By Bill Mullins
first published November 2001
The government’s “war against terrorism” in Afghanistan – which saw the additional deployment of 1,700 soldiers in March 2002 – had already cost hundreds of millions of pounds.
The ten cruise missiles, launched by British nuclear submarines last year, at £1 million a go could have built a whole new hospital wing. For the £150 million it was reported in the Daily Telegraph (20/11/2001) that it cost to send 23,000 troops to Oman for “exercise Swift Sword”, the government could have built two brand new hospitals. The estimated £16 million spent on putting the SAS “and other intelligence gatherers” into Afghanistan could have built five new schools.
Ex-left winger Clare Short, the minister for overseas development, could have increased her budget ten times over if she had the £23 billion allocated to the military. And that would have done far more good for the “war against terrorism” than all the bombing in the world. Labour is splashing out £30 million for each of the new F35 ‘strike jet fighters’ it is buying from the USA. You could employ 1,500 new teachers or nurses on decent rates of pay for the same amount.
The government, in its March 2001 budget, proposed to spend nearly twice as much per head on arms expenditure as Germany. Blair in his newfound role of “world leader” no doubt will want to spend even more – especially if action is taken against Iraq. Yet, the Chancellor is dropping huge hints that to increase spending in crumbling frontline services then taxes and national insurance will have to rise.
Whatever the long-term ‘overheads’ of the continuing ‘war on terror’, there is a clear warning of savage cuts in the welfare state and the public sector. In the run-up to the 2002 Budget, Gordon Brown has told ‘spending’ ministers that they cannot have a ‘guns and butter’ budget at the same time (i.e., military and social spending).
In his book, Government and Politics in Britain, John Kingdom gives a brief history of the growth of the public sector since the beginning of the 20th century. He outlines how drastically the public sector has been cut back since the 1970s.
Government spending as a proportion of total national income grew from 15% before the First World War to over 75% at end of the Second World War. It then fell back to about 35% in the 1950s and 1960s before climbing again to 40%-45% in the 1970s and 1980s. According to the Institute of Fiscal Studies the UK has the lowest level of public-sector investment for decades;
1.7% of Gross Domestic Product (GDP) in 2000 compared to 8.9% of GDP in 1975. Public spending is still only 38% of GDP, compared to 48% in Germany and 50% in France.
As an employer (directly or indirectly) the government is the biggest in the economy. Its 5.1 million workers are concentrated in three or four big sectors as well as a myriad of smaller services. It includes the National Health Service (NHS) which employs one million people and is the biggest employer in Europe. Local government employs 2.7 million workers in 400 separate councils; central government has 893,000 employees; the Post Office 200,000; and the 200,000 in the military services including civilian employees.
The nationalised industries
Twenty years ago the nationalised industries of water, gas, electricity, British Steel, post and rail accounted for 9.3% of national output, 6.7% of employment and 13.5% of investment. The privatisation of these industries took 959,000 workers out of the public sector. At the same time, the privatisation of the ‘natural monopolies’ – water, electricity and gas – was a licence to print money for the new private owners. In 1995 alone their profits increased by 40% to £7.7 billion.
Privatisation’s history
Tony Jackson an economist for Barings Bank, writing in the Financial Times on 11 July 2001 said: “Nationalisation was not a matter of socialist dogma, it was secondary even in the late 1940s, the main motives were efficiency and national security.” He pointed out that the “national grid [was] taken over by the Tories in 1926 on grounds of efficiency. Gas in 1949 was divided into 600 companies and municipal entities”. It was “crying out for consolidation”.
To demonstrate what he considers is a supreme example of capitalist pragmatism, he gives the example of Winston Churchill, who nationalised “British Petroleum in 1914 to engineer the fleet’s switch from coal to oil to secure supplies of cheap fuel with the war imminent”. He then claims that “nationalisation was a pragmatic response to circumstances which no longer apply”. To demonstrate this further he cites: “The Railway Act 1844 aimed to link up national private networks”. Gladstone said at the time “the government shall take the option of buying the lines at a distant time”. He concludes his piece with the astounding claim that “the profit motive is as good a guarantee of safety as could be devised. If you gain a reputation for killing your customers, your bankruptcy is assured”.
