§ 5.34 p.m.
§ Lord Gisborough rose to ask Her Majesty's Government whether they will encourage the privatisation of certain local authority activities and services.
§ The noble Lord said: My Lords, local authorities this year will spend between them some £25,000 million, and the figure gets higher each year. Taken together with public utilities and industries, these giant spenders account for about a third of the national turnover and any inefficiency or lack of control or services adds up to huge sums wasted. Yet while private industry has had to increase its efficiency through competition and fear of bankruptcy the public authorities, in their monopoly and protected positions, have been able continuously to escalate their costs and simply pass them on to the ratepayer or taxpayer to fund from the profits of the profitable private sector. This burden in the form of huge rate increases has contributed significantly to driving many firms out of business and restricting others from expansion. It has significantly contributed thereby to unemployment.
§ Local government the world over tends to be wasteful, expensive and inefficient. Furthermore, the authorities are not forced to attract customers, they face no competition and in the long run, when cuts are forced upon them, they inevitably tend to operate in the interests of those who administer and of the union members who comprise the workforce and preserve their structure at the expense of the services which they are meant to provide for the public. Public services are indeed almost impervious to influence by the public, and even the elected councillor often has difficulty and has neither the time nor the expertise to grapple with the complexities of the Establishment. It is only the private sector that depends for its survival on satisfying the public, and therefore it takes good care to do so.
§ This is not an attitude which is confined to this country; it applies the world over and little wonder therefore that the Americans and Europeans—and even some of the Communist countries—have very successfully pioneered the privatisation of council services. Many of the more enlightened councils in this country have started to privatise their functions. This may sound anathema to some and in particular the word "privatisation" itself, but one must realise that while a local authority must ensure that a service is provided 1359 this does not mean that a local authority itself must provide that service. That is a fundamental truth.
§ Where privatisation of services has been tried—and I refer to services as opposed to supplies, which of course are often put out to tender—firms have had to compete to provide that service and to maintain a good standard to avoid dismissal or penalty. In addition to performing the service cheaper than the council direct labour, they have often been able to improve the service and make a healthy profit to boot. The experiments have largely been staggeringly successful. The costs go down and the quality of the service goes up.
§ There are many opportunities for privatisation in local government. For example, architectural services provided by a private firm can be far more economical than a large council staff, and can be employed only when and as required. A council can make an unbiased assessment of the performance of a private firm, which it is unlikely to be able to do of one of its own departments—and it cannot do much about it, even if the department is found wanting. The private firm has to remain efficient in order to complete against its rival trying for the same contract.
§ Results have been so good that, for example, the average savings in the United States of America on refuse disposal for cities of 50,000 and more inhabitants has been 40 per cent. of the cost of doing it by direct labour. In one case it cost 207 dollars a year per household for a twice weekly collection in one district, compared with 72 dollars—less than half—for a thrice weekly collection by a private firm. Nearer to home, Rochford Council reportedly lopped £150,000 from its budget of £500,000 by going to private contract in refuse disposal.
§ Window cleaning is another example, and Humberside slashed the cost of cleaning windows in 100 schools in Hull from £85,000 to £35,000 by contracting out. Even fire-fighting has been privatised. It has been tried with startling success in some American cities, along with ambulance cover that has provided a better service at less cost. Another aspect of privatisation has been the community service for old people scheme in Kent, whereby a combination of private contract and voluntary effort has met with great success, both in cutting costs and in the service and I understand that Gateshead, Anglesey and Hammersmith are all looking at that scheme. Park maintenance can be contracted out—and Dortmund saved £200,000 a year by doing it. Golf courses, crematoriums, airports, slaughter-houses, sports halls, you name it, they can all be contracted out.
