Recent months have seen three debates in parliament about NHS privatisation. The first in Westminster Hall (23 April) the second and third in the Commons, on Subsidiary Companies (20 March) and in an Opposition Day debate (23 May). None of them mentioned the role of the private sector in determining the direction of travel of the NHS.
Commissioning, regulatory and property boards have opened a space for the revolving door to operate, embedding private sector influence – and profit – at the highest levels of decision-making.
Consistent parliamentary committee scrutiny of the Big Four Accountancy firms has raised serious questions about their suitability to work in public service, particularly in the case of corporate taxation, yet they are repeatedly given government contracts.
There are serious questions to be asked about the conflict of interest arising from having two paymasters – the public and private sectors – and about the democratic deficit which arises when public services can no longer be held consistently and transparently accountable. The collapse of Carillion and the problems around the performance of Capita have highlighted this, but the issue goes deeper than poor service provision. It undermines the role of government itself.
The de-politicisation of government
There has been a substantial shift in the governance and management of the public sector since the late 1970s. Electoral and manifesto commitments have increasingly focused on the need for ‘economic discipline’ and the idea that consumerism and efficiency will lead to lower deficits and debts. Between the parties the battle has been fought on which is the most ‘responsible’ with the economy. In our current times that translates directly into plans to shrink the state to fit notional economic demands rather than to address the real needs of the population.
Since the early 1990s this shift has been characterised by New Public Management. Key elements of this ‘managerial state’ include creating autonomous agencies and devolving budgets and financial control. It has created market competition in the provision of the services themselves, treating the private and public sectors as businesses on an equal footing. Public services have been contracted out rather than having planned delivery through government departments. Arm’s length agencies can enter into contracts with performance-based targets which attract financial incentives. An artificial separation between policy (‘ideology’) and service provision (‘management’) has been created.
This has resulted in a parliamentary war of words in which ‘politics’ and ‘ideology’ – previously the very essence of the differences between the parties – have become insults. This was very noticeable in the NHS privatisation debate held in Westminster Hall where there was competition between the opposing sides over which was being ‘ideological’ and which was simply ‘trying to do what works best’. The NHS is frequently also described as ‘weaponised’ or ‘a political football’ whenever a rise in unexpected deaths occurs, or an individual tragedy and the opposition of the day tries to hold the government to account. The principles of public service versus privatisation are absent from this process.
Speaking in the Opposition Day debate, in his role as Shadow Secretary of State for Health, Jonathan Ashworth, maintained this approach. He described how Labour are not opposed on principle to a role for the private sector in the NHS, but they have strong objections to the wrong sort of involvement and the failure of contracting evidenced by the likes of Carillion.
The government has shown the same attitude to the failed Carillion contract. They have looked for alternative private sector providers, rather than considering a straightforward return to public service.
The irresistible rise of the management consultant
This transformation of government has meant not only an increasing emphasis on performance, outputs and customer orientation rather than population needs, but a rise of the management consultant as a necessary adjunct of policy development and service delivery. Dealing with the private sector on large scale and complex tenders is not a skill of the public sector civil service. To fulfil this function US consultancies such as McKinsey and Bain are brought in to advise and they serve two clients: government and global corporations.
David Oliver, a former clinical director at the Department of Health, wrote in the BMJ in 2014 that NHS spending on management consultancy had doubled between 2010 and 2014. “Enough”, he wrote, “to run three medium sized hospitals or employ 2,000 extra nurses. ‘Disruptive innovation’ has led to (..) spoils for management consultants, with taxpayers’ money diverted from already struggling health and care services. The health sector regulator Monitor, meanwhile, has placed contracts worth about £32m with the “big four” management consultancy companies, though its work was done with a fraction of such spending before the election”.
He says there is a “constantly revolving” door between the Department of Health, NHS England, Monitor, 10 Downing Street, and the consultancy firms, “creating commercial advantage.” He also points out that consultancy firms, “are unaccountable and can walk away from bad or damaging advice with no consequences.” He concludes, “It’s time for management consultants to face the same transparency and accountability as the rest of us.”
The constantly revolving door
An examination of who is on the boards of the NHS bodies created to run the service in England as a result of the Health and Social Care Act (2012) illustrates David Oliver’s point about the revolving door. The board of NHS Property Services, for example, has been chaired by Ian Ellis since 2014. Ellis was previously a director of Telereal Trillium, one of the UK’s largest property companies. The company sponsored an event in Cambridge in November 2013, ‘Developing a roadmap to cultural change: the stewardship of the NHS’s property portfolio’. This event brought together ‘leading figures in the property world today’ including heads and former heads of FTSE-100 companies with over 100 members of the senior management team of NHS Property Services (NHSPS otherwise known as ‘The PropCo’), NHS England and the Department of Health.
The property portfolio of NHSPS, a private limited company, holds all the assets that previously were publicly owned through the stewardship of the Strategic Health Authorities and Primary Care Trusts.
Telereal Trillium is owned by the William Pears Group which owns the property portfolios of the DWP, British Telecom and the BBC.
The board of NHSPS has members who were previously senior managers at private sector companies which are or were themselves involved in contracts for the NHS such as KPMG, Andersens and Pfizer. The Chief Executive Officer was group property director of the Trillium-owned BT portfolio and also previously Crown Representative for Property and Facilities management for the Cabinet Office. There is certainly the potential for ‘commercial advantage’ when these are the people in control of a portfolio containing £3bn of assets, which are earmarked for sale or commercial rent under the current plans for the NHS.
