more secure public sector procedures could save substantial costs as well as political embarrassment.
In pharmaceuticals the need for a public sector comparator becomes clearer all the time. The recent dispute about whether someone who buys very expensive drugs privately should then have to pay for the rest of their NHS treatment misses the key point, as the chairman of NICE pointed out, that many drugs are far too costly. Regulation will never get close enough to the inner works of pharmaceutical companies to be an effective constraint on excess profiteering. One or two publicly owned drugs companies could make huge savings for the NHS.
In housing the Government’s prejudice against Council housing (even in Thatcher’s last year 13,000 Council houses were built, compared to only 100 a couple of years ago) has crucified hundreds of thousands on ballooning Council waiting lists which have now reached 1.7 million in addition to nearly 100,000 homeless. The private sector, whether through home ownership or renting, will never get anywhere near providing decent housing for the poorest quarter of the population. Why resist the obvious solution of good-quality publicly provided social housing, not least when this offers the best counter-cyclical measure in an economic downturn?
Ideological fixation in favour of throwing private markets at every problem must now give way to more common-sense solutions.

WHO WANTS PRIVATISATION IF THIS IS WHERE IT LEADS?
The Government announcement that there are now 3 ½ million households in fuel poverty, and rising, means that the demand for a windfall tax on egregious oil and gas profiteering – with likely Shall profits this year of £16bn, BP £13bn and Centrica (which owns British Gas) £1bn after raising gas prices by 35% – will not go away. But the whole wretched saga of Government appeasement of the oil lobby raises an even starker issue.
First the Government backed off a windfall tax when the companies kicked up. Then the Government backed off the leaked promise of £150 to protect all families on child benefit from rising energy bills. Now the energy companies are even threatening an investment strike if they’re forced to make a contribution to cutting fuel poverty or improving energy efficiency. So what exactly was the privatisation of energy for – to enable the companies to hold the nation to ransom and exploit the market with impunity while the Government stands by helpless? Was it not supposed to benefit the consumer?
The Government has three options. One is a windfall tax (carried in the vote at the Manchester conference) which has in fact been used in the past by Tory Governments as well as Labour to drain off very large unearned profits. A second option is to impose a levy on excess oil and gas profits while the energy price spike remains high in order to establish a legacy fund (before the oil runs out in 40 or so years’ time) to invest in a sustainable energy infrastructure to succeed fossil fuels. The third option is for the Government to charge for permits under the EU emissions trading scheme. Ofgem recently warned that UK generators could make £9bn windfall profits from being allowed such permits free while at the same time being able to pass on nearly the full cost of carbon to their customers.
None of these options however is a starter because New Labour puts more store by Big Business and the City of London than by 3 ½ million families now being squeezed into fuel poverty, a number growing by a further 0.4 million with every 10% increase in energy prices. The moral in all this is that once Government surrenders to the market in a privatised economy, the sharing of the spoils is drastically unequal and social justice evaporates. The case for looking again to a public sector role in the energy sector could hardly be clearer.
Nor is this the only area where privatisation has delivered perverse results. The modernisation of the London tube infrastructure, which Gordon Brown as Chancellor insisted should be funded via privatisation rather than through the issue of bonds within a publicly owned enterprise, led to bankruptcy and the taxpayer having to pick up a £2bn bill. It also led to the five big contractors who held all the equity in the privatised company carving up all the contracts between themselves without any competitive tender, and then after making thumping losses walking away with impunity.
The building societies were de-mutualised and turned into private sector banks to increase their profits by taking greater risks within the market, which led directly to Northern Rock and now Bradford and Bingley. Hospital cleaning services were contracted out to private firms to cut costs, but then poorer standards almost certainly contributed to the MRSA and c.difficile epidemics. Transport functions within the public service have been outsourced to private firms, again supposedly to save costs, but then private contractors lost personal details of 25 million child benefit claimants, personal records of recruits to the armed forces, records of 3 million learner drivers, and 200,000 NHS records lost by 9 privatised Trusts.