§ Not only is the cost to the public reduced but the service is improved, and private management can even make a profit, which contributes to the wealth of the country and eventually provides the base for greater employment. There are many examples where businesses have been run at a loss by public authorities and have been run at a profit by private enterprise. Even where public enterprise has run at a profit there is every reason to believe that private enterprise would have done far better still. I see that, according to yesterday's paper, even Red China is encouraging private enterprise to help solve its financial problems.1360
§ Part of the savings brought by privatisation is that the service is geared to the demands of the consumer and the customer, who are the object of the whole operation of local government, rather than the ability of the authority to produce a service. Very often the provision of services by public authorities is a relic of the past, established for some reason that has long since ceased to apply, but tradition has instilled the belief that only the public authorities are capable of providing that service. There is, after all, no reason why any business should be run by a council. Over and over again it can be proved that private enterprise can do it cheaper and better. The job of the council should be to organise the service, to finance the contracts and to monitor the performance.
§ The impediment to the trend of going private is the fear of union resistance. One must ask: Should local government be run for the benefit of union members or of the staff, or any other vested interest? A much better answer is that in practice it has been found that municipal employees tend to get taken on by the private firms that take over the work, and have often been found to earn higher wages, with better working conditions, and to have a higher morale and less absenteeism.
§ Training colleges for staff must come under review, and it has been discovered that it is about one-third more economical as well as more efficient for authorities to send their staff to private colleges. Could not the courses provided by Government departments at their own conference mansions—I believe Wiston Park is one—be provided at far less cost by private conference organisations. Just as local authorities, unable to be bankrupted and unable to avoid the high wage demands and corresponding ever-increasing rate demands, so, to digress, does every other public authority and business find the same. While every private industry is responding to the chill wind of competition and prices are being squeezed, the nationalised industries swallow up the wealth of the country to fund their pay rises and continue in their inefficiency. The publicly-run London Transport heads the list for inflation and continues to increase charges unchecked. The Post Office, electricity, all the public utilities, without competition, just raise prices.
§ Exactly the same applies to nationalised industries, and one would think back to the debate last week on the airports and airways. One can compare state-owned airways with the private airways. They just cannot afford to make the giant and expensive mistakes that the state-owned airways get away with. Nobody questioned in that debate the cost of the British Airways flying school per student as opposed to the use of private flying instruction. Turning to the Coal Board, even mines discarded by the NCB are reported to have been re-opened privately and are now being profitably worked. The story is the same in all publicly-run businesses the world over. The costs of direct labour are often concealed by the overheads being charged to general administration, so the position is even worse than it seems.
§ The Question, therefore, is to ask the Government whether they agree with the concept of privatisation of services, not only for local authorities but also publicly-owned businesses, and if so, what steps they will take to help councillors and directors to assess the true cost 1361 of council services against those available by contract, in order thereby to achieve a better and less expensive service to the public.
§ 5.46 p.m.
Lord Bruce of Donington
My Lords, the House will be grateful to the noble Lord, Lord Gisborough, for having raised this most important Question at this time. On looking at the Question itself, it is posed in the terms,To ask Her Majesty's Government whether they will encourage the privatisation of certain local authority activities and services".On listening to the noble Lord I wondered whether he was really speaking to the Question, which I for my part am quite content to leave the noble Lord, Lord Bellwin, to answer, because the noble Lord, Lord Bellwin, is well-known and is on the record as being very firm in his advocacy of the independence of local government, in local authorities being given the maximum amount of choice in whatever they seek to do.
In fact, in the course of the Local Government Bill, which was under consideration by your Lordships' House quite recently, the noble Lord, Lord Bellwin, put himself forward as being the champion of the local authorities. He was accused at the time—indeed, I myself added to the chorus—of desiring to restrict the activities of local authorities. He was accused of trying to put local authorities under the leadership and dictation of his right honourable friend the Minister for the Environment. And we on this side of the House were not entirely satisfied with the arrangements ultimately put forward in the Bill. But certainly the noble Lord put himself forward—and we know he is a very genial and honourable man—as being the champion of local authorities.
