Local Authorities (Functions and Services) (Hansard, 17 July 1981)

§ Mr. Bob Dunn (Dartford)

I wish today to present the case for the privatisation of local authority services and functions and perhaps to dwell upon the benefits that the pursuit of such a policy will bring to local authorities and to the people whom they seek to represent and serve.

I apologise to my hon. Friend the Under-Secretary of State for the Environment in two ways. The first is for detaining him here this afternoon. The bad news is that he is here; the good news is that the debate was not held last Wednesday morning.

That a case needs to be presented is self-evident, first, because the vast majority of people serving in local government, whether as elected representatives or as paid officials, have followed an historical pattern of behaviour brought about by the nature of local government legislation and practice as placed on the statute book since the 1880s. Secondly, local authority management, in the form of locally elected councillors, has failed to realise the opportunities now available to it.

Local authorities today intrude into our lives in a way that was never envisaged. They can, for example, influence for good or evil the employment opportunities within the area of their management. The intrusion that takes place is in the degree of efficiency and the form of services as provided and the payment by domestic and industrial ratepayers, as well as by the taxpayer at large, of the cost of those services.

The House will not be surprised when I point out that in 1969 only 36.8 per cent. of current and capital expenditure and 48.6 per cent. of current expenditure came in the form of local authority grants from central Government. By 1979, only 47.9 per cent. of current and capital expenditure and 55.5 per cent. of current expenditure came from Government.

The burden of the rates, as we know from our experiences in Camden, Southwark, Manchester, Sheffield and Lambeth, acts as a disincentive to further industrial expansion and leads to the ultimate closure of factories and shops as the burden of rates, rate increases and supplementary rate levy finally pushes small and medium-sized businesses from profit into loss.

The House will not be surprised to hear that in 1978–79 the domestic rate increased by 9.6 per cent. for all authorities in England and Wales. In 1979–80 it increased by 18.5 per cent. and in 1980–81 by 27.1 per cent. Additionally, over the past 10 years there has been an increase in local government employment. In 1969, 2,505,000 people were employed by local government. By 1975 the figure had reached 2,974,000 and by 1980, 3,013,000. Clearly, local authorities today are very big business. In 1969, local authorities' local and current capital expenditure amounted to £6,096 million. By 1974 the figure had doubled to £12,929 million, while by 1979 it had more than quadrupled to £24,444 million. Allowing for salaries and wage costs, especially in the education service, local government remains a costly and, until recently, monopolistic service, funded almost entirely by the twin supports of local rates and the rate support grant.

1592 As local government expenditure has grown, so, inversely, it appears, or it is perceived by the recipients of services, that the services provided have remained constant or in some cases have declined. Local councils should heed that view. Moderate councils that carry out their statutory obligations to an adequate standard as well as the more expensive local authorities in the United Kingdom should seize the opportunity, which until the election of the Conservative Government did not exist, to examine the way in which their services are administered. If they are satisfied that their existing operations provide the best services at the best cost, privatisation should be left alone. If, however, services are not achieved according to that criterion, privatisation should be entertained.

Local councils these days should regard themselves as managers of their local authorities. They now have the power to shape events. Because of the nature of their task, they should perhaps be regarded as socially aware directors of "Local Authorities Ltd.". For those in local authorities today the message is clear. Any saving in expenditure means the creation of resources for other necessary projects. The greater the bureaucracy, and the greater the absorption of costs into the running of that bureaucracy, the less there is for the provision of services needed elsewhere.

Although I should like to argue that there should be a requirement on local authorities to consider privatisation, I must accept entirely that if we support any form of local autonomy a decision should be left to the authorities themselves. I want local authority managers to take on board schemes for privatisation and to accept from the House a direct challenge to inquire and to consider the benefits that privatisation would bring.

Undoubtedly, any hon. Member who advocates a policy of privatisation will be asked what is the extent of the savings and where can they be made. I am reminded, in a press statement from a company dealing with this very subject, that privatisation—an American word—is a process by which local authority services are put out to tender by private contractors. In the United States, savings of up to 40 per cent. have been achieved in many cities by privatisation of refuse collection services. The bill for refuse collection in England and Wales alone is £500 million per year. A saving of at least 20 per cent. of that amount must merit consideration by those responsible to the ratepayers.

