The government says that its ambition is to shift ‘power away from central government to the local level – to citizens, communities and independent providers so they can play a role in shaping services’. In the October spending review last year, it set out its aim of working with these ‘independent providers’ to build ‘a society where everyone plays their part – the Big Society’.
David Cameron is often fond of painting this as a fresh and radical scheme to break the ‘big, giant state monopolies’. In reality, it was under New Labour that the industry of privatised services grew to be worth 6 per cent of GDP. A third of British public services are now contracted out to the euphemistically named ‘independent sector’, which as the spending review helpfully spelled out consists of both ‘social and private enterprises’.
Under the terms of the Big Society – not exactly a bottom-up process – small community groups are being pushed even more strongly than under New Labour to embrace this marketplace and ‘compete to deliver services’ by bidding for public sector contracts. But what is this industry they will be entering?
One example is the market in benefits, as represented by the lobbying group, the Employment Related Services Association (ERSA). ERSA describes itself as delivering ‘government and charitably funded services to help people achieve sustained employment’. Its members have a collective turnover of £700 million, or two thirds of the Department for Work and Pensions (DWP)’s annual spend. Yet although large national charities do have a presence, there are few if any local community groups involved. Instead, several of its members are large private companies, such as G4S, Reed and A4E, who stand to profit from further contracting out of welfare services.
Charities do have some market presence, although to put the rhetoric of community ownership in perspective, private contracting giant Serco’s annual £4 billion turnover alone is almost half the size of the total £9 billion in public sector contracts held by voluntary organisations, according to figures from the National Council for Voluntary Organisations (NCVO). Despite this, contracts are increasingly important as the lifeblood of many medium and large voluntary organisations, comprising just under two thirds of the government funds they received in 2007. Rather than facilitating community control of public services, competition has caused power to pass directly from the state to private businesses, with charities often subcontracting themselves to organisations run for profit.
A major factor in this is the increasing centralisation of contracts. Local government currently accounts for nearly half of all public funding for charities, but councils are being forced to slash costs by 7.1 per cent each year over the next four years to meet the government’s cuts. Funding for voluntary organisations is likely to prove a tempting target, undermining the ability of voluntary groups to access funds from local sources.
Central government is also consolidating its own contracts in order to ‘leverage the scale and buying power of the whole government’, in the words of Cabinet Office minister Francis Maude. Leaving aside the question of why contract out at all, it is a solution built around convenience to the state rather than the ability of local communities to own their own services. The narrowing of the market into prime and subcontractors has allowed companies to collude, leading a March 2010 report to the DWP select committee to denounce the practices of some prime contractors nominating one another as their own subcontractors as ‘a cartel’.
The Work Programme, a contractor-operated welfare-to-work scheme that will be introduced in summer 2011 and intended to become the main employment programme, is an example of this logic in action. Bidding is highly consolidated, with the country divided into 11 lots and between three and eight prime contractors permitted per lot. Few charities can hope to compete at this level and while some are merging into consortia, most will be subcontractors.
Rather than being an empowerment, this arrangement sees charities often used as cheap labour. Terms for subcontractors are frequently exploitative, with a National Audit Office evaluation of a similar employment scheme – Pathways to Work – finding that subcontractors were often denied service fees to cover vital core costs and were paid a quarter less per job on average than prime contractors. Confidential feedback recently passed on to the London Voluntary Services Council (LVSC) from another London employment organisation highlighted the pressure many are under, warning how ‘some of our members . . . have even been asked to provide services free of charge as “they are charities after all.”’
In spite of these concerns, influential voluntary sector leaders have supported the entry into this industry. The amount of money entering the voluntary sector rose sharply under Labour, with the influx allowing many middle-income charities to close the income gap on their largest rivals, according to a recent Third Sector Research Centre (TRSC) study. Steve Bubb, head of the Association of Chief Executives of Voluntary Organisations, praised this shift and said ‘our sector has become stronger and more professional. It has grown. These are good things.’
Yet this industry has largely bypassed community groups, organisations run and led by volunteers and operating on little to no money. Such groups make up the bulk of the sector, with the recent National Survey of Third Sector Organisations finding that almost 60 per cent of registered charities possess incomes of less than £25,000 a year and NCVO figures showing that 75 per cent of charities receive no government funds. The state is not irrelevant to them, though, as the ability to influence local decisions was ranked first in their priorities by the survey, an ability set to be undermined by local cuts and the outsourcing of services to national and multinational organisations.
Furthermore, the gap between community groups and larger voluntary organisations has grown, according to the TSRC. Such grass‑roots groups are the focus of the Big Society’s rhetoric, but in practice the focus is on contracts.
Grass-roots community groups often arise as a response to both government and market inadequacy, with a May 2010 TSRC working paper finding that most such groups saw themselves as an ‘important response to needs that were currently unmet either due to lack of resources, or the failure of the state and other agencies to identify or address need’ (see case study, next page).
Many in the community sector are sceptical of the relevance of the government’s schemes. Matt Scott, of the Community Sector Coalition, explains how ‘most groups don’t have any money in the first place and we’re not motivated by contracts. It seems strange to prioritise this when we’re independent of the state and the market.’ The government believes otherwise, hoping to entice them into delivering services through payment by results, the logic being that, in a free market, funds follow what works and enable local community groups to exploit their specialised knowledge to meet local needs and win bids.
This does not calm fears of the government guarding its right to determine which results it wishes to reward, enabling it to keep tight control while giving the illusion of empowerment. Some fear that non-profit groups will lose the right to set their own agendas. Andy Benson, of the National Coalition for Independent Action, argues that ‘the proper role of the voluntary and community sector in the 21st century is not to provide services for the state, it is to hold the state to account.’
State control may not be the only threat to the autonomy of voluntary groups, with indications emerging that the pressure to deliver contracts to businesses run for profit is subordinating some charities’ social goals. Feedback to the LVSC protested about the dangers of ‘effectively privatising’ some charities and reported of organisations ‘using charitable donations to subsidise contract income from prime contractors ... where a charity brings additional resources to public service delivery this is to be applauded; when they do it to facilitate profiteering it is grotesque.’ Nevertheless, many contractors are confident of future good times. The National Outsourcing Association has predicted a ‘surge’ in opportunities as ‘the UK’s banking bailout will put pressure on public sector managers to cut costs.’ It is a lucrative market, with A4E and Reed estimating past profitability of between 5 and 10 per cent on government contracts.
In contrast to the benefit to businesses, many contracting charities will struggle in the face of public spending cuts, having been offered a relatively modest £100 million as part of a transition fund to help them sustain their contracts. The frequent blurring of the lines between the different interests and objectives of charities and ‘independent providers’ has prompted scepticism, with a 2006 report to the Public and Commercial Services Union arguing that ‘it suits the private sector providers to ally with the voluntary sector because it muddies the water about privatisation.’
A common industry term for charities is that they are the goose that laid the golden egg, offering a cheap and effective alternative to public services. One wisecrack doing the rounds lately has been that this goose is turning into a battery hen.
This article is the result of a collaboration with Manchester Metropolitan University’s Community Audit and Evaluation Centre and the Manchester‑based Centre for Democratic Policy-Making