I can therefore imagine the chagrin of the noble Lord on being told by his noble friend Lord Gisborough that local authorities are inefficient in every conceivable activity they undertake, an assertion which the noble Lord, Lord Bellwin, was at pains to deny when he was tactfully steering his Bill through the House. The noble Lord had the utmost admiration for the activities in which the local authorities were engaged. He did not remotely suggest to your Lordships that it was ever the intention of Her Majesty's Government to encourage the hiving off of the fire services, the hiving off of the refuse collection services by private enterprise. The reasons are quite clear. The noble Lord, like us on this side of the House, has every confidence that the task of the local authorities, in conforming to the age-long tradition that has attended their foundation and their continuance, is to produce the best possible service for the people of the communities in the area they cover at the most economical price. The noble Lord was at pains to deny that local authorities in general were anything other than efficient and dedicated in the discharge of their tasks.
Now we have this picture presented to us this evening by the noble Lord, Lord Gisborough, who evidently has spent some time recently in the United States and obviously comes back well-fired with the passion for private enterprise that is known to pervade those vast territories, and at this time is even personified in the person of the new President. If the noble Lord, Lord Gisborough, had his way there would be very little 1362 function for any local authority to perform any more other than possibly the election of its mayor—which would vary from party to party as time passed—for the performance of purely perfunctory functions and, indeed, the sub-contracting out to private enterprise, whatever that may mean, of all the functions that are performed by local authorities.
Your Lordships will have to consider the feasibility of the proposition, although I very much doubt whether the noble Lord, Lord Bellwin, will be really prepared to take seriously some of the suggestions that have emanated from his noble friend. If for one moment he conceded any of the points that have so far been made he would be in very great contradiction as regards most of the observations which he has been able to address to your Lordships' House on this point.
I shall not deal with all the various suggestions that the noble Lord, Lord Gisborough, has made, because on the basis of the experience of those who have been engaged in local government—including the noble Lord, Lord Bellwin, and the noble Lord, Lord Pitt of Hampstead, who I am very pleased to see will be speaking later in the debate—local authorities are able fully to carry out the great majority of the functions which have been assumed by them and indeed which have been thrust upon them by Parliament over the course of the years.
For the moment I shall only deal with the question of refuse collection because the noble Lord made much of that. Let us consider what would happen at this point in time if the refuse collection function were to be subcontracted out on a permanent basis to private enterprise. The first thing that would happen is that its supervision would essentially be in the hands of persons not experienced in the very complex process of refuse collection, stacking and disposal. Moreover, there would be no guarantee of continuity of service.
We are talking in a current situation where unemployment is running at roughly one million more than it was a year ago, where for reasons that are not germane to this debate but which will be expounded upon no doubt on a later occasion, bankruptcies are occurring at the rate of 170 per week. So how could there be any guarantee of continuity in respect of any firm to whom a contract was given for the disposal of refuse?—bearing in mind that private enterprise firms generally are groaning under the weight of extortionate interest rates. And, peradventure, in the event of an ultimate recovery when eventually the depression—to use the Chancellor of the Exchequer's term—"bottoms out" is there any guarantee that they will continue to want to dispose of refuse any more and might even decide to go into another kind of business altogether?
Is it the suggestion of the noble Lord—and perhaps the noble Lord, Lord Bellwin, will help him—that any contractor contracting to collect and dispose of refuse should enter into a bond with the council for due performance? Would there be any guarantee at all that the private entrepreneur would be able to acquire the highly-specialised equipment which is now used by local authorities to dispose of the refuse properly, to collect it properly and to meet all the appropriate health standards? The noble Lord, Lord Bellwin, doubtless will be able to give us his views on that.
§ Lord Gisborough
My Lords, will the noble Lord give way for a moment? He talks about this as if it were a hypothetical possibility. I hope he will accept that it is happening, and happening extremely successfully.
Lord Bruce of Donington
Yes, my Lords, I am also aware that the structure of local government finance in the United States is vastly different from the structure of local government in the United Kingdom, and that the basis of its financing is very different from the basis of financing here. The noble Lord has talked about the encouragement of local authorities by Her Majesty's Government. If the noble Lord can find one local authority in the whole of the United Kingdom that has derived any particular encouragement from the measures recently announced by Her Majesty's Government, I—and I am quite sure the House—would be very pleased to learn of their documented enthusiasm for the measures that have been adopted here. No, my Lords, the situation in the United States is entirely different.
