Oliver Letwin’s claims about open public services ignore the fact that it will be the public sector picking up the tab for business failures 

Oliver Letwin ‘utterly rejects’ (PF News 28 July) trade union claims that greater diversity of service providers could lead to more Southern Cross style collapses.  He believes that bringing in more private sector providers will not be risky because it will be the providers that suffer the consequences of failure, not service users.  Continuity of service will not need intervention by politicians, because the government will create ‘a regime that does it quite automatically’.

This is intriguing, because it gives the impression that under the government’s public service reform plans there will be a sort of mutual insurance arrangement, where different providers are on standby to take over the service provided by a competitor, if that competitor goes belly up.  Now we all know that if the provider coming to the rescue is a private company, the rescue will carry a price.  If there is to be no intervention by politicians but an ‘automatic’ transfer, then presumably that will have to have been built – expensively – into the contract terms of all the providers? Can he tell us how that would work and how providers will price this risk?

Of course, what we suspect he means is that it is the public sector provider that will have to pick up the tab and maintain service continuity. This is, after all, what happened when the East Coast rail franchise was handed in.  Suddenly the government found it had a new nationalised industry on its hands.  However, can he show that this was done with ‘no intervention by politicians’ or convince us that in future there would be none?  This seems implausible to say the least.  And the example of school failure which he gives may not be on a Westminster politician’s radar but woe betide the local councillor who is unaware of it.

Has he looked at the experiences of service failure by non-government providers, and how it has been dealt with?  As with other aspects of the open public services white paper, the suspicion is that no one wants to look at past experience in case it reveals any nasty lessons.  Well I can reassure him that there are plenty of examples of maintaining service continuity from the housing sector – but do they meet the stiff tests that he sets himself?

When what was a public service becomes a private one there will inevitably be casualties. As everyone knows, half of social housing is now provided by housing associations, and a small number of these have hit severe financial difficulties at different times, threatening service continuity.  In every single case, another provider has stepped in.

But this has been far from automatic.  It has required extensive involvement by the regulator, in which the rescuing association has inevitably looked for some business advantage – such as promises of development funding – if it carries out the rescue.  There is nothing wrong with this, and the task is made easier by associations being non-profit bodies.  The point is though that it is far from automatic.

Let’s be sensible about this.  If a local authority has a private company emptying the bins, and it goes bust, it’s either going to have to run the service itself or get another company in pretty smartish.  That company is likely to be already in the business, and will suddenly have a massive expansion opportunity because its competitor has conveniently disappeared, leaving a number of local authorities in the lurch.

It also knows that it has these local authorities over a barrel: they have to reinstate the service within days or there will be trouble in the streets.  Do you think the new company are going to say ‘oh don’t worry, we’ll run the service for the same dodgy price that caused the first company to collapse’?  No. Someone has to pick up the tab, and we all know who that is.

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