§ The Parliamentary Under-Secretary of State for the Environment (Sir Paul Beresford)I beg to move,
That the draft Local Government Act 1988 (Competition) (Defined Activities) Order 1995, which was laid before this House on 8th June, be approved.The order completes the Government's programme for the extension of compulsory competitive tendering to white collar professional services by adding financial, information technology and personnel services to the statutory CCT regime. It also amends the current definition of building cleaning to including the cleaning of police buildings.CCT has, of course, brought many benefits to local taxpayers in the past 15 years, but perhaps more significant in the longer term have been the improvements in service quality and efficiency brought about by better management and a clearer strategic focus. Not least have been savings which we estimate at well over £400 million.
The Government first set out their intention to extend CCT to white collar professional services in November 1991. Since then, we have been engaged in a thorough debate with local authority representatives on the framework for white collar CCT. Parliament approved orders defining the first of these—legal and construction and property services—in November last year.
On 18 May, we announced to the House details of the regime which would apply to the remaining services described in the order. The definitions are part of a package which also includes the competition percentages for this work, revised rules for tendering and the implementation timetables, all of which will be set out in further statutory instruments once the order receives Parliament's approval.
In many cases, decisions on these matters have entailed careful judgments which balance the need to bring competition to bear on white collar services with the operational flexibility that individual authorities rightly seek. I intend to monitor closely the implementation of white collar CCT, and will undertake to reconsider any aspect of the regime if there is hard evidence of problems in applying the new rules.
We have met many of the concerns of local authorities in putting together a challenging but, I believe, fair regime. CCT will not impose a rigid model for service delivery, but instead will encourage innovation, improved quality and greater value for money. The onus is now on local authorities to respond positively to the challenge of competition.
I commend the order to the House.
§ Mr. Eric Illsley (Barnsley, Central)As the Minister pointed out, the order defines the activities to be included in the Government's latest extension of compulsory competitive tendering to financial services, information technology services and personnel services. The Labour party has some misgivings about CCT. We would like to raise one or two issues this evening and persuade the Minister to respond to them.
The Government are still intent on breaking up local government services even though there is now growing evidence that CCT costs more than it saves. CCT is causing 722 the loss of tens of thousands of jobs in local government, and it discriminates largely against women. The quality of services provided by local government is falling dramatically as services move into the private sector.
As local government is swamped by bureaucracy as a result of compulsory competitive tendering and the preparation for, in particular, white collar CCT, and the private companies cut the terms and conditions of employees in order to maximise profit, there is increasing concern about the abuses and collusion that appear to be taking place among private contractors.
Experience of blue collar CCT has shown that we can expect more of the same problems next year as white collar CCT is implemented. The Government's insistence on CCT is based on the premise that quality will be improved and costs reduced. The Minister mentioned cost reductions of £400 million; perhaps he will tell us where he obtained that figure, which tends to be contradicted by information available to the Opposition. To us, the opposite appears to be the case: costs appear to be increasing, and quality appears to be declining.
The Government's own research found that costs had decreased by an average of some 6.5 per cent., over a range of a 15 per cent. cut through to a 2 to 3 per cent. increase. That has been achieved mainly through the imposition by private companies of pay reductions, reductions in holiday entitlement and, of course, considerable job losses. In-house contracts have been won at a similar cost in jobs and conditions of employment.
It is unlikely that any such cost savings will be replicated in white collar CCTs. The percentage of work to be put out to competitive tender is smaller; the type of work is more quality-orientated; and there is a fear that the bureaucracy involved will far outweigh any savings to be achieved. In fact, the sheer volume of work involved in preparation for compulsory competitive tendering has added some 10 per cent. to the costs—and, in bureaucracy terms, to the value of the contract.
White collar CCT places a greater emphasis on quality than blue collar CCT. Many local government departments have built up technical expertise that will be fragmented with the introduction of white collar CCT; many in-house departments will lose the expertise that they have built up over a number of years. In my view, white collar CCT is unnecessary. At present, there is considerable downward pressure on local government as a result of recent financial settlements: over the past few years, many local authorities have been squeezed, and many of the areas that we are debating have suffered cuts as a result of capping and other Government restraints.