Other privatisations have not exactly turned out a success. BAA, after the terminal 5 debacle, the third runway scam and frequent chaos at Heathrow through giving preference to profitable shopping malls over speedier security clearance for passengers, is now having to be broken up. Railtrack collapsed into notorious administration, and service standards under privatisation have never regained those of British Rail. In education, the outsourcing of test results for 11-14 year olds to the American private company ETS produced a comprehensive catalogue of errors. In health, the private sector treatment centres set up to reduce waiting lists ended up being paid in full even if no operations were performed.
It is widely believed that the private sector is more efficient than the public, and that markets and the profit motive will secure the best value for money. The facts suggest otherwise. The OFT report in April found that 112 building firms had rigged bids for multi-hundred million public contracts, inflating estimates and submitting false bids at unrealistic prices to give a pretence of choice. Balfour Beatty, for example, recently increased its bill for constructing the 2012 aquatic centre to £ ¼ bn, triple the estimate in London’s Olympic bid.
The record of privatisation and all its consequences, which Thatcher initiated and New Labour continued, needs to be officially reviewed, by Parliament if the Government declines. It isn’t just the current ignominy of a Government helpless in curbing the excessive profiteering of the oil and gas companies to reduce fuel poverty; it’s the whole record of incompetence, inefficiency and occasional corruption which has grossly short-changed the taxpayer and continues to do so.
This article first appeared in Tribune on 10 October 2008.

The Metronet fiasco raises several very important issues. First, who is going to cough up for this enormous financial black hole? Metronet, which ran three-quarters of the PPP London Underground refurbishment programme, had grossly incompetent management which racked up a projected overspend of £2bn by 2010 plus £2bn in debts. Now they’re bankrupt, who pays? As it stands, it will be Ken Livingstone and Transport for London, in other words the taxpayer. That is utterly unacceptable. It should be Metronet’s banks and shareholders exclusively who carry the loss – lock, stock and barrel.
Second, why didn’t the original contracts spell this out? Some £500m was spent drawing up the contracts, yet they failed to spell out the one single most important point: who pays if one of the contractors goes bust? The contracts were largely the work of consultants on whom the Government spends some £2bn a year, according to the 2005-6 figures just unearthed by the PAC Select Committee. It is a scandal that sums of this order are wasted each year on consultants whose overall net value to the Government and taxpayers, as the Metronet disaster amply demonstrates, is a huge negative.
Third, this is massive warning shot across the bows to Gordon Brown. It was he and the Treasury who went out of their way to ram this PPP through in the face of bitter resistance, even to the point of a High Court action, from the London Mayor. The Treasury paid £860m a year of taxpayers’ money to install new tracks, bring in better trains, refit run-down stations, and replace old signalling systems. So who now should carry the can?
Fourth, this should be the writing on the wall for PPPs as a whole. Of course, the argument is that the fault lies with the lax and incompetent Metronet management, not with the PPP system itself. But the whole point is that PPPs are always inherently at risk of collapse like this – the claimed transfer of risk to the private sector is a charade, and in the end the public sector always has to stump up. So after a catastrophe like this, why do we continue with the flawed PPP/PFI system at all?
And fifthly, this sorry saga raises in stark relief yet again the whole antiquated system of company limited liability. A crassly incapable management can bring a huge company to its knees and then walk away with impunity. This exemption arose under the format of the nineteenth century joint stock companies as a way of increasing the power of companies and their managers over their investors. But doesn’t the Metronet debacle manifestly make clear that this system of immunity should be drastically revised? A radical overhaul of company law should now be the consequence of this monumental Metronet failure.

From The Times Online
A scheme that was supposed to save money is stacking up debt for generations
IT IS now 12 years since John Major announced the Private Finance Initiative — time enough, one might have thought, for it to deliver the promised better value for taxpayers’ money, improve efficiency and a transfer of risk to the private sector.
But it hasn’t worked out that way. Indeed, in many ways the entire enterprise may turn out to have been misguided.