The efficiencies that never were
An analysis of external management consultants by academics at the universities of Bristol, Seville, and Warwick Business School published in February this year showed that the £millions spent by the NHS has led to a “significant” rise in inefficiency, ultimately worsening services.
Jonathan Allsopp, writing in OpenDemocracy in March this year brings this story up to date with details of a typical intervention by EY (formerly known as Ernst & Young) in his NHS department. He writes that management consultancies and the Big Four accountancy firms put in bids for contracts designed to create cost efficiencies, but use cheaper, less experienced members of staff to perform the tasks to keep their own costs low. In this case, he says, “Very early on in the audit it became apparent that, beyond the basics, the auditor’s knowledge of NHS costing processes and mental health services was scant.” The auditor spent only two and a half days on site, followed by a few phone calls and emails. The draft report appeared over four months later and, “was strewn with errors including reference to ‘urology IAPT services’ which given that IAPT refers to improving access to psychological therapies makes the mind boggle. The (corrected) report itself, once published, was lacking in any real insight, full of half-baked recommendations and with the overall feel of a piece of work that had failed to get to grips with the topic that it was meant to be reporting on.”
This exercise cost the NHS £3.9million, for predicted savings that would have made the contract value £2.4million. But the payment is for barely a week’s work and as the article says, ‘a report that told us nothing about our costing processes that we didn’t already know.’
Allsopp’s experience in the service reflects the mantra that drives the UK’s economic policy as he writes, “For as long as I’ve worked in the NHS (I joined as a trainee accountant in 1990) a view has persisted that, whether we’re caring for patients or supporting those who do, no matter how hard we work or how good at our jobs we are, we’ll never quite be as efficient as our private sector counterparts; forever the lower league journeymen to their Premier League superstars.”
How many beans make five?
The practice of adopting private sector practices is called into question by a CIPFA report, Statutory Financial Accounting in the UK Public Sector: Relevance and Cost. They raised concerns over the complexity of the accounts, arguing that the public sector has followed practices in the private sector, “blindly and without any consideration of the differences between the two types of organisation and the relevance of the information provided.” They added that “it may be in the interests of the accounting profession and large accounting firms (who audit a large proportion of public sector accounts) to have more complex arrangements”.
The point the CIPFA report drives home is that accountability of public services depends on the information available about those services to be presented in a meaningful and accessible style. They say that there are standard accounting procedures for statutory services. But our public services have been required to adopt global practices issued by the International Accounting Standards Committee. This committee issues International Financial Reporting Standards (IFRS) for multi-national companies. There is also domestic legislation which must be adhered to and a number of other accounting conventions. CIPFA says, ‘the outcomes are a complex and elaborate system of financial accounting the usefulness of which is debatable’.
The report suggests that accountability is based on a fundamental belief that the public have a right to know about their public services in order that there may be public debate between them and their elected representatives. Accountability – informing the public how, what and why public money has been spent and the services it has provided – is therefore the cornerstone of public sector financial accounting. And the current system does not serve that purpose. The accounts are business accounts, not public-sector ones.
If it’s incomprehensible, it’s unaccountable
Our research into private patient income has shown us that the public accounts of the various NHS bodies are not at all geared to providing accountability. Their complexity makes them hard to fathom and drawing out the necessary figures is time-consuming and not always illuminating.
But the process of producing the accounts is profitable for the accountants. The authors of the CIPFA report were unable to find any valid data on the total costs of producing accounts for public service organisations based on the IFRS rules they are obliged to follow, but they identified a few for illustrative purposes as follows:
| Leeds NHS Teaching Hospitals Trust 2007/08 | 31 pages | £251,000 |
| St Helens and Knowsley NHS Trust 2007/08 | 33 pages | £101,000 |
The accountants who provide these services are the Big Four – Deloitte, PwC, EY and KPMG. They all have been involved in corporate scandals. These include the auditing of Carillion, about whom Rachel Reeves, chair of the Commons Business Select Committee said, “Carillion’s annual reports were worthless as a guide to the true financial health of the company”. Carillion provided services to the NHS as diverse as building hospitals and supplying meals. KPMG was its auditor.
A Public Accounts Committee report published in February 2015 said, “the tax arrangements PwC promoted in Luxembourg bear all the characteristics of a mass-marketed tax avoidance scheme”. Yet PwC, along with the other accounting giants, is still the recipient of government contracts and is auditing the liquidation of Carillion.
Frank Field MP, chairing the Inquiry into the collapse of Carillion, said,
“PWC had every incentive to milk the Carillion cow dry. Then, when Carillion finally collapsed, PWC adroitly re-emerged as butcher, packaging up joints of the fallen beast to be flogged off. They claim to be experts in every aspects of company management. They’re certainly expert in ensuring they get their cut at every stage.”
These organisational arrangements, constructed and operated by the private sector, play a key role in the privatisation of the NHS. Their activities are responsible for £millions being diverted from key front-line services into activities of great cost and dubious benefit.
Far from being value neutral, the default position of New Public Management is privatisation. This is not ‘simply’ about what works best. It is about what continues this particular economic policy.
There is an absence of debate over the competing values of the corporate and public sector.