As regards the collection and disposal of refuse, all local authorities are in possession of established routines, established techniques, established methods and established organisation. They have excellent and specialised equipment which, of course, has to conform to both health and safety requirements. Moreover, they employ very experienced personnel. It might well be that one could get a cowboy here and there to undertake the task; but who would ensure that it would be as satisfactorily done as indeed it is done at present?
Of course it might be possible—the noble Lord did not mention this, but I am quite sure that he had it in mind—to put the library service under private enterprise. If the noble Lord is content to have the intellectual equivalent of the Sun substituted for that of The Times, he is, of course, very welcome to it. The fact of the matter is that the library service provided by the local authorities, and indeed available to the public, is of a very superior quality, which, under no circumstances, could be matched by any private incursion into that field, without a very extortionate cost to the ultimate consumer.
No, my Lords, the idea which the noble Lord, Lord Gisborough, has brought before the House must, of course, have a certain party aspect to it. At a time when there is massive unemployment in both the private and the public sectors of the economy, it must occur to the noble Lord that unemployment in the private sector could, to some extent, be relieved if employment in the public sector were reduced. But the total result on net employment in the community would not be very different. The local authorities of the United Kingdom—as indeed the noble Lord, Lord Bellwin, will be pleased to testify—have a long, honourable and constructive history in the roles which have been assigned to them by Parliament. They seek to carry out the statutory requirements that are laid on them by Parliament, by the Government and, by and large, they do them very well. We should, therefore, hesitate before we allow the pirates to get into the scheme, not for the sole purpose of promoting the general wellbeing of the community, but for the purpose 1364 of providing private pelf to the organisers who would then step in.
§ 6 p.m.
§ Lord Evans of Claughton
My Lords, first, I should like to say how grateful we should all be to the noble Lord, Lord Gisborough, for raising this subject this evening. I am only sorry that the word "privatisation", which he is obliged to use, is such a ghastly word, and I suspect that he may have imported it from the United States.
From these Benches we have no doctrinal objection to the involvement of the private sector in the provision of public services. In fact, local government has always had the right to carry out services, either through its own officers or through the employment of the private sector, as it thinks most appropriate in the individual circumstances of the local authority. Private consultants are very often used. Private contractors carry out many local authority functions where contracting-out is economically viable and where, in the short-term, to turn to private firms for advice would be better than employing an expert in the local authority. Volunteers are involved in the social and welfare services. Recently, the Department of Health and Social Security has provided a consultation paper, Care in Action, which deals at length with privatisation in the social services sector.
Privatisation of local authority services can have many facets. I should like to concentrate my remarks principally on the facet of the actual provision of services by local contractors. My party has always opposed the concept of monopolies and favoured competition and initiative. Therefore, from these Benches there cannot be any objection in principle to the provision by private contractors of services such as road gritting, maintenance and supervision of parks, private catering for canteens and even possibly, as an experiment, the handing over of the entire cleansing department to private contractors, as Southend Borough Council has done recently; though I think that we should be careful in reaching any downright conclusions about that, because it is very early days for its provision. It is important that all of us who are interested in local government should watch the Southend experiment very carefully.
I think that a cautionary note about privatisation must be struck. First, are the services that the private sector would provide necessarily cheaper or even better than those which the local authority would provide? This year in Merseyside County Council, of which I am a member, we are disposing of the services of a private security firm—which has done a first-class job in guarding Croxteth Hall, formerly the seat of the late Lord Sefton, but which now belongs to the county council—because of the cost of that service, and we are returning the supervision of the park and the parks generally in Merseyside to the care of the Merseyside police force.
The Transport Act 1980 embodies the principle of privatisaton, but it is of interest that in this particular area no private firm of omnibus transport owners has sought to complete with the local authority services, no doubt because over a wide front public transport is making a grotesque loss. Again, another cautionary note is the question: what is to prevent a private contractor, 1365 who has successfully undercut the public works department—which we discussed at length and, indeed, the noble Lord, Lord Bruce of Donington, discussed it at length during the passage of the Local Government, Planning and Land Act—with the result that the public works department is run down, from increasing his rates considerably when the contract is up for renewal? What private contractor would be willing to provide the expensive and anti-social working hours of some of the emergency 24-hour standby services that local authorities run?
