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Fail and prosper: how privatisation really works

Want to make £10 million and more? Become an accountant. Learn how to make austerity pay. 

Ruby McGregor-Smith, chief executive, Mitie (Ed Robinson/OneRedEye)

Ruby earns more than maybe anybody you have ever met. She is not an Oscar-winning movie star. She hasn't won Wimbledon. Ruby McGregor-Smith is an accountant who runs a British company called Mitie (pronounced Mighty).

She pays herself £1.4 million a year. Her Mitie shares, worth £2 million, bring another £60K in annual dividends. On the side, as a part-time director, she picks up £60K more.

Last September she 'bought' more shares. They cost her absolutely nothing. She sold them straightaway, making £730,000 in a moment. And now, thanks to British taxpayers, Ruby is about to get richer.

On the eve of her 51st birthday last month, the Home Office gave her a gigantic contract: eight years' work, worth £180 million, running two immigration lock-ups in West London.

Mitie got the job — holding 1000 men at Colnbrook and Harmondsworth Removal Centres — only three years after entering what Ruby calls the "market".

What's Mitie's experience?

They run buildings for Lloyds Bank, clean Odeon cinemas, print and distribute documents, and maintain school buildings under Private Finance Initiative contracts.

For almost three years they have run Campsfield House Immigration Removal Centre, near Oxford. It isn't going well.

Campsfield Oct2013 (CampaigntoCloseCampsfield)Last October one suicidal inmate set fire to his cell. The blaze spread quickly — there was no sprinkler system. Ten fire engines rushed to the scene; 180 people had to be evacuated.

Seven years ago, after a similar fire in the same Campsfield block, Oxfordshire Fire & Rescue Services strongly recommended sprinklers. It didn't happen.

Mitie are experts in fire prevention. They tell potential clients: "our fire and security team can integrate fire prevention, detection, and suppression with your security equipment, including fire detectors, fire alarms, extinguishers, sprinkler systems . . ." 

Why didn't Mitie heed the Fire Service's warning and install sprinklers when they got the Campsfield contract? Phil Miller, a Corporate Watch researcher, asked Mitie. They wouldn't say.

How does this 'market' work? Less than three years' experience of guarding immigration detainees. One massive fire. And then a gigantic government contract to run two more detention centres. Why didn't the work go to a company more experienced than Mitie? 

The competition

The UK's most experienced immigration detention companies are G4S (the London Olympics security bunglers) and Serco (where Ruby spent nine years; it's a small world).

G4S guards killed asylum seeker Jimmy Mubenga (on a British Airways plane at Heathrow Airport) while trying to deport him. Serco guards have subjected vulnerable women to sexual abuse at Yarl's Wood detention centre in Bedfordshire. These things didn't stop G4S and Serco winning more government contracts.

Home Office ministers and their civil servants have gone to extraordinary lengths to protect their 'commercial partners'. They buried medical evidence that children were being harmed at Yarl's Wood, and rebuked doctors and lawyers who'd published evidence of assault. Border Agency chief executive Lin Homer four years ago complained that doctors who expressed concerns about dangerous restraint techniques were "trying to damage the reputation of our contractors".

But then last year G4S and Serco were caught doing dodgy accounting. They'd charged the Ministry of Justice for tagging ex-offenders who hadn't been tagged, they'd even charged for tagging dead people. Now all their government contracts are under scrutiny and the Serious Fraud Office is going through their books. 

G4S's failures don't stop in the UK. A few years back in Australia, through negligence, they cooked a man to death. In South Africa last year the government had to take command at G4S-run Mangaung Prison after the company lost control. The Australian government is trying to find out how one detainee died from multiple head injuries and many more were badly injured at G4S-run Manus Island detention centre.

Who else could the British government have chosen to run Harmondsworth and Colnbrook?

There's the American prisons company GEO Group — a spin-off from the sinister old Wackenhut Corporation. They've run Harmondsworth since 2009. Why weren't they given the new contract? 

When the Chief Inspector of Prisons paid a surprise visit to Harmondsworth last Summer, he found that one wheelchair-bound low-risk detainee who'd suffered a stroke had been handcuffed on a hospital visit. Another man was handcuffed while sedated and undergoing surgery.

For five hours in hospital GEO guards kept a frail 84 year old Canadian handcuffed. Then he died. Unhelpful headlines followed, there were questions in Parliament, just as GEO's contract came up for review.

Why didn't the Home Office choose an experienced contractor with a proven record of providing secure and safe accommodation and good value to the taxpayer? Because no such private contractor exists.

The losers

Privatisation hurtles on in the UK, regardless of the damage. Even David Cameron and George Osborne acknowledge that we have been badly served by the Private Finance Initiative (PFI), under which companies build hospitals, schools and prisons, then lease them back to the state, locking taxpayers into decades long maintenance contracts.

In Yorkshire, to take one modest example, the cost of rebuilding Calderdale Royal Hospital is £65 million. The public will end up paying £773 million. For providing one extra grit bin (value £200) outsourcer Amey charges Birmingham Council £4,500, the BBC reported the other day.

