What does the financial crash mean for the growing use of the private sector in the delivery of public services? One might assume after recent events that the public sector is looking rather more solid and reliable, and the market rather riskier and more volatile. Indeed, that seems to be the implication behind Peter Mandelson’s apparent conversion to the view that the post office network should be treasured rather than closed down.
Yet the Sunday Times is tipping shares in Serco, the public sector outsourcing group that, among other things, drives prisoners to court. Its half-year results saw a 21 per cent rise in profits, driven by a new £266m contract with Glasgow city council. The markets seem to think that Serco—which operates the Docklands Light Railway in London—is “infrastructure” of the sort that may gain from Alistair Darling’s rediscovery of the Keynesian virtues. Also, with public spending under pressure after the banking bailout, there’s a view that councils and Whitehall departments may have to seek savings by putting more services out to tender. Bad times for Britain, it seems, could be good for Serco, Capita, Tata, Liberata and all the other outsourcers.
But the share tipsters may have got this wrong. A big rethink is underway at the public-private nexus, less because of a change of attitude in government than because of a less attractive risk:reward ratio for the outsourcers themselves. The plan of James Purnell, the work and pensions secretary, to contract out welfare-to-work services now looks in jeopardy. In America and Australia, the innovative answer has been big contracts for private companies but payment only for success: that is, when ex-claimants are placed in jobs for six months or more. In a tight labour market, profits from such schemes are assured. Now, however, the market’s appetite for risk is much diminished and the latest negotiations show bidders demanding more: more than it costs the government’s Jobcentre Plus to get people into work.
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