Despite what some in the City see as a sharp deterioration in public finances, Gordon Brown, in his Pre-Budget Report this month, made no reference to the impact this could have on the PFI. Yet there will be an impact. Look, for example, at Jarvis, which controls about a tenth of the £36 billion PFI debt across the public sector, including work on 120 schools. It has just been forced to sell large parts of its business to repay some of its £230 million debt. If Jarvis goes bust, who picks up the pieces?
PFI spending has been rising rapidly under Labour. In 1995 it was £670 million but by last year it had hit £7.7 billion. By 2010, it is expected to reach £11 billion. But this understates future commitments. The Government is already pledged to make revenue payments to PFI contractors by 2028 of more than £110 billion, a colossal sum equivalent to about a tenth of current GDP.
In some areas the PFI has produced significant savings — on road and prisons projects, for example. But National Audit Office (NAO) reports show a different picture for schools and hospitals. These conclusions, however, need to be heavily qualified.
First, Government tells public service managers that they will get funding only if it is provided by the private sector (“It’s PFI or bust,” as one minister delicately put it), and only if that provides better value for money than public funding. To help in reaching that conclusion — and in effect rigging the result — the accountancy device of “risk costing” has been introduced. This means that, while under conventional accounting it would be far cheaper to build a new hospital with public funding, the extra cost of the “transfer of risk” to the private sector suddenly tilts the balance towards private finance.
Secondly, this “transfer of risk” to the private sector is anyway a mirage. If a major PFI contractor went bankrupt, the Government would have little alternative but to bail it out. That has already been demonstrated in the case of Railtrack, the Channel Tunnel consortium, the Criminal Records Bureau, air traffic control, and the Benefits Agency. When the Passport Agency PFI went badly wrong, the agency had to spend an extra £13 million to protect both the service to the public and PFI shareholders’ profits.
Thirdly, cost overruns in some schemes have led to hidden cutbacks elsewhere. A survey by the British Medical Journal of 13 NHS trusts has found that the average reduction in bed availability in England under PFI schemes has been 26 per cent. It has also recently come to light that secret clauses written into PFI contracts with the NHS stipulate that substantial penalties must be paid if the number of patients treated exceeds a set figure (for example, 90 per cent bed occupancy), even if they are emergency cases — an extraordinary barrier to the Government’s objective to reduce waiting lists.
Fourthly, PFI contracts offer a legal guarantee of profits to private consortia at public expense over 30 years or more. The pressures that this will exert on the public accounts are incalculable. Fifthly, arguably the biggest drawback of PFI is that by locking the NHS into long-term contracts it reduces flexibility, a quality required to respond to changing healthcare needs. A wider concern, echoed by the NAO, is that the PFI programme will perpetuate the present NHS emphasis on high-cost hospital-centred healthcare. This is in contrast to the Government’s wish to shift care into community clinics and doctors’ surgeries.
For all these reasons the case for PFI is not made.
Very large uncertainties remain, both because the private contractor is often a shell company that transfers risks to sub-contractors, making it difficult to see where and how risk is borne, and because risk transfer is limited by a variety of financial mechanisms that obscure its value.
According to the Institute for Public Policy Research (IPPR), only 6 per cent of PFI projects have been subjected to an independent examination by official audit bodies. The Public Accounts Committee complained last year that it had tried to understand “the relationship between the returns which contractors earn from PFI contracts and the risks they actually bear. At present the available information is limited and rather mixed.” When £110 billion is at stake over the next 25 years, such ambivalence is unacceptable. Any further PFI contracts should now be halted until these fundamental questions are answered.
So why does the Government still persist in support of PFI? The usual answer is that it allows spending departments to escape Treasury financial controls. Even this does not stack up. Public sector net debt has fallen so far as a percentage of GDP since 1997 (from 42 per cent to 31 per cent) that all the PFI projects signed up could easily have been funded by public expenditure, at much cheaper borrowing costs, without raising public sector net debt above 40 per cent of GDP, and thereby not breaking Gordon Brown’s sustainable investment rule.
If this is not an exercise in down-sized semi-privatisation to dismantle the NHS, as many critics claim, a much more convincing rationale for PFI will have to be found. In the absence of that it should be abandoned before too great a millstone is hung around the neck of future generations.