PFI will ultimately cost the taxpayer £300 billion, a Guardian investigation has revealed. "The irony is that we privatised the buildings but nationalised the debts. It's crazy," said Labour MP Margaret Hodge, who chairs the Public Accounts Committee that is supposed to guard taxpayers' interests.

The outsourcers are making a mess of things. There's the contracting out of court translation services (Applied Language Solutions and then Capita), the army recruitment fiasco (Capita again), the degradation of asylum housing (Serco, G4S and Capita), the dangerous experiment that is Birmingham's Oakwood Prison (by G4S).

Last week disability minister Mike Penning had to make an 'unreserved apology' after news got out that the government's back-to-work assessors Atos had relentlessly pursued a woman in a coma

Having made what's known in the jargon as a total bollocks of the task, Atos is trying to negotiate an early release from its obligations, blaming death threats.

Regardless of all that, the government has invited Atos to manage the extraction of our personal health data for commercial exploitation and medical research.

Is there no better candidate than Atos? Apparently not.

The winners

When contractors' failures come to light, privatisation's defenders step forward to say that we shouldn't let the odd slip up blind us to the benefits of outsourcing.

Here's economist DeAnne Julius, given a 700 word advertising opportunity by the Financial Times: "It would be wrong to use the cases of G4S and Serco, and their contracts with the Ministry of Justice, to condemn the industry, especially before an investigation of the circumstances has concluded," she wrote. And:

"Using a specialist provider whose reputation and share price are on the line, commissioned and monitored by an in-house procurement team, results in higher reliability, better quality and cost savings – it is better than doing it yourself. It’s a hat-trick too good for the public sector to pass up, especially when money is tight."

Where's the evidence?

The FT describes Julius as "a former member of the Bank of England’s Monetary Policy Committee" who "led the Public Services Industry Review (2008) for the department for business".

They neglected to mention her part-time directorships — at Serco (the outsourcer), at Roche Holdings (healthcare and pharmaceuticals), at Jones Lang LaSalle (global real estate), at Deloitte (the Big Swinging Dicks of PFI).

Ruby McGregor-Smith became chair of the CBI's Public Services Strategy Board last year, not long after she'd scooped that £730,000 windfall. “UK business plays a hugely important role in delivering many public services around the country," she said. And:

"It is crucial, at a time when private provision is under intense scrutiny, that we demonstrate the positive impact that the private sector can make in transforming services and generating value for taxpayers through greater competition."

Four years ago she was one of 35 business leaders invited to sign a letter in the Daily Telegraph, urging Chancellor George Osborne to cut public services. Reducing the budget deficit quickly, they claimed, would "deliver a healthier and more stable economy".

They said: "everyone knows that when you have a debt problem, delaying the necessary action will make it worse not better."

The BBC's Robert Peston noted: "there is a whole school of economists . . .  who would describe that statement as laughable."

Nick Buckles, ex-G4SAusterity politics creates work for outsourcers regardless of whether they do things more efficiently than the public sector, or not. The PFI model that accountants have dreamed up keeps capital spending off the government's balance sheet, making the official budget deficit smaller. Pushing public money into private hands shrinks the state and weakens organised labour

Who gains?

The big accountancy firms who frame the contracts that serve taxpayers so badly are reckoned to have made £1 billion in fees from the Private Finance Initiative.

The winners include management consultants like McKinsey.

And politicians who have taken fees, donations or directorships — like Michael Gove, (Christofferson Robb & Company),  Lord Reid (G4S), Alan Milburn (PricewaterhouseCoopers), Virginia Bottomley (Bupa), Lord Darzi (GE Healthcare) . . .

Capita's founder, Rod Aldridge, lent the Labour Party £1 million.

Who gains? Civil servants like David Griffiths. He led the government's review of "probation efficiency", developed the commissioning policy, then jumped ship, becoming director of probation and community services at G4S.

Chris Hyman, ex-SercoFinancier David Metter has made more than £80 million for himself. He owns or co-owns 28 NHS hospitals, 269 schools, the Ministry of Defence HQ, a Scottish motorway and a Welsh jail, according to the Daily Telegraph. (The chief apologist for PFI, here he is running rings around flatfooted MPs on the Public Accounts Committee).

Who gains? The accountants who run the outsource companies: G4S's chief executive Nick Buckles built a fortune of more than £20 million before the fraud scandal forced him out last year. Serco's departed multimillionaire chief executive Chris Hyman (Ruby's former boss) races Ferraris for fun.

Capita's chief executive Paul Pindar trousered £8.5 million last year after cashing in £6 million worth of shares to fund his divorce. He retired last week, to "establish a portfolio of private equity opportunities".

Austerity pays.

Ruby McGregor-Smith's £730,000 windfall is unlikely to be her last. On top of her £1.5 million-a-year, and assuming Mitie's share price keeps rising, this year she is due another mighty windfall. Next year, same again . . .

 


 

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Thanks to Phil Miller, Tamasin Cave, Jeremy Fox and They Work for You.

Ruby McGregor-Smith's remuneration details appear on pages 52 & 54 of Mitie's Annual Report & Accounts 2013 (PDF here). Her "nil cost" share trade is noted in director dealing records here.


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