Is compulsory competitive tendering saving money, and does it discriminate against women? The Minister will know of a report compiled by the Centre for Public Services, on behalf of the Equal Opportunities Commission, which published some startling findings. It involved a case study of four services and 39 specific instances, and concluded that, in those four services alone, there have been 74,000 job losses. It also stated that the cost of unemployment, combined with the loss of income resulting from job losses, cuts in hours, loss of holiday retainers and lower wages, was some £41.2 million in the four services.
Gender differences were highly significant, changes in women's employment accounting for £32 million, or 70 per cent., of the cost of increased unemployment and loss of income to central Government. The study calculated 723 cost savings to be only about £16.4 million—a sum outweighed by costs of £41.2 million. Nationally, over the four services, we have a figure of £126 million. Put another way, for every £1 million of CCT savings, the cost to the Government and to the public purse—and so to unemployment benefit, family credit and other benefits—is £2 million.
Women's employment fell by 22 per cent., and male employment by 12 per cent. Obviously, a higher proportion of women are affected by CCT. Average hours declined by 25 per cent. The decline in hours and pay means that the weekly earnings of a greater number of women are below the national insurance lower earnings limit, and that those women are often excluded from employment protection.
There is a trend towards multiple jobs. Women have a number of contracts with the same local authority or private contractor, which bring them above the national insurance threshold only when they are combined. Many local authorities and companies are happy for women to remain below that threshold, so that they do not have to contribute to the national insurance fund.
More than 200,000 white collar and professional staff, men and women, will be affected by the extension of CCT from 1996. Four out of five women's jobs affected by white collar CCT are in low-paid grades. Does the Minister accept those findings, and if so, what action does he propose to take as a result of those conclusions? It is obvious that the impact on women's employment is highly significant.
Those problems are likely to be replicated in white collar CCT in personnel, information technology and financial services, as quite a high number of female full-time jobs exist in those sectors. What will the Minister therefore do about that report? Does he accept it, and if not, will he, at the very least, commission his own research? At the very best, he should shelve the whole white collar CCT programme until those issues have been far more thoroughly researched. If he does not accept the report, I should like to hear his reasons why.
On job losses overall, 12 per cent. of local government jobs have been lost. Some 167,000 manual jobs were lost between 1989 and 1993.
We come to the issues of efficiency and competition. Local government is required to achieve a 6 per cent. return on capital used in local government. That condition does not apply to private companies—no requirement exists for that 6 per cent. return. Private sector companies can make a loss, and it does not affect the fact that they hold that contract. Surely that is unfair competition and militates against efficiency.
For example, in grounds maintenance, in 1994–95 the contractor AAH Environmental made a loss of £3 million, which was sustained through the parent company AAH plc. The highways direct service organisation of Bradford metropolitan borough council, however, is to be closed from April 1996 because of a loss of £1.18 million in 1993–94, despite the fact that, in previous years, it had achieved surpluses in other activities. That loss, however, cannot be offset in the same way as such losses can be in the private sector.
Having said that, some 85 per cent. of direct service organisations are achieving their target. Those DSOs plough back the profits and surpluses they make from CCT to a far greater extent than Conservative authorities or authorities controlled by other than Labour councillors.
724 Competition has decreased. There is overwhelming evidence of cartels and collusion. In building cleaning, four companies have 29 per cent. of the contracts. In grounds maintenance, five companies have 53 per cent. of the contracts. In school meals, three companies have 78 per cent. of the contracts; and so it goes on. In those sectors, therefore, CCT appears not to have increased competition at all.
In May this year, 11 private contractors were found guilty of price rigging. The companies involved in tendering in areas such as financial services will be far bigger and better able to offset any losses on particular contracts. The application of the Transfer of Undertakings (Protection of Employment) Regulations 1981 has persuaded some private contractors that it is not worth tendering within local government, because they cannot derive profits from cutting jobs, hours of work and conditions of employment. For example, Securicor recently sold its cleaning company and AAH—the company that I just mentioned—is to sell off its environmental services division.