I’m sure that this would be less reassuring to the victims of Railtrack than the privately owned rail operating companies. As a sting in his tail he smugly finishes with “Civil servants cut comers like shareholders”. The only thing missing from his equation is the little question of democratic control. Mr Jackson doesn’t even pay lip service to the supposed accountability of his own capitalist parliamentary system.
Thatcher’s Legacy
What the Tory governments under Margaret Thatcher and John Major (and Blair since) did to the public sector has been followed by all capitalist governments throughout the world. Governments have abandoned the post-war consensus in providing welfare benefits ‘from the cradle to the grave’.
Capitalist governments’ abandonment of the Keynes method of pump-priming the economies to smooth out the ‘normal’ ups and downs of the economic cycle meant that they could ‘no longer afford’ to maintain the same level of state spending as they did before. They declared that their number one priority was to cut back the amount of the economy taken by the state. Bill Clinton proclaimed ‘the end of big government’.
Labour’s Budget
In the budget statement of March 2001 Gordon Brown, the chancellor, announced that the government plans to spend £394 billion this year. This is 41% of the total national income (GDP) and he plans to raise nearly £399 billion to finance it. (The difference of £4 billion he will use to pay off some of the capital of the national debt (Guardian 8 March 2001).
Government spending: (£ billions)
Social security £109bn
NHS £59bn
Education £50bn
Debt repayment £23bn
Defence £24bn
Law and order £23bn
Industry, agriculture £16bn
Housing, environment £18bn
Transport £10bn
Other £62bn
Total £394bn
Government income: (£ billions)
Income tax £104bn
Vat £61bn
National insurance £63bn
Excise £37bn
Corporation tax £38bn
Business rates £17bn
Council tax £15bn
Other £64bn
Total £399 bn
Since elected in 1997, New Labour has pursued an orthodox finance policy to reduce the level of state spending. Gordon Brown promised to stick rigidly to the budgets set by the Tories for the first three years in office. The New Labour leaders were as good as their word.
The Labour government’s insistence on sticking to this meant its income over expenditure went from a deficit of £63 billion to a surplus of £20 billion by 2000. It was also helped by the sale of the 3G mobile phone airwaves, which almost bankrupted British Telecom.
Every year since its 1997 election Labour has driven a surplus of tens of billions in public expenditure while decrepit public services are not even getting the money that has been earmarked for them. Civil servants complain that there is such a culture of ‘underspend’ inherited from the Thatcher and Major years that billions are not spent on essential services because cuts are still endemic.
Another ‘boost’ to government spending was the drive by New Labour to force people off welfare benefits and into low-paid service jobs through the ‘welfare to work’ programmes. Welfare spending as a proportion of government spending fell in a few short years from 40% to 17%.
Every up side has a down side. The budget surplus played a large role in attracting currency to Britain, which, in turn, kept the pound artificially high. That made manufacturing exports dearer and imports cheaper. The result of that was a growth in the trade deficit with the outside world – a factor in the loss of hundreds of thousands of manufacturing jobs in recent years.
Rather than increase spending, despite the growing crisis in the public sector, Brown chose to pay off a large part of the national debt. This also created a problem, however. Part of the finance sector, which British capitalism now overwhelmingly depends on, is based on the issuing of government bonds, and if there is less government borrowing there is less of a market for these traders and finance houses and banks in the city.
Blair and Brown see no alternative to privatisation. They have set out the rules for their overall financial measures. The first is that government spending must be kept to a minimum, otherwise this will effect the rate of bank interest rates and the level of the pound on the world currency markets. A run on the pound – which caused massive problems for the last two Labour governments (1964-70 and 1974-79) – is the nightmare haunting all Labour governments.