I know that the Government are at pains to pin their hopes on there being enough competition between private contractors to keep down prices in this kind of area, but in my opinion this is a very doubtful proposition in some parts of the country, though not necessarily in all, and in some skills. We must not forget that many of the services which local government now provide were taken over by them only because the private sector had failed to provide them originally. They were not taken over because they were offering a better or cheaper service; they were taken over just because the private sector could not provide them.
Therefore, privatisation, though perfectly good in principle, cannot provide services on as wide a front as the noble Lord, Lord Gisborough, might hope in the remarks that he made initiating this discussion. The same problem might well recur when a local authority found that a service provided by a local contractor was inefficient and inadequate. This would be more difficult to put right if the local authority had no control over the workforce or over the contractors.
Therefore, to summarise my remarks, I think that some privatisation already exists where it has been found economically useful or where historic or local circumstances have made it the provider of services, as, for instance, in the provision of personal social services. But there are areas such as public transport, which I mentioned earlier, where private operators clearly are either unable or unwilling to provide a competitive service at a competitive price. I expressed frequently during the passage of the Local Government, Planning and Land Act, my belief in local autonomy. I said at the time that I thought that local autonomy would be undermined by that Act; but to be consistent, I think that privatisation of local authority services should be a matter for local decision depending on local circumstances.
§ 6.8 p.m.
§ Baroness Elles
My Lords, I should like to join with other noble Lords in thanking my noble friend Lord Gisborough for introducing this subject tonight. I know that we shall listen with great interest to the reply of my noble friend the Minister to these various comments. From listening to the noble Lord, Lord Bruce of Donington, who with his usual exuberance defends his cause nobly, I began to wonder whether everybody who was not employed by a local authority might be termed a "cowboy". It seemed rather that way by the time he had finished his speech. Nevertheless, I think that there is something to be said for things being done by local authorities as well as for some measure of privatisation.
1366 We must ask ourselves what we want a local authority to do for us and for the community, because this is what must guide us in our decision as to how local authorities should operate. I would certainly join the noble Lord, Lord Bruce of Donington, in saying that, by and large, local authorities provide a most valuable service to the community. One cannot say that everything should be removed from their powers because they have been inefficient or cost-ineffective, for clearly that simply is not true.
But what do we want them to provide? First, I think that we want them to fulfil their statutory duty: to provide the services and benefits that have been laid down by Parliament; secondly—and this is sometimes omitted—we want them to measure the cost-effectiveness of the management administration of the services that they provide; thirdly, to decide on the priorities in their allocation of expenditure. I am quite certain that many local authorities do not do that to the benefit of their ratepayers. How many ratepayers would rather see their roads being maintained and repaired, indeed, improved and built, than having some of the services which are provided at great expense and which are not wanted? Fourthly, we want them to be guided by the principle of thrift, which can be a measure of the responsibility of an authority to the ratepayers. There is no doubt that the graphic and dramatic rise in the rates is a burden not only to individuals but to commerce and industry. Every time the rates go up it of course reduces the combativity of industry and commerce, and particularly industry in relation to its competitors abroad.
I should like to make a few comments about some European Community aspects. As noble Lords will be aware, there is now an obligation on member states of the Community as regards public authority contracts to publish notices of these contracts in the Official Journal of the European Community, particularly for such things as highway construction, and indeed where-ever the contract exceeds 1 million units of account, which is about £650,000. It may be of interest to noble Lords to know that the United Kingdom has in fact published more contract notices than any other member state. In 1978 the United Kingdom published 799, Germany 528, and France 330.
I am not here to say that one state is more honest than another. It may be the way administration is organised, or the regional and local authorities are designed, or the type of contracts which are handled by public authorities as opposed to Government, but nevertheless these figures are of interest, showing that the United Kingdom does fulfil its duties and its obligations under Community legislation.