As the House knows, ratepayers are becoming increasingly desperate as rate demands reach excessive levels and the quality of local services declines. Local authorities are apparently trapped in a spiral of escalating costs, high labour intensity and declining quality. Any break-out from this dilemma is hampered by local government's monopoly position—supported, as I said earlier, almost entirely by rate and rate support grant income—which removes any incentive to local authority managers to seek greater efficiency in alternative forms and means of providing services.

The only authority in the United Kingdom which has achieved any great success in this regard is the borough of Southend, in Essex. Southend's privatisation of refuse disposal has led to a reduction this year in the rate demand. Almost 80 per cent. of Southend's direct labour force were offered jobs by the private contractor who was asked to take over that service. The people employed by the private contractor receive wages that are 20 per cent. higher than 1593 the local authority's wage rates. The net saving in 1981–82 on Southend's refuse collection bill is well in excess of £400,000.

I remind the House that the failure to grasp the opportunities provided by existing legislation will, if savings can be made, prove a costly mistake to make.

I have been told by my own local authority that it is none of my business to advance the cause of privatisation, but as long as local authority expenditure is funded to such a large degree from the Government, I regard it as right and proper—and, indeed, my duty—to advance a cause in which I believe, and which, if understood and applicable, can act as a factor to reduce the financial imposition of local authority costs upon my constituents, whether in the domestic or the industrial sector.

In the debate about privatisation, the onus is on those who are opposed to it to satisfy themselves that they provide their services properly and that their intentions are carried out at the best level of efficiency and at the best cost. Local councillors should be reminded that they manage big business, and that, for the first time in many years, if ever, they have the right to shape events in a way that their predecessors did not.

I hope that many local councils will listen to the debate and not simply advance the view that reform is all right as long as things remain the same.

§ The Under-Secretary of State for the Environment (Mr. Giles Shaw)

The House should be grateful to my hon. Friend the Member for Dartford (Mr. Dunn) for raising an issue that I suspect we on these Benches—and I am very glad to see that I am supported by my hon. Friend the Under-Secretary of State for Education and Science the Member for Brent, North (Dr. Boyson) and by my hon. Friend the Member for Orpington (Mr. Stanbrook)— wholeheartedly espouse.

It might be for the convenience of my hon. Friend the Member for Dartford if I were to make some observations about what privatisation should be, because there seems to be some idea that what we might be wishing to do is to take away local government services at a stroke and, possibly even more importantly, local authority control over such services, and to place such services outside that control.

My hon. Friends know very well that that is not necessarily the case. We start from the premise that my hon. Friend so eloquently put to the House, which is that when we are faced with an ever-increasing demand for local authorities to be supported by taxation—whether it be at the local level or at the central level—it behoves all local authorities to see that their services are as efficiently produced as possible.

I think that my hon. Friend would also agree that when we are faced, as we are, with the need for restraint on Government support for local authority expenditure, that is the time when every local authority will be looking at the consequences. When faced with the need to reduce their costs, or when faced with cuts, the authorities' first question should be not "Which service can we cut?" but "How can we supply each service more efficiently?" It is in that context that my hon. Friend's case for privatisation is so important.

1594 I commend to my hon. Friend—if he does not already know it—a booklet that was produced by Mr. Michael Forsyth in, I think, December 1980, entitled "Re-servicing Britain". It was published by the Adam Smith Institute and is therefore a publication of some importance. This helps to clarify some of the principles upon which privatisation could be based. One of the first such principles is its very variable nature. I could well be that local authorities would seek to involve private sector activity on a joint or partnership basis, on a wholesale contracting-out basis, or, quite frequently, on a combination that includes voluntary co-operation of various groups in the local authority area. In this publication, which I commend to my hon. Friend, Mr. Forsyth argues that privatisation combines public service with private provision, and represents the attempt to blend public accountability and control of standards with the private enterprise disciplines of efficiency, cost-effectiveness and responsiveness to consumer requirements".