The PSBR (public sector borrowing requirement) under New Labour has fallen well below anything seen in the post-war period. Although a lot of this is down to the growth in the economy the continual tightening of public expenditure has been a factor. With growth has come increased taxes and income for the Treasury. But, during a recession, such as now, government income will fall away and, at the same time, demand on government spending will increase proportionally as more and more workers are thrown on the dole and require some form of state support.
That is why, even as he made his war preparations against Afghanistan, Blair declared at the Labour Party Conference that his drive to ‘reform’ (read privatise) the public sector would go on and he would oppose ‘dogmatic barriers’ to his plans.
For 20 years all governments have driven forward the privatisation of the public sector. Thatcher sold off British Telecom, British Gas, the electricity industry, large parts of the publicly owned defence industries and British Leyland. She began the process of privatising the NHS with the introduction of trusts and, through the process of compulsory competitive tendering (CCT), council services such as refuse disposal. John Major continued with the disaster of privatising British Rail into 100 separate companies and the creation of agencies in the civil service. New Labour has speeded up the whole process in local government with the introduction of ‘best value’ and have continued the inroads of private contractors taking over bits of the NHS.
The disaster of the Private Finance Initiative
PFI – the Private Finance Initiative – is the flagship of the New Labour government. Professor Allyson Pollock (chair of the health and services research unit at University College London) has described PFI as a ‘£30 billion gold rush’.
Since 1997 the private sector has invested £16 billion in 400 PFI projects, including 22 new hospitals. Taxpayers, however, will pay the private investors £96 billion over 23 years in rent alone to use the facilities. Labour have plans for the private sector to build, “another 64 hospitals and 600 schools and several hundred GP surgeries and health centres”. (Financial Times, 28 June 2001) All observers agree that this will not be value for money. If the government built the hospitals and schools it would cost much less. The charges paid by the NHS to the private owners of these buildings include profits for the shareholders, capitalised interest charges and huge fees to the management consultants involved in developing the projects. If it costs more to go to the private sector, this can only mean less money for the actual facilities like hospital beds or classrooms. The average PFI hospital costing the same as a publicly financed hospital ends up with an average of 30% fewer beds.
The Observer, in a major article in July 2001, reported that the public-sector trade union, UNISON, had commissioned a number of reports about some of these projects. The new Durham hospital built under PFI was due to cost £67 million but after extra charges this increased by 27% to £87 million. Robin Ross, a UNISON official, said that “this meant that corners were cut and less beds were available”. Staff budgets were cut, leading to a 12% fall in qualified nurses who were replaced by lower-paid, less-qualified assistants.
A nurse said: “I keep having to say sorry, you’ll just have to wait. I’ve got three bags of urine under my arm already, your bag will have to wait”. The hospital was built without a proper water supply and sewage was seeping through the ceiling. Labour justifies its ‘economics of the mad house’ because it will mean more and better public-service delivery! By going to the private sector for money to pay for these projects it will not appear on the government’s balance sheet as borrowings and, therefore, not add to the PSBR. This will mean that the value of the pound on the world currency markets can be maintained rather than depreciate. The fact that this is resulting in worse public services and less value for money seems almost irrelevant to the new Labour government.
There have been many examples of the lousy value for money that privatisation of the public sector gives. But a particular trend has developed whereby through the method of ‘refinancing’ of PFI projects the private sector is making a killing. The private builder of Fazerkeley prison, Group 4, made £10.7 million by refinancing. The builders of Norwich hospital made a staggering extra £70 million from a project with an initial outlay of £230 million.
The “Gold Rush” and Labour Councils
With the re-election of Labour in June 2001, private companies lined up to take their share of the ‘gold rush’. The Financial Times said on 28 June, 2001 that those companies which had most to gain are those aiming at the “white-collar providers in the councils and education”. These companies include Service Team, Onyx, Biffa, Cleanaway, Capita, Cambridge Education Associates, Nuffield Hospitals, Nord Anglia, CSL, and many others.
