External Private Contractors: Government Use and Employment

I beg to move,

That this House has considered Government use of external private contractors and effect on employment.

It is a pleasure to serve under your chairmanship, Mr Pritchard. The question before the House is the use of external private contractors and its effect on employment. I am grateful to hon. Members for participating in this important debate. The recent pandemic has shone a spotlight on public sector procurement and the awarding of contracts. Although it is incumbent on the Government to ensure value for money for the taxpayer and quality of service delivery, they also have a duty, whether they like it or not, to those workers tasked with delivering services on which both Government and public rely. I believe that, on all fronts, the Government are failing in their responsibilities in that regard and so are failing taxpayers and workers alike.

Recent examples include the likes of Serco, which has received beyond hefty sums of taxpayer cash to run a failed test and trace system. The revolving door of Government, ex-Ministers and outsourcing companies is pernicious in every sense and does little to instil public confidence in a method of service delivery that is fundamentally flawed. I hope that other Members will speak more on this Government failure as the debate progresses. They will no doubt highlight other examples of failed contracts worth hundreds of millions of pounds.

I have chosen to concentrate on the example of civil service facilities management work in this speech, but if we substituted for the civil service nearly every NHS trust, many councils and other public sector bodies, my observations would unfortunately still be valid. The experience of the civil service is generally the same as that across the public sector, but I particularly wanted to concentrate on the civil service, as I am hoping that Ministers will now start to consider the outsourcing model itself.

It goes without saying that if workers win improvements through union action, that immediately has an impact on the outsource company’s bottom line. Those companies, especially where there is no trade union recognition, then tend to try to recoup lost revenue by cutting staff or their working hours. There are natural limits to productivity gains made through cutting staff. Inherently, the model is unstable and leads to companies running into financial difficulties.

Let us look at the Mitie-Interserve merger. My argument is well illustrated by the announcement in June that Mitie and Interserve’s facilities management arm are to merge at the end of the year, subject to shareholders approving a £271 million share purchase. In reality, Mitie is taking over Interserve. Both companies hold a number of civil service and public sector contracts, worth more than £2 billion of public money. Mitie’s biggest contract is for the provision of in-country and overseas escorting for the Home Office. That contract is worth £514 million. Interserve’s biggest contract is the Department for Work and Pensions estate and facilities management contract, worth £225 million.

Interserve has clearly been in financial difficulty for some time. Last year, it went into pre-pack administration. At that time, the Labour party called for a temporary ban on Interserve bidding for public contracts, but that call was not heeded. We know that Interserve was awarded a five-year facilities management contract worth £670 million by the Foreign and Commonwealth Office in early August 2018. Shortly after that contract was awarded, Interserve moved to cut staff, and Public and Commercial Services Union members went into a long-running dispute over job cuts, pay, sick pay entitlement and trade union recognition. The company issued profit warnings in March 2015, then two more in 2016, and another as recently as 2018.

Mitie has been involved in multiple disputes with its employees: we can cite the Royal Opera House, the Houses of Parliament, First Great Western, London Underground, and various NHS hospitals. It was subject to an investigation into its MiHomecare business by Her Majesty’s Revenue and Customs for paying its employees less than the minimum wage. Industrial relations in Mitie are so bad that in March 2019, Unite the union said that it should be barred from acquiring contracts due to its woeful treatment of its workforce. That Unite warning is interesting, as even a few months ago it was clear that Mitie and Interserve were considering a deal.

This is where the similarities with Carillion might be interesting to consider, so what can we learn from the lessons of Carillion? The report of the joint inquiry by the Select Committees on Business, Energy and Industrial Strategy and on Work and Pensions recommended

“that the Government immediately reviews the role and responsibilities of its Crown Representatives in the light of the Carillion case. This review should consider whether devoting more resources to liaison with strategic suppliers would offer better value for the taxpayer.”

I do not know whether that recommendation was acted on in relation to facilities management contracts in the civil service, but it does not appear to have been exercised in this instance to scrutinise Mitie and Interserve.

Moving on to the issue of inequality in pay and employment terms, each civil service department has to comply with the public sector equality duty. The civil service does not have to award contracts where only the minimum wage is paid, statutory sick pay is given, and trade union recognition is not a right. It could choose to make the payment of the real living wage, full sick pay from day one, and trade union recognition a condition of the contract, as many local authorities have begun to do.

