Austerity Drive Will Hand Billions to Private Sector

A government efficiency drive aimed at slashing spending in town
halls and boosting productivity in the health service is likely to
deliver billions of pounds of new business for private companies, the
Guardian has learned.

Outsourcing firms are preparing for a
bonanza of local authority contracts to provide everything from bin men
to back office bureaucrats and have reported a doubling in the number of
deals on offer this year. Private health companies are also expecting
to earn billions of pounds from the planned overhaul of the NHS in which GPs would take over responsibility for spending PS70bn.

Executives at Capita,
the UK's largest outsourcing firm, said the number of opportunities for
local authority contracts has already doubled this year and they see
the healthcare market as "vast and potentially lucrative".

Richard
Marchant, head of local government strategic partnerships at Capita, an
FTSE-100 company which already works for councils in Harrow, Swindon,
Southampton and Sheffield, said: "A major problem for the public sector
is, we feel, a significant opportunity for us. Opportunities are at
their highest level in two to three years. This year we have probably
seen a 100% increase in opportunities [compared with 2009] and I suspect
we will see another 50% increase in the following year."

Such an
increase could deliver a PS60m boost to Capita's revenues while councils
are anticipating a 30% budget cut over the next four years. Other firms
vying for town hall contracts include Serco and Mouchel.

The
private sector boom comes amid the toughest financial climate for public
services in a generation, and despite continued assurances from
ministers that reforms to public services are aimed at achieving greater
value for money and improving efficiency. Councils are braced for the
biggest cuts to their budgets since 1945 and the growth in the market
for privatized services has provoked anger that private shareholders,
rather than taxpayers, are likely to benefit from efficiency savings
that come from cuts.

Andy Burnham, the shadow health secretary, said: "Some private
operators are going to have a field day, making a fortune from a system
which will offer less public accountability." The appetite for
outsourcing is so great that private firms are even vying to help set
the curriculum and educational ethos of academy schools.

"If you
can provide a better service at a lower cost surely the taxpayer should
get the benefit, not a shareholder," said John Seddon, director of
Vanguard Consulting, who argues against conventional outsourcing. "The
truth is many outsourcing contracts ensure costs remain high."

Tonight
the communities department conceded that badly drafted outsourcing
contracts could "end up costing the taxpayer more" but insisted they
could "help councils save money which can be reinvested in improving
other services or helping keep council tax down".

"The private
sector likes the clarity it has seen from the new government," said
James Hulme, spokesman for the New Local Government Network.

"It
will see the present climate as a greater opportunity than over the last
couple of years even though the budgets are shrinking. The low-hanging
fruit have already been picked in terms of rubbish collection and street
cleaning.

"The services that are now likely to be privatized are
those such as probation and care homes, and the public will feel a
different emotional attachment to them."

The potential volume of
work is so great that firms from India and Germany have entered the
market, which could ultimately mean some town hall functions being
carried out abroad.

"We are expecting more deals to come," said
Rainer Majcen, managing director of Arvato, a privately owned German
outsourcing firm that already has contracts with East Riding of
Yorkshire and Sefton councils.

The US health giants Humana,
UnitedHealth, Aetna and MCCI are all understood to be interested in
healthcare contracts that could flow from a new commissioning system in
which GPs may be given the power to buy in services from any health
group or hospital that is properly accredited.

Minnesota-based
UnitedHealth has already become a key adviser to primary care trusts and
is running two GP practices in Derbyshire and three in London.

"There
could be a bonanza for private companies if these changes go according
to plan," said Jonathan Jackson at the stockbroker Killik & Co.

Privatisation of healthcare is being opposed by the unions.

"Private
health already has a small role in the NHS [providing 4% of services],
but we don't want it to grow," said Karen Jennings a spokeswoman for
Unison, the public services union.

"The danger is that private
companies will become so powerful that they will be able to determine
what services are provided and how much they charge."