We should not be misled necessarily by the publication of these contract notices, because in fact the contract can still go to direct labour. Some noble Lords are not always aware that when a contract notice is published a local authority, certainly one known to me, said, "In fact we are not going to take any notice of the tenders that are presented to us. We are going to use our own direct labour". So the figures do not always bear out what they say. Secondly—and for the benefit of the noble Lord, Lord Bruce of Donington, I should like to tell him that this happened in a Conservative local authority—although a contract was put out to tender and several 1367 firms replied, this council decided that they could get better conditions through their direct labour force.
One of the effects of putting a contract out to tender is to put pressure on the direct labour force to provide a better service to the community at cheaper rates, longer hours, in general conditions and terms of working. So that although the theory of competition and putting something out to tender is definitely a good thing as a general way of behaviour, it does not mean that at the end of the day the contract will go to the private sector rather than to direct labour.
Thirdly, with regard to Community matters, I would request the Minister most urgently to see that where Community funds are used by a public authority in, for instance, an infrastructure undertaking, a public notice is put over that particular work to the effect that there has been a European Community contribution. This country has just received about £80 million from the European Regional Development Fund, of which sum two-thirds will probably go on infrastructure throughout the country. This is something of which the people of this country ought to be aware. I would again request the Minister to look into this to see what can be done.
Fourthly, I understand that the Consultative Committee for Public Works Contracts of the Community have asked for an analysis of the situation in the European construction market in the public sector. This could be very much of interest in coming to some conclusions on the kind of matter we are now discussing. Again I should be grateful if the Minister, if he is not able to give us some information on it now, would in any case let me know what is the result of this analysis, because it certainly has some bearing on how local authorities handle their finance.
If there is to be some form of privatisation—and I believe it is a method that should be looked at—it is essential that the maintenance of public services should be ensured and that their standards should not be reduced. There is also a considerable chance of financial saving just by the fact of tendering, as I have already indicated. It does not mean that the job is going to end up in the private sector, but the element of combativity must be there. With regard to continuity, to which the noble Lord, Lord Bruce of Donington, referred, who in this country can say that anything has continuity? So I think that is perhaps not a strong argument in favour of not using the private sector today.
There are of course some difficulties which face us with regard to privatisation, so called. There is the introduction of closed shop clauses into contracts with private firms. Here again, do not let us have any illusion on these Benches that by just going into the private sector is going to solve all our problems, because we have seen that firms are being used who do operate these clauses. Damages will of course fall on the council under these contracts, but that does not restore the job to the person who perhaps has lost it through not belonging to a union. Other councils may of course operate clauses which will employ only firms which have a closed shop. Again, another difficulty, particularly for this country, is that the threshold of £100,000, which under the present Local Government, Planning and Land Act obliges a council 1368 to publish its tenders for contract, is a very high sum for the large majority of contracts undertaken by local authorities.
These are just some of the points that I wanted to mention in conjunction with this Unstarred Question. There is no doubt that if we want to cut our public expenditure—and, as my noble friend pointed out, the expenditure by local authorities represents something like one-third of total public expenditure—the Government have a duty to see how cuts can be made in any way possible. If privatisation is one way of doing it in certain sectors and certain areas, very well. Nevertheless, I believe that if they are to have privatisation the Government must provide a framework within which this can work efficiently, to the benefit not only of the local authority but particularly of the ratepayer, and of course of the people who are employed by the local authority.
There is no doubt that the continued increase in rates is an intolerable burden on the people of this country; it is making us less and less competitive. It is depriving the individual of the right to choose how to spend his own money, and very little benefit is coming to people as individuals and as businesses. So, my Lords, I join with others in asking my noble friend the Minister to help us in solving what is probably an intractable problem, but he will undoubtedly take into account all the remarks that have been made by noble Lords tonight.
§ 6.18 p.m.
§ Lord Pitt of Hampstead
My Lords, I must begin by apologising to the noble Lord, Lord Gisborough, for missing most of his speech. I am sorry about that, because from what I have heard from other speakers I have obviously missed a great deal. I shall study Hansard with interest tomorrow morning. I am sure that I shall learn a great deal from that. I feel that the question of privatisation of local authority services should be viewed in the context of efficiency. It is in that context that I want to look at it.