That, it seems to me, is the right starting place for discussing the principle. It is interesting to note that although my Department does not, for obvious reasons, keep an entirely accurate and up-to-date record of everything that goes on within local authorities, because we believe, wherever possible, in not intervening in their affairs, there are some very good examples quoted by Mr. Forsyth of the varied way in which the private sector is involved. He quotes the case, which I think will interest the House, of Northampton city council, which has set a lead in the running of its local bus services. Instead of merely cutting out the services on routes which its transport department could not make pay, Northampton purchased a minibus, taught volunteers to drive it, and gave them the bus to operate on uneconomic routes. Fares are charged to cover costs, and a fund has been established which will soon have enough to enable the council to buy a second bus.

A second example comes from a county authority much nearer the constituency of my hon. Friend—the Kent county council, which I understand produced a remarkable combination of a private contract and voluntary effort. In collaboration with the personal social services research unit at the University of Kent it set up a community care scheme the basis of which is paying families to undertake good neighbour tasks for dependent elderly persons. Faced with an increasing number of old people needing to be put into care and the ever-mounting costs of caring for those in institutions, the community care scheme succeeded in recruiting motivated individuals to look after people in their own homes.

Those are two examples, very varied in type, that local authorities have already decided to implement and yet, as my right hon. Friend rightly says, there is no more opportune moment than now to discuss privatisation across the whole spectrum, where it could interact to the benefit of ratepayers and taxpayers alike in the provision of local authority services. My hon. Friend is right to quote the massive costs of local authorities, involving expenditure of £20 billion a year. It amounts to about one-quarter of all public expenditure. It is this starting point that is so relevant to the debate that my hon. Friend initiated.

Of course, we in Government recognise that there have to be safeguards in introducing any wholesale schemes for privatisation. Local authorities, after all, are responsible to their electorates for satisfying themselves of the standards of the services that any outside contractor or any other agency of the council will provide. They have to consider the need for continuity of service provision. They naturally have to discuss with the unions the job 1595 implications. The terms of the contract need to be considered carefully. All this is not, in itself, an insuperable obstacle to obtaining a happy blend between local authority good management practice and private sector operations.

Private firms themselves, I suggest to my hon. Friend, should come forward perhaps more vigorously than at present to sell the services that they have to offer to individual authorities. Of course, the greatest stimulus for them is increased demand for their services. But they must themselves help shape the climate of local opinion in which they seek to operate and show that they can provide a particular service, to the benefit of local ratepayers and consumers.

As a Government, we see our main role as encouraging local authorities to consider contracting out as one of the opportunities for making savings. We would consider that at the present time, when restraints on public expenditure from the centre are so obvious to all local authorities, this is surely the right opportunity for a reappraisal.

A major step in this direction has been the provisions on direct labour organisations in the Local Government, Planning and Land Act 1980, which came into force in England and. Wales on 1 April this year. DLOs now have to bid for a substantial proportion of their work against competitive tenders from the private sector. They have to earn a prescribed rate of return on their capital—at present, 5 per cent. On a current cost accounting basis. Authorities have to keep full trading accounts and publish annual reports giving a detailed assessment of the performance of DLOs. We have thus promoted fair competition and encouraged authorities to consider the contracting-out alternative.

Local authorities should, in the light of their own circumstances, consider the scope for adopting similar arrangements for other activities. The Government are taking steps to help them in this regard by improving the information about existing practices and the scope for alternatives. Here I think that my hon. Friend did a service by pointing out that one of the problems is the lack of information about what is available for local authorities to act upon.

Greater awareness is needed of the areas in which contracting out has been shown to be successful. Greater awareness is also needed of the factors that have to be considered and the practicalities of the contracting arrangements. We have therefore commissioned consultants to examine service delivery and pricing arrangements and the scope for alternatives across a range of local environmental services in England. I think that my hon. Friend will he aware that the range of services provided by local authorities is very wide. Therefore, the range for looking at alternative methods of supplying them could be regarded as equally large. Whether it is parks, gardens and the growing of plants, on the one hand, or highway and housing maintenance, on the other, there is a huge range of services that local authorities can consider contracting out if it is shown to be beneficial in efficient services to their consumers.

The report of this body of consultants, based on a series of case studies in a sample of authorities, will be published later this year. This should help to promote more informed debate and spread experience of the practical considerations involved in contracting out. I shall write to my hon. Friend when we have received the report and studied it.