Local council contracts to the private sector now stands at £4.6 billion a year and are set to grow exponentially. Education outsourcing stands at £2.5 billion a year. Healthcare for the mentally ill is worth £1.5 billion a year to the private sector and New Labour intends to allow the building of surgeries to be rented back to the NHS. This includes primary mental and social services and private management of IT systems for the NHS.
One of the earliest sectors of the NHS to be handed over to mainly private interests is the provision of elderly care. This brings in £7.2 billion to the so-called independent [private] sector. Whilst some of this comes from government and local authorities, the amount given is continually being cut. So, now you have the scandalous spectacle of elderly people forced to sell their homes or raid their family’s life savings.
Even then elderly care home are closing at an alarming rate – seeing people in their 80s and 90s being shunted from one home or hospital to another – as the private care home owners and companies claim they can’t make enough ‘profit’
Allyson Pollock calculates that under present government plans there is another £10 billion a year in health, £5 billion a year in local government, and £5 billion a year in education still up for grabs. No wonder private-sector companies like Nord Anglia are lining up to bid for these contracts, even when the same companies continually lose their existing contracts because of the mess they get into.
There is a campaign by the private sector and big business in general for the government to allow the private sector to directly employ teachers, nurses and doctors. For the capitalists indeed there should be no ‘ideological obstacles’ to their pursuit of profit.
It is also clear that the government is intent on privatising the Post Office. It has allowed the monopoly on delivering letters, which has been held by the Post Office for 300 years, to be broken. It has announced the building of a sorting office in the East End of London which will be run by the private company. Hays X. Consignia, the new name for the Post Office, has also announced that it is selling off its fleet of 40,000 vehicles.
The fightback has started
There have been many strikes demos and lobbies by workers and service users against privatisation. The local Socialist Party branch in Wakefield organised a campaign against the PFI of Pinderfields hospital for over five years with some success. The Socialist Party in Coventry has collected 140,000 signatures against a PFI project for the local hospital, and has organised demonstrations and other campaigning activity. In Waltham Forest, London, Socialist Party members in workplaces and the community led a fightback against the privatisation of education services.
In Hackney Council the workers have been in struggle for over 12 months against the most swingeing cuts and threatened privatisations in the country. Recently, the government all but took direct control of the council and ordered £75 million of cuts over the next 24 months. These include the privatisation of just about all of the education and finance services.
Many of the manual jobs have already been privatised and there is little else to sell off or more likely give away. The workers in their thousands have taken mass council-wide strike action over the last year. The unions have organised mass demos and lobbies of the town hall. There were many unofficial strikes as well as the council trying to pick off groups of workers one at a time. This battle is still ongoing and is far from over.
Nearly every Socialist Party branch has participated in or led struggles against privatisation. Many battles have gone unreported. In fact, the list would be almost endless. A special mention should be given to the 600 Dudley hospital workers who took 80 days of strike action in opposition to a private-sector sell-off. It was not for the want of determination at local level that they did not succeed in the end.
For nearly two decades the battle against privatisation by workers and communities has continued. But now a subtle change is beginning to take place.
Lack of a national lead
Over 20 years, the union leaders have played a backseat role. In speeches they oppose privatisation and will give support to their members who organise against it. Union conference after union conference carries resolutions against privatisation on the basis that public ownership of the basic services – health, education and local government; the Post Office and public transport – is a principle that should be protected. Members know through bitter experience that this support has been extremely conditional and hedged with all sorts of provisions.
Strikes against privatisation are not allowed, we are told, because of the anti-union laws. Instead, the union leaders insist that industrial action must ‘only’ be in defence of conditions and jobs and not over the principle of privatisation itself. It is true that the employers have been more than willing to resort to the courts. They have claimed that industrial action constitutes a ‘political strike’ and is therefore illegal under the terms of numerous employment laws.