Local authorities have a duty to be efficient not only in their administration but also in the provision of services. They owe it to everyone—their customers, staff, rent payers, ratepayers, and taxpayers—because we all benefit from an efficient public service. As the noble Lord, Lord Evans of Claughton, has already said, privatisation is not new. Local authorities always had, and used, discretion to carry out their responsibilities in the manner most appropriate to the circumstances. This is particularly true in the professional specialist field where local authorities frequently use private firms, usually where the scale of the operation makes contracting out economically viable.
Moreover, as has already been pointed out, under Part III of the Local Government Planning and Land Act, which passed through your Lordships' House last October, local authorities may not enter into a direct works contract over a specific value unless they do so as the result of acceptance of a tender open to private contractors. So there is that competition. Moreover, as the noble Lord, Lord Evans of Claughton, pointed out, in the Transport Act, which also passed through your Lordships' House last year, the principle of privatisation has been embodied. But the private operators have not so far taken advantage of that freedom.
1369 Refuse collection is an example of the sort of choice local government must make. I gather that the noble Lord, Lord Gisborough, referred to this issue, which is another reason why I regret missing his speech. It is a labour-intensive service leaving little room for manoeuvre in terms of cost cutting. In the short-term, local authorities may be tempted to turn to private firms for financial savings, but there is as yet no evidence to suggest that the refuse collection services can be more or less efficient whichever sector of the economy runs them.
In the long-term it could be a false economy because the private firm needs to make a constant profit if it is to remain in business. Moreover, there are thousands of workers engaged in these services and while they could be attracted to a package by redundancy payments in the short term, not all of those made redundant would be re-employed. And those who are re-employed may find that some of their conditions of service are inferior to those offered by the council.
Local authorities could be attracted by the opportunity to raise money through the sale of equipment and by the offer of a low-cost contract in the short term. Again as the noble Lord, Lord Evans, pointed out, prices may rise dramatically in the future and a local authority that has already sold its equipment and is finding it difficult to make ends meet, may discover it is no longer in a position to offer its own services as an alternative, and that must be borne in mind when authorities are jumping to pass over their services to private enterprise.
As has been mentioned, Southend-on-Sea is probably the only local authority so far publicly to privatise refuse collection and, as the noble Lord, Lord Evans, said, we can do little more than await the results of that experiment. The results will be interesting because they may answer the question whether it is more efficient to do it that way.
I seem to be referring a lot to the noble Lord, Lord Evans. I must do so again because he pointed to a document we had from the Department of Health and Social Security entitled Care in Action. That devoted several paragraphs to the question of privatisation. It recognised that some local authorities already made arrangements with private concerns to deal with fostering, for example, and local authorities sometimes used private children's homes. The document implied, however, that there might be considerable scope for the privatisation of support services for those in their own homes who could afford to pay, and in the area of sheltered housing. It also suggested that while privatisation was not involved at present in areas such as domiciliary care, the possibility of private sector interest in such spheres was strong.
Many of the personal social services are already on an agency basis at a cost which is at least that of the local authority services. I therefore believe we should resist any extension of privatisation in the personal social services. As the noble Lord, Lord Evans, said, privatisation must be a local decision; it cannot be anything else because local authorities must make up their minds as to the more efficient way they can provide their services. But privatisation has problems. I remember several occasions during my 16 years in County Hall when contractors went bankrupt and the projects had to be rescued by issuing 1370 new contracts to other contractors or by using the council's direct labour organisation. In other words, it is not all the plain sailing that it is sometimes made out to be. In my view, by and large we are better served by a local authority-controlled organisation, except for certain large projects or in specialist fields.