The quality of the services provided by the private sector has declined dramatically. I recently attended a conference at which the Under-Secretary of State, the hon. Member for Hertfordshire, West (Mr. Jones), said that over-emphasis on quality of service in local government would be viewed as anti-competitive behaviour. So local authorities will now be prevented from concentrating on providing quality services, because that will be regarded as anti-competitive. The idea of quality service provision has gone out of the window in favour of providing the cheapest service.
There are numerous examples of contracts being terminated because of quality issues. I shall name only my favourite one. The West Wiltshire local authority sacked its grounds maintenance contractor which had failed to achieve the targets stated on the contract, because it said that the "grass was growing too quickly". In April 1995, The Daily Telegraph said:
The Government's drive to privatise council services is in crisis… Scores of contractors have gone bust or been sacked, costs are rising and local government auditors have given warning about the increasing risks of corruption … Some of the contractors have also expressed doubts … particularly when (CCT) compels councils to privatise, often against their will, and attracts over-aggressive bidding with a resultant low priority on quality".That quote comes from a newspaper that is not exactly pro-Labour.Finally, I refer to the section of the regulations concerning police buildings. It has been highlighted that the requirement for police authorities to put out their building cleaning to private contract could jeopardise the security of those buildings. A number of police buildings serve a dual purpose, and many others have a security requirement. Trade unions and other bodies involved with police authorities and building cleaning point out that that security could be put at risk by contracting out work to the private sector.
It is clear that CCT is costly, more and more inefficient and provides a poorer quality of service. The emphasis is on excluding local government in favour of private sector profit on the basis of dogma. There is a cost in jobs, levels of pay, conditions of work and, above all, in terms of quality of service to the council tax payer, who is required to accept the cheapest available service. I ask the Minister to reconsider the order, and particularly the issue of discrimination against women.
§ Mr. David Rendel (Newbury)As I have expressed my views and those of my Liberal Democrat colleagues about compulsory competitive tendering to the House on various occasions, my remarks tonight shall be brief.
I have always argued that there are clear benefits in introducing competitive tendering for some public services. Competition can help to eliminate waste and it can put the spotlight on the level of service required at what cost. Moreover, external contractors can sometimes possess a useful expertise which is not available within a given local authority. The opportunity for a local authority to choose between its own expertise and that of other outside contractors can only enhance that authority's ability to provide quality services with good value for money.
However, we must be clear that, in order to gain full advantage from competitive tendering, we must allow local authorities to use it as a part of their individual management and organisational policies. The compulsory element of the current tendering process undermines the right of local authority managers to manage, and the right of councillors to set council policy. That prohibition of local decision making is itself anti-competitive.
Under present CCT regulations, local authorities are not permitted to take fully into account the costs of transition to externally provided services. Neither may they account for continuing tendering costs or make any allowance for the loss of internal direct labour capacity. Tying a council to external corporate pricing that way does not aid real competition.
Above all, CCT often does not even make economic sense. The Equal Opportunities Commission survey of the real costs of CCT cast a good deal of doubt on the ground of cost alone. When CCT was first introduced, Newbury district council—my own authority—made a policy decision to fight for and to win, wherever possible, every contract that it was forced to put out to tender.
In almost every case, the council was successful, but the result in almost every case was increased cost to the authority, because the tender price had to be added to the cost of an extra layer of bureaucracy—the contracts board that was put in to oversee the running of the contract. Under the system, one had two sets of management—one to oversee the running of the contract and one to oversee the contract itself.
When arguments are made about public service and public accountability, it becomes clear that CCT is by no means a policy born of common sense but one driven by dogma. If councillors have been elected to govern in their own particular style, with specific commitments to service provision, they should be able to fulfil those obligations. The whole principle underlying local government is that local people are the best judges of their local needs, and that they express that judgment in local elections. Compulsory competitive tendering goes directly against that basic principle of local democracy.
