Cameron races to ‘weightless state’

In giving up authority over our public services, the prime minister is handing them to firms that could become beyond anyone’s control.

The most terrible power the state can wield is to take children away from their parents for ever. The idea that companies such as Serco and G4S, already under investigation by the Serious Fraud Office, should be invited to make a profit from these agonizingly sensitive judgments horrifies the leading experts who wrote to the Guardian last week.

In writing commercial contracts there can only be perverse financial incentives either to take more or fewer children into care.

Last week I reported on a private equity company promising an 18% return on investment in children’s care homes, the sales representative relishing how the “naughtier children pay more.” Everything can be monetized, even acute distress. But this one is the ultimate test: if Michael Gove can privatize child protection then anything and everything goes.

This government’s privatization revolution is accelerating at breakneck speed. In just the first three months of this year, the value of public-sector outsourcing has shot up by 168%, as monitored by the specialist Arvato’s outsourcing index. A quarter of these contracts went to offshore companies – state funds flying abroad, of no benefit to UK employment or tax revenues. From prisons to the NHS, from the work programme for the unemployed to running military bases, from training RAF pilots to Serco’s management of Yarl’s Wood immigration removal center, “the outsourcing industry is in good health,” reports Arvato.

From 1 June the probation service will be abolished and parcelled into 21 community rehabilitation companies to be sold off to private businesses, partnered by fig-leaf voluntary groups. But today the parliamentary public accounts committee flashes a red-light warning. Margaret Hodge, the committee’s chair, warns that “the scale, complexity and pace of the changes are very challenging” following the “Ministry of Justice’s extremely poor track record in contracting out.”

Backed by the full weight of a government majority on her committee, her excoriation of the plan is formidable. “High-profile failures” of MoJ electronic tagging and court interpreter contracts “give rise to particular concern,” Hodge says, noting that there are no contingency plans for failure. The committee says that “this complex, untested” system of payment by results and fee for service needs more transparency to stop “contractors gaming the system, as has happened in the past.”

The committee expresses profound skepticism that privatization will yield such savings that within its existing £835m budget, companies will be able to treat an additional 50,000 offenders released from short sentences.

The month when a man nicknamed Skullcracker and two other murderers went on the run from prison is a moment to consider that probation is a serious matter. Utility firms cheating their customers is a disgrace, but if commercial probation services cut corners for profit by monitoring offenders less intensively, that would be a public danger.

Only ideology drives this privatization, as the committee points out that all 35 existing probation services to be abolished are rated “good” or “exceptional.” If serious crimes committed by offenders while on probation start to rise, this will be embarrassingly newsworthy.

Just consider the multiple privatization failures so far: Iain Duncan Smith’s outsourced Work Programme firms miss their targets by miles, while A4e’s contract for mandatory work activity was terminated as “too great a risk.” Yet A4e is passed as fit to take on a probation contract – despite having zero experience in the field.

Another Work Programme contract crashed last week when Bright International was disqualified for “malpractice.” The company, retraining the unemployed for £1.3m, boasted a 100% pass rate but is accused of handing out qualifications to those who failed or never completed courses.

But bad contracts for complex services are endemic, and not a Tory preserve. Plenty of privatizations failed under Labour – the worst being Gordon Brown’s London Underground debacle. Labour had to abolish individual learning accounts in a hurry when massive scams were found in training companies. Labour’s intermediate treatment centres, outsourcing NHS surgery to private companies, did cut waiting lists, but at hugely inflated cost.

The public account committee’s report has a weary, seen-it-all-before tone about many previous privatization failings. Contracts, they say, “have been too large and too complex.” Experts in contract writing are being rushed in by the MoJ to negotiate the private probation contracts, shoring up a depleted civil service that is usually outsmarted by the private sector.

The committee warns that “Large companies such as Serco and G4S hold major contracts, creating the problem of over-dependency,” so a few contractors risk becoming “too big to fail.” The temporary ban on Serco and G4S lasted a very short time, though both are still under investigation. Avarto notes that despite the committee calling for diversity, the dominant position of the “big four” – Serco, G4S, Capita and Atos – is under no threat. David Cameron says he will “release the grip of state control,” but he is replacing the state with a few firms that could become beyond anyone’s control.

The government is deaf to warnings, as Cameron, Oliver Letwin and Francis Maude’s propel their plan for “the weightless state” at breathtaking speed. The sweeping scale of this ambition is barely remarked on in the reporting of politics. For now it passes unnoticed by most citizens, few seeing how fast firms like Virgin Care are devouring new contracts, as they cannily keep the NHS branding.

The pace of this outsourcing revolution is set by the fear of being a one-term administration. As Margaret Thatcher sold off the nationalized industries, so her political heirs are intent on leaving an even more radical legacy – selling off the state itself.