Research carried out by the PCS union shows that only two of the 23 ministerial Government Departments pay the real living wage to their facilities management outsourced workers, and no Department includes a policy of paying more than the statutory sick pay as a requirement of awarding a contract. Departments know that in their major urban areas, cleaners, security guards and so on are predominantly of black, Asian and minority ethnic origin, and nearly all cleaners are women regardless of where they work. From the observations of the PCS union, as relayed to me, senior managers and certainly Ministers believe that outsourcing work means they have no responsibility to those facilities management workers, whether in terms of pay, terms and conditions of employment, equality of treatment, or health and safety.

If we look at that indifference to health and safety obligations, we find that even though health and safety laws put clear obligations on civil service departments and facilities management companies working in the same buildings to co-operate and co-ordinate their health and safety at work—that is, regulation 11 of the Management of Health and Safety at Work Regulations 1999—in reality we have had immense difficulty in getting the civil service to comply with the law. That indifference leads to what we see as a grotesque admission by the Cabinet Office, which we take as a proxy for the civil service, that it does not know how many facilities management workers have died due to covid, let alone their ethnicity. We know that at least six facilities management outsourced staff have died owing to the virus, all of them of BAME origin.

Turning to the issue of sick pay, in a recent survey—again conducted by PCS—86% of outsourced facilities management workers who responded said that they had often continued to work when they had been unwell because they could not afford to take time off sick.

I thank my Unison comrade for giving way. To support that particular proposition, there is a Unison briefing that shows that in schools in England, many of the private companies are only paying statutory sick pay. Does the hon. Lady agree that this puts people in the position of having to choose between statutory sick pay and going into work, which is more likely to spread the virus?

Sadly, I concur with the hon. Gentleman’s observations. Covid-19 has brought into sharp focus the inequality between the sick pay provisions of civil servants and those of outsourced workers employed on civil service contracts.

Through PCS talks during covid-19, most civil service departments adopted a policy of paying their outsourced staff full pay for covid-19-related absences until the end of June 2020. From July 2020, Cabinet Office guidance was updated to allow the arrangement to continue where appropriate. As part of PCS’s campaign to defend and extend the right to full sick pay, it wrote to the Prime Minister in June, setting out the case for all outsourced Government workers to be paid full sick pay from day one. Disappointingly, there has been no response.

Does outsourcing facilities management services achieve social value? The simple answer is no. Section 1(3) of the Public Services (Social Value) Act 2012 requires a public sector authority to consider how a procurement

“might improve the economic, social and environmental well-being of the relevant area”.

When awarding central Government contracts, the Cabinet Office is obliged to consider the wider social benefits of procurement to ensure that cost does not override other Government considerations.

I want to take the opportunity to thank you, Mr Pritchard, for overseeing today’s debate. Let us move forward by initiating an open, frank and honest debate, with which I hope the Government will actively engage in the coming period. Value for money is not always delivered by the current procurement and outsourcing arrangements. For a Government who claim to pride themselves on hating waste, the reality is that nothing could be further from the truth.

The Government should be ambitious and see what services can now be brought back in-house. Fundamentally, the truth remains that when workers are paid properly and valued, productivity is better. After a long, difficult year for so many workers, the Government have often waxed lyrical. It is high time that politicians clearly show whose back they have—the cleaners, the contact tracers, the security staff and all manner of low-paid staff, or the directors of outsourcing companies.

I am going to set an informal time limit of three minutes, but if colleagues could be a bit quicker we might have some time for a two-minute reply later. Obviously, there are five minutes for the Scottish National party spokesman and the shadow Minister, and 10 minutes for the Minister. Thank you for your co-operation.

It is a pleasure to serve under your chairmanship, Mr Pritchard. I am delighted that my first contribution in Westminster Hall is to a debate secured by my hon. Friend the Member for Liverpool, Wavertree (Paula Barker) on an issue that I care about deeply.

I declare an interest: for decades, I have been active in the Labour movement and it was my great privilege to have served for four years as regional secretary of Unite the union in the north-west. In that role, I represented thousands of outsourced workers right across the north-west, in sectors as diverse as manufacturing, care and catering. I saw at first hand how outsourcing has fostered a culture of low pay and insecure employment. Successive Governments have justified the race to the bottom on workers’ rights as a price worth paying for greater efficiency, flexibility and value for money for the taxpayer.

