Politics and Governance in the UK

Second edition

by Michael Moran

Update 45 – December 2013

The politics of the new contractual state

A spate of scandals and fiascos involving the outsourcing of public service delivery in recent months reminds us of a profound change which is coming over the state in Britain. This change is so swift that it barely figures in the 2nd edition of Politics and Governance in the UK, though it will be a major theme of the 3rd edition which is due out soon after the next general election. This might be summarised as the rise of a new contractual state in Britain. Its broad outlines have already been explored by colleagues of mine at the University of Manchester, researchers at the Centre for Research on Socio-Cultural Change (CRESC.)

In recent years we have seen the dismantling of large parts of a command economy where the state directly provided services, and its replacement by a web of contracts: by a system where services have been contracted out to private providers, and where the state takes on the policing and enforcement costs over these contracts. Welfare benefits and assessment; health care delivery; law enforcement – almost everything that we thought of in the past as core functions of the state, to be run by public servants, is being contracted to the private sector. The scale of this – in policing and incarceration, in welfare, in education – is constantly growing. The long term impact, not only on the state but on the structure of the wider economy, is startling. My colleagues in CRESC at Manchester, for instance, have shown that while in the mid 1980s the UK FTSE 100 (the standard list of the biggest firms in Britain) contained large numbers of industrial giants (remember ICI, Pilkington, GEC?) by the new millennium the industrial giants had shrunk in number and had been joined in the FTSE 100 not only by big commercial enterprises like supermarket chains, but by the products of the new contractual state. There were two categories: the ‘outsourcing’ specialists (Capita, the Compass Group and Serco); and the utilities giants (such as BT and Centrica.) The latter remind us that the new contractual state goes well beyond conventional outsourcing. Privatisation has created in effect a franchise state: a system where the state contracts for the provision of public services with private providers, creating franchises which – in the case of rail, for instance - create private monopolies. The scale of employment in the biggest of these outsourcing enterprises (Serco) now dwarves the numbers employed by the biggest of the industrial enterprises remaining in the FTSE index. (See Bowman et al 2013.)

At the beginning of the privatisation and outsourcing revolution in the 1980s the new contractual state was presented as, among other things, a solution to what was perceived to be backstage manipulation by Whitehall and a lack of clear lines of accountability. The new contracts would write down openly what had hitherto been concealed. But in practice the age of contractualism has created a new set of constitutional problems. Three big problems are emerging.

  • Lack of transparency. The worlds of utilities in particular are marked by webs of contracts which are virtually impossible for even an expert observer, let alone a conscientious citizen, to work out. The CRESC report on the rail franchise system, for instance, shows that that the profits of the train operating companies are embedded in an opaque accounting system, while the opaqueness of the financing system for the rail infrastructure has led to the creation of £30 billion of debt which is formally off the public financing balance sheet but which has, almost in a fit of absent mindedness, become a public liability (Bowman et al 2013a.) Transparency is of course also a prerequisite of accountability – the very thing promised in the early accounts of privatisation and outsourcing.
  • Abuses. Contracts have to be monitored. Monitoring is especially important when the tasks that are contracted out involve dealing with the poorest and most vulnerable. The policing and control of just about the most vulnerable group in Britain – immigrants seeking asylum – is now substantially contracted out, and has been the subject of successive scandals.
  • Incompetence. Contracting arrangements in markets are not necessarily inferior to keeping things ‘in house’ in a command system. But the one great service which the new contractual state has done is to remind us not automatically to think ‘private provision efficient, public provision incompetent’. To disabuse ourselves of that illusion we only have to think of SERCO and overcharging for electronic tagging of offenders (which seems to have been the result of complete incompetence, not conscious dishonesty); or G4S and the fiasco of security provision at the London Olympic games. The period since my last set of updates was also marked by the publication of a landmark study of policy fiascos in the British system (Anthony King and Ivor Crewe, The Blunders of our Governments, Oneworld Publications 2013.) That monumental study reminds us of the almost limitless capacity for incompetence which is engrained in our governing institutions.

Bowman, A., Froud, J., Johal, S., Moran, M. and Williams, K. (2013) Business Elites and Undemocracy in Britain. Manchester: CRESC, downloadable at
http://www.cresc.ac.uk/publications/business-elites-and-undemocracy-in-britain-a-work-in-progress

Bowman, A., Folkman, P., Froud, J., Law, J., Leaver, A., Moran, M., Williams, K. (2013a). The Great Train Robbery: rail privatisation and after. Manchester: CRESC, downloadable at
http://www.cresc.ac.uk/publications/the-great-train-robbery-the-economic-and-political-consequences-of-rail-privatisation