1596 There are, I believe, obvious opportunities for contracting out refuse collection. My hon. Friend drew attention to the scheme in Southend. There is no intention here to criticise the managers or the men who have run what is, on the whole, a fairly good service for a century or more. I particularly commend two features of the refuse collection service in the United Kingdom. It is comprehensive, with virtually every property in the United Kingdom getting a regular service to and from its door, and it is reliable all the year round. Nevertheless, we cannot ignore the need for periodic reviews. Circumstances change. The private waste disposal industry has grown to a very large size. It is now seeking out work in local authorities. It would be short-sighted not to see what it has to offer.

One particular advantage of private sector participation is that it holds out a prospect of exporting the service. Local authorities will never export, however good their service may be. But one sees European and American cleaning and waste management firms confidently bidding for work in the Middle East and elsewhere, and building on a demonstrable record of experience at home. That is a good reason why the Government should seek to encourage that kind of development.

This fits in well with our work in the United Kingdom on mechanised waste sorting and recovery systems. We are among the leaders in developing technology that really works. Southend is the most recent example of contracting out refuse collection. It estimates that it will save £500,000 on a previous annual cost of £2¼ million. As the first authority in Britain to contract out the whole of this service I am sure that many other local authorities will be watching its progress very closely. Dissemination of information among authorities about practical experience is of great value. I particularly welcome Southend's decision to make available for sale documents summarising its experience, so that other authorities can have the benefit of the lessons that it has learnt.

We should also remember that in highways and housing maintenance, contracting out by local authorities is already the norm. Our impression is that much the larger part of highways maintenance, by value, is already carried out by private contractors. The majority of new housing construction and a considerable amount of maintenance is also done by contractors. The recent DLO provisions, which I mentioned, have further improved prospects for contracting out these types of works. In highways construction projects, overseen by county councils as agents of the Department of Transport, compulsory tendering of jobs over £100,000 has long been the rule, and the great bulk of the work goes to private firms.

There may well be more private sector involvement in architectural and other professional services. In Kensington and Chelsea, for example, a private practice has been set up, with the council's encouragement, formed from the director of architecture and other architectural staff. I understand that in Oldham the council has contracted out all its quantity surveying work for many years now. Some other across-the-board services, such as cleaning, vehicle maintenance and catering, may also be worthy of consideration. Southend has also recently contracted out a major part of its office cleaning service, with estimated savings of £30,000 on a total previous cost of about £50,000 a year.

Looking overseas, we can see that the potential for contracting out is wider still. My hon. Friend referred to 1597 experience in the United States. Several local authorities there follow the example of Lakewood, in California, where almost all municipal services are provided either by the private sector or by larger local authorities. In the United States and Europe there is a range of other examples, from park maintenance to the fire service. A paper by my Department drawing together material about experience abroad is available to local authorities on request.

It is worth stressing that there is a variety of other options worth exploring, as well as the wholesale contracting out of an activity. Joint ventures with private firms are one. Agency arrangements with other authorities are another. There is no one model for all situations, and several different combinations can have a role, which is why I found Mr. Forsyth's pamphlet so useful. As my hon. Friend said, there may be areas of service provision from which a local authority may decide to withdraw in the interests of allocating restricted resources where they are most needed. That could create additional openings for private firms.

My hon. Friend is right when he says that the climate is changing. More and more authorities are recognising the importance of a thorough re-evaluation of their priorities. 1598 I was concerned to hear that my hon. Friend's local authority has taken an adverse view of the prospect. My hon. Friend is right to say that it is a duty of hon. Members and every local authority to examine provision of services in the search for improved efficiency and better value for money.

In the end, as any local authority will recognise, its ratepayers and electors will determine whether they are satisfied with what the council does. There is no doubt that because of the present level of rates and the fact that supplementary rates are levelled several times during the year electors have decided in many cases that they have had enough. Therefore, local authorities have to be sensitive, to reduce their costs, and to look at their services to see whether they can find other ways of satisfying the markets that they serve.

Privatisation is not the only option available to local authorities, but surely it is the one that merits most consideration. As more information becomes available about its potential scope and advantages I hope that local government will increasingly give it the attention that it deserves. I am grateful that my hon. Friend has done so.