Margaret Thatcher: An Insider’s Perspective by Colin Cram (Part 2)

Editor’s Note: Part 1 of this series was posted on Thursday, April 11th

My report on procurement proposed more outsourcing and a team was set up to drive this forward. However, the government was unable to overcome resistance to it. By the time John Major had taken over, in 1991, my estimate was that much less than £10m of central government activity had been outsourced and this was in areas that were not a threat to administrative grades – cleaning, catering, messenger services. It took Major, who had worked his way through various ministerial positions, and who therefore understood the levers for change, to drive this forward and within a few years, outsourcing of central government activities had increased to several thousand £m and there were discussions about the huge opportunities that could be realised through outsourcing huge organisations and functions such as the Benefits Agency. The 1997 election of a Labour government took that initiative firmly off the agenda.

Whilst the Thatcher government had little success with central government outsourcing, departments were keen to see outsourcing in other parts of the public sector – to reduce cost and perhaps as a diversion from their own lack of enthusiasm. Local authorities were forced to outsource services and the NHS forced to outsource cleaning. Lowest price determined who won the contracts and it may well be that the reduced standards of cleanliness played a significant part in serious infections caught in hospitals http://www.huffingtonpost.ca/2013/04/09/dirty-hospital-rooms-a-to_n_3042902.html. As a result, Scotland banned the use of private sector hospital cleaners in 2008 http://www.guardian.co.uk/society/2008/oct/19/mrsa-health-scotland-private-cleaners Plenty of outsourcings have gone wrong, as much as anything due to the lack of technical and procurement expertise within the organisations doing it.

However, the outsourcing created a new industry. Capita had 5 employees when I visited it in 2006 and provided training programmes. It now has a £multi-billion turnover. Serco has become truly international and its public transport activities range from running the Dubai Metro, the Docklands Light Railway (in London) and the extraordinarily picturesque Settle to Carlisle railway line. Such companies will have created a net increase in jobs in the UK.

Privatisation did take off under the Thatcher government and accelerated in the Major years. Privatisation means the government sells the right to run a service, whilst with outsourcing a contractor is paid to run a service. Whether this was a net benefit may be debateable. What is not debateable is that government departments had little expertise in privatising, as was shown by the railway privatisation (under major’s government) and still lack the skills for re-tendering as was shown by the recent West Coast Main Line debacle.

The Private Finance Initiative started in the latter years of the Thatcher government. HM Treasury at the time argued that it would lead to better services at lower cost, but the real reason was almost certainly to be able to deliver infrastructure improvements quickly and delay payment. At a time of economic crisis, which seemed to last for much of the 1980s and first half of the 1990s, with high inflation and interest rates, this seemed a sensible option. The problem was that implementation was not planned, so this led to many hospitals attempting to let such contracts without the expertise to do so and the lack of a coherent approach to industry meant that, instead of the private sector having to compete effectively for the contracts, the hospitals were in effect competing with each other for private sector suppliers.

The present government, notably Francis Maude, the minster responsible for addressing the efficiency of central government and who is responsible for organising Margaret Thatcher’s funeral, has complained about obstructive civil servants. http://www.publicservice.co.uk/news_story.asp?id=21021 http://www.guardian.co.uk/public-leaders-network/2013/mar/22/maude-civil-service-procurement-odonnell-radio#start-of-comments This is not new. As demonstrated above, the senior civil service has always been able to look after itself and in Thatcher’s day it argued for huge pay increases whilst everyone else’s pay was held down. The main argument was comparisons with industry. So the top civil servants were granted huge pay increases, but I would challenge anyone to produce clear evidence of improved performance as a result. My suspicion is that the main motivation was to improve their generous pensions, which were based on their final year of employment’s salary.

One reform introduced near to the end of Thatcher’s premiership was to turn certain civil service operations into arms length agencies. Civil servants trained in policy work were not good at managing such functions. Again, little progress was made whilst she was prime minister, but John Major, her successor pushed forward with this and 6 years later perhaps 25% of central government employees were in those agencies. The Benefits Agency, with 100,000 staff and run by Michael (now Lord) Bichard was an outstanding success, cutting costs very substantially and dramatically improving service. An unintended consequence is that the Labour government from 1997 to 2010 appears to have rowed back on the big reform, but created hundreds – possibly more agencies and similar bodies, which has led to a proliferation of duplicate back office systems, chief executives, finance, HR and IT directors. The present government has made some progress in reversing this. However, if one added the number of people in these organisations who are doing work that would previously have been done by the civil service, it is quite possible that the effective size of it could be more than double the official number. This would represent a very big increase in the past 30 years.

In short, Margaret Thatcher left a huge legacy of a changed culture in the UK public sector and boosted the use of the private sector, which led to the growth of new service industries. Some serious mistakes were, in my opinion, largely down to the ‘bureaucrats’ looking after themselves and it could be argued that they managed to outflank Thatcher’s zeal for reform.

Internationally she has changed the public sector landscape. Public sector procurement is being addressed as never before. Privatisation of state assets could be regarded almost as the norm. Huge international contracting-out service industries have grown up. Not bad for a grocer’s daughter from Grantham.

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