Railways: Public Procurement

Lord Beecham Excerpts

Tuesday 30th November 2010 Grand Committee

[Lord Beecham]

My Lords, like other speakers, I congratulate the noble Baroness, Lady Greengross, on her ingenuity in managing to hang a debate about the wider issues of public procurement on the rather slender hook of railway privatisation. I am glad that she intends to look at further areas of service delivery where this might apply, because although some lessons, particularly in risk, might arise from the experience of rail privatisation, it does not seem a particularly good analogy for most of the services in which government or local government are engaged.

However, as a frequent user of the east coast express line, I am somewhat nostalgic for the days of British Rail, but that is one area that the report did not touch on. Clearly, the issue of risk is widely recognised in that report and by previous speakers as being somewhat unreal when it comes to the expectation of benefit to be derived from privatisation or outsourcing, given the importance of the services in question.

There is one area which Governments of any political colour might be tempted to advance as an argument for privatisation. First, you have to raise capital, which may be more difficult, and secondly, you have to keep it off the public sector borrowing requirement. That seems to be the only compelling justification for the private finance initiative. Even then, contracts were entered into that were far too long. Clearly, if things go wrong, as they have done, the Government have to step in. It is always open for a contractor to liquidate rather than continue and to be made to pay penalties.

The noble Baroness referred to the possibility of bonds and penalties, which is superficially attractive, but that would be priced into the contract in the first instance and, in any event, it might not suffice in the end to deal with problems that arise. It struck me that a more useful transport comparison might have been the bus industry, which was largely municipally owned—it still is, very successfully, in London. The competition that ensued—sometimes there were too many buses chasing each other down the high street—and the standards of service that followed might have made a better comparison. It is important to recognise that there is virtue in having a mixed economy of provision in which public and private providers, and those from the voluntary sector, all have a part to play.

That is valuable, and I would not want us to move in the direction that Nicholas Ridley once advocated of councils meeting once a year simply to let the contracts. Councils and other bodies should be both commissioners and providers of services. I say that in the light of experience in residential care in the 1980s and 1990s, which was largely privatised as a result of the then Government’s approach to paying for it. Previously, it was organised largely by local councils. Ultimately, most local authorities withdrew from the field—eventually, unfortunately, so did many of those who succeeded in obtaining contracts—and we were left with a very unsatisfactory situation.

The public sector needs to be involved as one of the providers. There also need to be safeguards. Clearly, there has to be a level playing field on terms and conditions for those competing in this arena. We saw in the National Health Service how outsourcing led to a significant reduction in the levels of remuneration of care staff, and we have seen the same thing happening to some degree in the outsourcing of domiciliary services, even when they are run by third-sector organisations. We clearly need accountability; I endorse what the noble Baroness, Lady Howe, said about that. Some of that can take place in the realm of local authority scrutiny, which can be quite effective provided that it brings in the users of services as well as others. In all this, we have to bear in mind the need particularly to encourage the role of the third-sector providers, which means looking at the size of contracts. It is possible to achieve economies of scale by letting large contracts all the time with which smaller organisations cannot compete, so we need to ensure that there are smaller or local-scale contracts, which will enhance accountability and allow for the innovation that the third sector often brings.

Have the Government given thought to the requirements of the EU on tendering? There is an assumption that you can take a workforce and turn it into a mutual and it will get a contract, but I understand that that may not be the case. Everyone has to compete in the same way as any other contractor, and there is no automatic assumption that that will happen.

Finally, I turn to one developing area that will require very sensitive handling. We are now moving into an area in which commissioning will be not only for a service and by a large commissioning body, such as GP commissioners or a local authority, but by individuals using personal budgets. That is to be welcomed, but it has to be managed; people will have to be helped to navigate their way through a system, choosing the right suppliers of a service and the right kind of service. The market has to be managed, and there has to be considerable quality assurance. A new dimension is opening up, and I hope the noble Baroness will look at that as well as the current practice in the areas that she has identified. I congratulate her again on her ingenuity, which struck me as being worthy of a Wall Street banker or derivatives trader, but in this case with much more benign results.