The Institute for Government reported last year, however, that a string of high-profile outsourcing failures had wasted millions of pounds, delivered poor services and undermined public trust. The collapse of Carillion in 2018 left the Royal Liverpool Hospital building years behind schedule, while the Government continued to award £660 million in public contracts to Interserve just months before it went into administration. In both cases, it was the taxpayer who was left footing the bill, and workers and service users suffered.

This devastating pandemic has truly laid bare the deep failings of outsourcing. This week, we learned that the Government’s outsourced Serco test and trace system has failed to track almost a quarter of a million people who have been in close contact with someone infected with covid-19. On the Wirral, just under 59% of people who have potentially been exposed to this terrible virus have been contacted in the last week. Instead of the world-beating system that the Prime Minister promised us, we have absolute chaos.

It is not just Serco test and trace that has made private companies an absolute fortune at a time when everyone else is making enormous sacrifices to win the war on this terrible disease. External providers have profited at every level of the Government’s response to covid-19. In fact, the British Medical Association has this month reported that the Government’s focus on external providers has left public facilities often underused and ignored. A vast range of companies have been paid to produce, store and distribute personal protective equipment, manage the logistics of drive-in testing and onboard returning healthcare workers into the NHS. That is despite the evidence showing that local public health teams are best placed to respond to this deadly virus.

I first wish to pay tribute to my hon. Friend the Member for Liverpool, Wavertree (Paula Barker). In the short time she has been here, she has made a great contribution to the House. She has also made a great contribution to our party and to the union movement, where she spent many years on exactly these sorts of issues.

In May, the Prime Minister promised us a world-beating track and trace system. What we have instead is a system in disarray. The NHS Test and Trace system is not run by our national health service. Frankly, it is offensive to link the NHS with the shambles that the Government and the private sector have created. Our track and trace system is provided by Serco, the outsourcing giant responsible for a plethora of well-documented scandals. There was the electronic tagging scandal for which it was fined £23 million by the Serious Fraud Office. There was the extensive cover-up of sexual abuse of vulnerable women at Yarl’s Wood, and there is the ongoing scandal of asylum seekers’ accommodation and the “squalid, unsafe, slum housing”—not my words, but those of the chief executive of the Refugee Council. And Serco won a further £2 billion of contracts from the Home Office last year.

Why do the Government choose to award contracts worth hundreds of millions to run track and trace during a deadly pandemic, in what is literally a life-or-death situation? Why have the Government ignored the recommendations of the Scientific Advisory Group for Emergencies and the BMA? Would it not make more sense for track and trace to be run by local public health experts? My Labour colleagues and I have been asking such questions since the contracts were awarded, but answers have not been forthcoming.

The problems that have since arisen have shown the Serco system for what it is: completely unfit for purpose. By the end of August, after a month of encouraging British people to eat out to help out, and around the time the Government launched their back to work campaign, track and trace was failing to contact more than 30% of those who had been in contact with someone who had tested positive. Only 40% of test results were being returned within 24 hours. Since then we have seen lockdown after lockdown. Both lives and livelihoods have been put at risk because of a Government so wedded to the private sector that they are unwilling to admit their mistakes and give oversight to local health protection teams who, by the way, have reached 97% of close contacts of those testing positive, in contrast to Serco’s 62%.

It is a pleasure to serve under your chairmanship, Mr Pritchard. I thank my hon. Friend the Member for Liverpool, Wavertree (Paula Barker)—my former employer, no less—for securing the debate. I draw Members’ attention to my membership of trade unions and donations from Unite, as set out in my entry in the Register of Members’ Financial Interests.

I also thank the PCS union, which represents more than 8,000 workers employed by private companies on Government contracts, for its ongoing work in this area, particularly its campaign to bring outsourced jobs back in-house, and for continuing to apply pressure on contractors and the Government to pay a real living wage—the one calculated by the Living Wage Foundation, not the one appropriated in a public relations stunt by former Chancellor George Osborne—while continuing to fight for workers to have access to the terms and conditions afforded to their civil service counterparts.

Last year I was proud to join more than 200 PCS members in my constituency of Stockport when they took industrial action over workloads, staffing levels and the oppressive working conditions that they were forced to endure while working on universal credit reforms. The level of outsourcing, cost to the taxpayer and general wastage of hiring private contractors in my region of Greater Manchester alone is truly eye-watering. It is a legacy that we have been forced to endure since the Thatcher era, and it has been a 30-year-long failed experiment.