I am pleased that the order before the House has been toned down a little by the Minister, but there remain matters of great concern. We know, thanks to the Equal Opportunities Commission, that CCT is particularly detrimental to women who wish to work part-time. I fully support the remarks of the Labour spokesman, the hon. Member for Barnsley, Central (Mr. Illsley), about women. Moreover, the complicated regulations involved in CCT 726 for finance, information technology and personnel are a bureaucratic nightmare, well described as a job creation scheme for accountants.
The cleaning of police buildings, different parts of which may be sensitive at different times, is not a service that should ever have been subjected to CCT. I hope that the Government are looking forward to the first serious leak of confidential information that results.
In the light of the Secretary of State's changes to his original proposals, perhaps he is just beginning to get the message that the Conservative vision of local government as simply an allocator of contracts to the private sector, with precious little scope for accountability, is not shared by almost anybody involved in local government. It is not shared by local authority associations, Opposition parties or the public. Even some Conservative councillors, I am happy to say, have had just about all they can take from CCT.
The Government have twisted and turned over local government review, and I understand that they may be about to ditch the strict capping regime. As the Government seem to be in the mood for tuning, they ought to know that a U-turn on CCT would be widely appreciated throughout the country.
§ Sir Paul BeresfordI will first touch on some of the points made by the hon. Member for Newbury (Mr. Rendel), who displayed a mind-boggling misunderstanding of how competitive tendering can be used and the control that can be exercised.
If the hon. Gentleman's local authority finds extra costs incurred in managing and controlling CCT systems—whether in-house or external—it had better look at it again. From my considerable experience, significant savings can be made. One must examine the way that the contract is set up and the specifications. Additional costs are a sign of incompetence on the part of the local authority. If the hon. Gentleman had done more homework—
§ Mr. Rendelrose—
§ Sir Paul BeresfordI have not finished yet.
§ Mr. Paul Boateng (Brent, South)Churlish.
§ Sir Paul BeresfordDesperately so.
The hon. Gentleman should recognise that, in terms of the police, we are talking about a contract for 20 per cent. of the space available. That overcomes the difficulty that he was talking about.
Much play has been made of the commission's conclusion that CCT discriminates against women—
§ Mr. RendelThe Minister described my local authority as having been obviously incompetent in its dealings over CCT. Does he realise that, at the time I was talking about, that local authority was Conservative-controlled?
§ Sir Paul BeresfordWhat I said stands. For a small fee, I am sure that we can arrange for someone to come down and help the authority. But under any other control, things would probably have been considerably worse.
The idea, stemming from the Equal Opportunities Commission, that CCT as a policy discriminates against women is the poorest piece of research I have seen for quite a long time. It looks at a very narrow range of services; it takes a very partial view of the evidence.
727 I do not accept the finding that CCT costs local authorities and the Exchequer more. Based on my personal experience of a London authority, in which we brought in an outside contractor to take over the IT services of a huge London borough, the resulting savings amounted to more than £1 million, with all on-costs added in. Moreover, a better service resulted. It is therefore untrue to say that CCT costs more.
The hon. Member for Barnsley, Central (Mr. Illsley) said that CCT costs more—a point that I have already dealt with. He also talked about a lack of future competition. My experience, after 12 or 15 years of competitive tendering in one London borough, has been exactly the opposite. The competition is harder and tighter, and that has spread throughout all authorities that adopt a realistic attitude—
§ Mr. BoatengWhich borough was that?
§ Sir Paul BeresfordI am talking about Wandsworth borough council, the council that managed to provide some of the best services in London—with a zero poll tax on two occasions. Part of that was due to the use of competitive tendering.
These debates have gone on for some time—
§ Sir Paul BeresfordNothing new has appeared. The proof of the pudding has been in the results. Many local authorities have adopted the route that we suggest this evening, and I commend the motion to the House.
§ Question put and agreed to.
§
Resolved,
That the draft Local Government Act 1988 (Competition) (Defined Activities) Order 1995, which was laid before this House on 8th June, be approved.