This combination of the anti-union laws and the timid union leaders has meant that there has been no attempt to link up the struggles, even when they are taking place simultaneously. The unwillingness of the union leaders to allow strikes in defence of public ownership and against privatisation has meant that these strikes have often lost momentum.
The strikes on London Underground last year were called on the basis of health and safety safeguards, which had not been guaranteed by the incoming private contractors. Everybody knew that privatisation was the real battle, but once LUL made a few concessions on this narrower though important issue it was enough for the union leadership to call off any further action.
Most union leaders still pay lip service to public ownership and few have gone as far as Sir Ken Jackson, general secretary of AEEU (engineering union now called Amicus). He supports Blair’s privatisation programme and moved a resolution to that effect at the Labour Party conference.
UNISON strikes a deal with Blair
At the same conference, Dave Prentis, UNISON general secretary, said he had done a deal with Blair to end the practice of having a ‘two-tier’ workforce in the privatised sector. In a circular to UNISON branches after the conference he wrote that the deal ended this. Prentis also claimed that Blair promised that there would be a review of ‘best value’ regimes in local councils and that the three or four new PFI pilot schemes would be speeded up.
The ‘two-tier workforce’ was a reference to the practice of private-sector companies taking over parts of the public sector and then paying new workers a lower wage than the transferred former public-sector workers, whose pay and conditions are protected under existing TUPE legislation.
Prentis argued for a new ‘fair wage resolution’ to be adopted as law. Under it, employers would have to include in their bids the labour costs for all potential employees, as well as the existing transferred workers, when they tendered for the new contracts. Prentis believes this would make for a ‘level playing field’ for in-house bids. He said that this would put off cowboy contractors who hoped to make most of their profit from cuts in the wages and conditions of their workers.
But the organisation representing the main body of service contract employers, the BSA services association, welcomed the deal. The BSA represents 20 of the largest firms in the contracting industry and employs 600,000 staff. The Financial Times (October 7) reports that the BSA “would be happy for the government’s audit commission to police their contacts”.
Now it looks as if Blair is going to accept this ‘assurance’ rather than introduce and enforce legislation. This has drawn the comment from the press that this will ‘disappoint the unions who were hoping for a new fair wage resolution to be introduced’.
The three or four pilot schemes that Prentis referred to were promised by New Labour as an experiment. Hospital staff whose work is transferred to a private company will be able to stay in the public sector. They would continue to be employed by the hospital trust but would be contracted out to the private company. The union leaders are increasingly accepting the New Labour view that it doesn’t matter who owns the service as long as it ‘delivers’. Ownership is not the principle issue for these leaders. They are more concerned about the pay and conditions of their members. In fact, they cannot be separated.
The acceptance of this line is a continuation of the abandonment of Clause 4 – the ‘socialist clause’ in the Labour Party constitution deleted with the advent of New Labour – that most of the union leaders had signed up for.
Leader of the GMB general workers’ union, John Edmonds, said the fight against privatisation is not an industrial matter but a political one. On this basis, Edmunds would rule out using the industrial muscle of his members to reverse government policy on privatisation.
Socialists argue that every retreat by the union leaders only encourages the fat cat privateers to take more of the public sector into their profit-grabbing hands. It is time for national action against privatisation. To bring this about will require the maximum effort by all socialists and trade union activists.
Socialist Party members will initiate and help build campaigns to protect jobs and services at local and national levels, by public-sector workers and in the communities they serve. At the same time, we will pursue – through the rank-and-file broad left organisations and the official union structures – the central demand for national action to mobilise all those opposed to the privatisation of our public services.
The minimum national action has to be a one-day public-sector strike. Using the power in action of organised workers in the public sector would send a tremendous shot across the bows of the government. There is no opposition to this demand from those involved in local struggles. We have to show how it can be brought about.