Almost three years on from the collapse of Carillion, described at the time as the largest ever trading liquidation in the UK, lessons have failed to be learned and it is slowly coming to light just how entrenched outsourcing has become in this country. In my region alone, the Manchester Evening News was able to unearth Carillion’s involvement in 10 major public and private sector projects, including Network Rail electrification, the M6 smart motorway work, High Speed 2, Airport City and Owens Park. It was also heavily linked to Greater Manchester schools, roads and basic services, through contracts with Manchester, Tameside, Rochdale and my own local authority, Stockport Council. In my borough, a Carillion offshoot was contracted to handle estates, assets and facilities management at various sites.

It is a pleasure to serve under your chairmanship, Mr Pritchard. I congratulate the hon. Member for Liverpool, Wavertree (Paula Barker) on securing this important debate. Civil service numbers have gone down in key Departments—the Department for Work and Pensions, the Home Office, the Ministry of Housing, Communities and Local Government and the Department of Health and Social Care—by between 30% and 50%, most drastically in the last couple of years.

They are the services that are most needed by the public. Yet the outsourced market has an annual turnover of £82 billion. Research by Unison shows that £9 billion has been paid in total cost overruns on 105 outsourced IT contracts in central and local government, the NHS and other public bodies. No one can ignore the latest disastrous privatisation of the test, track and trace system, where some consultants are paid £7,000 a day. That is just under half of what civil servants on the lowest AO grade outside London earn in a year.

Despite its failure, Serco is set to generate between £160 million and £165 million in profits this year, thanks to its covid-19 contracts. Last year, the CEO, Rupert Soames, pocketed an estimated £4.5 million. It is not about the money, and nor is it about effectiveness. Serco’s test, track and trace contract is running at 67% effectiveness, compared with the 97% effectiveness of local public health teams. This is the same Serco that was fined £2.6 million for shortcomings in relation to a contract for asylum seekers’ accommodation in January 2020 and that paid £22.9 million to the Serious Fraud Office under its tagging contract, where it claimed for returned, released or even dead clients.

As long as someone is a friend of this Government, their ability to deliver is irrelevant. Now it appears that Serco may be awarded a contract to run interviews with vulnerable asylum seekers for the Home Office. The PCS union has serious concerns that the Home Office is cynically using the covid situation to bring in privatisation through the back door, and I agree with those concerns. Outsourcing is most certainly not about improving terms and conditions—look at the ISS cleaners, in dispute with Her Majesty’s Revenue and Customs for several months, including in my Liverpool constituency, over the failure of companies to pay a living wage or afford them the sick pay and holiday entitlement of their directly employed counterparts. Now the same company is bidding to take on HMRC’s security contract, which will lead to more job losses.

It is a pleasure to serve under your chairmanship, Mr Pritchard. I congratulate the hon. Member for Liverpool, Wavertree (Paula Barker) on securing this important debate.

Many elements of the UK’s public services that have been central to the response to covid-19 have been outsourced in recent years. The NHS supply chain, which is responsible for delivering personal protective equipment, was privatised in 2006. Since the disastrous Health and Social Care Act 2012, NHS outsourcing and privatisation has been incentivised. In the last five years alone, private companies were handed £15 billion of NHS contracts.

According to research by We Own It, the Government are wasting as much as £10 billion a year on running an internal market in the NHS. Every penny spent on NHS privatisation and outsourcing is a penny less spent on patient care. The amount we spend on the internal market would be enough to pay for 72,000 nurses and 20,000 doctors. It is the same pattern of privatisation and deregulation that has decimated many of our essential services since the 1980s, across the transport, energy, water, mail and healthcare sectors. The British public tend to pay more for these services than similar European nations, simply to enrich shareholders.

During the coronavirus pandemic, outsourcing has increased at an alarming rate. After suspending commissioning rules, Government Ministers have awarded exclusive coronavirus-related state contracts worth more than £10 billion to private companies. We only have to look at examples such as Randox. The Government have also spent £12 billion on a failed test and trace programme, which prioritises the enrichment of private corporations over the protection of our communities.

Outsourcing does not just result in dangerously worse outcomes. As many trade unions, inducing Unite, PCS, Unison and others, have made clear, the incentivisation of outsourcing has a devastating impact on workers’ rights. Across the board, outsourcing has reduced wages, increased workloads, provided minimal sick pay, and delivered worse conditions and, in many cases, worker exploitation.

Following the return of full school opening, Unison has begun a campaign to get all private companies that deliver services in schools to pay full sick pay. I support that important campaign, and I call on the Government to extend sick pay and full working conditions to all workers, no matter their terms and conditions.

I will end on this. The pandemic has demonstrated that an over-dependence on the private sector weakens our national ability to act in a time of crisis. For the sake of public health, the Government must reassess their ideological commitment to outsourcing and privatisation.

It is an honour to serve under your chairmanship, Mr Pritchard. I thank my hon. Friend the Member for Liverpool, Wavertree (Paula Barker) for securing this really important debate. As a member of the PCS trade union, I wish to speak about the use of private firms across the justice system. Millions of pounds have been wasted on outside agencies and contractors throughout the court reform programme under Tim Parker.

The ideological obsession with the private sector goes far beyond the courts. Last month, dozens of civilian enforcement officers employed by Her Majesty’s Courts and Tribunals Service were transferred to the private sector after years of failed attempts to outsource that sensitive work. One of the two contractors, Marston Holdings Ltd, immediately put its newly transferred workers at risk of redundancy, blaming the anticipated impact of covid-19 on its workload. The courts service expressed surprise and disappointment at the move, but made no attempt to protect its staff when warned about it before the transfer. PCS insists that HMCTS is the only Government agency to transfer staff into a known redundancy situation. I wholeheartedly agree with its concerns about that behaviour. Had the courts service initiated a pre-transfer redundancy process, the affected staff would have had official union representation throughout this traumatic process. Instead, they have been left high and dry because Marston refuses to recognise PCS.

Another example of the private sector profiting from our justice system is the new generation of private prisons that are in the pipeline. At least five of the next six jails are set to be run by the private sector. Astonishingly, private prisons do not reveal how many staff they employ, and nor are their minimum staffing levels specified in contracts, yet it is widely accepted that prison understaffing leads directly to extra violence. Private prison operators, just like all corporate privateers, exist to maximise profit for shareholders, and that means slashing costs—especially staff costs—to the bone. No wonder private prisons are an average of almost 50% more violent than public prisons, according to Guardian research last year. I urge the Government to hold an independent inquiry into why private prisons are more violent than public prisons before awarding any more private prison contracts, and to ensure that minimum staffing levels and union recognition are requirements for all private prisons.

It is a pleasure to see you in the Chair, Mr Pritchard. I thank my hon. Friend the Member for Liverpool, Wavertree (Paula Barker) for securing this debate on a really important issue. Outsourcing is a scam, an illusion, a con and an opportunity for jargon-filled management consultants to do a flashy presentation about how they can save a few quid from the bottom line, in the short term, at least. In the long run, the costs are high in lost expertise and lost capacity, and the biggest cost of all is for those long-suffering employees who end up on inferior terms and conditions, if they have a job at all.

Public and private sector companies alike have been seduced by the outsourcing mirage. The savings that are dangled in front of them are not cost-free or painless. In almost every situation, the majority of the savings come directly from the employees, either by paying them less or by having fewer of them. Of course, in theory, employees’ terms and conditions are protected under TUPE, but as an EU regulation it is now at the mercy of the Government, who could decide to water it down or get rid of it at any moment. TUPE does not need watering down; it needs strengthening. There are many ways that employers can evade TUPE protections, both in terms of dismissals and changing terms and conditions after a transfer—if they could not, a major incentive for outsourcing would be removed at a stroke.

Why would anyone want to give up sick pay, overtime rates or other benefits accrued over, say, 20 years of employment just because the name over the door has changed? Is not the loyalty of the employee who has given more than half their life worth more than a factual reference and a redundancy payment that might be able to buy them a second-hand car at the end of the situation? Employers may say that that is not what they want to happen, and that when they outsource employees, they do not want to see anyone suffering, but that is what happens all too often. Every time, that is because the original employer has washed their hands of the situation. They have outsourced their employees, and they have outsourced their legal obligations, but they have not outsourced their moral responsibilities, and they will know, from the moment the transfer takes place, that the clock is ticking.