What I should like to see is an extension of the competition which already exists between local authority direct labour organisations and the private sector. I should like to see not merely contracts going out to tender but the local council direct labour organisations taking on the private sector. In other words, I should like to see them given more scope to compete for other work in their localities, ensuring at the same time that they are efficiently run and publicly accountable for their performance. I should also like to see them allowed to engage in industrial and commercial duties in their areas, within the framework of the national and regional economic strategies. In other words, I would take the competition a little further, not just allowing the private sector to compete with the public sector; I want the public sector to go out and compete with the private sector, and then let us see who can provide the most efficient service. I conclude as I began, by saying that local authorities must be efficient and that the question whether a service shall be performed by the public or private sector should depend on which provides the more efficient service.
§ 6.28 p.m.
§ Viscount Massereene and Ferrard
My Lords, I wish at the outset to comment on what the noble Lord, Lord Pitt of Hampstead, said towards the conclusion of his speech. I understood him to say that he would like to see a great extension of the public sector competing with the private sector. Is he aware that that would be most unfair because the public sector need only increase the rates to be able to undercut the private sector? The private sector must at least pay its own expenses, and it hopes to make a profit so that it can be taxed in order that the public sector can exist.
§ Lord Pitt of Hampstead
My Lords, what I said must be taken in the context of my opening and closing remarks. I said that the question of privatisation or otherwise must be judged in the context of efficiency. What the noble Viscount is saying is not really relevant to the point I was making.
§ Viscount Massereene and Ferrard
I agree that everything must be judged in the context of efficiency, my Lords, but in my experience that will not be an easy judgment to make with local authorities. I also wish at the outset to apologise to my noble friend Lord Gisborough because my train was late, which meant that I did not have the advantage of hearing his speech. I have no interest to declare except in so far as I am a substantial ratepayer in Kent and Argyll. The present great expense of local government worries me; I understand that it costs well over £20,000 million a year. That is a very big sum.
In my home in Scotland I was unfortunate enough to come under Strathclyde when local government was reorganised. Though my home is over 100 miles from Glasgow, the moment I came under Strathclyde 1371 my rates were trebled, even though I received no extra service. I think that to be rather high-handed action. Rates are an arbitrary tax. True enough, one can appeal against a rating assessment, but the trouble is that one can appeal only to the rating authority. Due to the way in which rating appeals work the situation is rather like that of someone who is convicted by a magistrate being able to appeal only to that magistrate. That is not justice.
The most worrying point in my mind in regard to the great expenditure of many local authorities is that today so many of the councillors have no experience of business. Some of them before becoming councillors have had very little responsibility. A great number of them have never paid wages out of their own pockets. If one has not had to pay wages out of one's own pocket on a Friday, it is very difficult to know how many beans make five. That is what worries me. I quite agree that a great number of councillors, including county councillors, do their job extremely well; but that does not apply to all councillors. I felt that the noble Lord, Lord Bruce of Donington, tended to give councillors a heavenly halo, but I am sure that he would not apply his remarks to the Clay Cross councillors.
I have here today's paper containing an article about Camden Council. We are told that according to a report, which took three months to prepare, Camden Council has wasted about £30 million a year. The report has been conducted by an expert in local authority finance, Mr. Alex Henney, a former chief housing officer. The report in the paper says that the people running the council are not in the slightest bit interested in other people's money. That is a very serious matter. Perhaps it is human nature, but it should not be so with councillors.
I do not like the word "privatisation"; it is an American word. However, I should like to see far more co-operation between local government and private contractors. Many things which local authorities have to do could not be done by private enterprise or rather private business, because they would not be suitable. On the other hand, the situation can be vice versa: there are many things that private contractors can do—this has been proved—more cheaply and efficiently than local authorities. After all, if one watches some council men at work, one sees that they are not exactly like lightning.
As I see it, the public have very little control over local authority services. Of course the public can turn out the council at election time, but they cannot turn out the permanent officials. The permanent officials of the council have vast power. Many of the councillors are not always so "clued up" on the work done by the council, and therefore the local officials have great power. I am not quite sure how it would be organised, but I should certainly like to see ratepayers having greater power, in particular when it comes to appeal against a rating assessment.
I think it was the noble Lord, Lord Bruce of Donington, who said that one cannot compare local government in America with local government in this country. Of course, one cannot compare it 100 per cent., I agree; but it has some bearing on the question, and in many instances privatisation in America has been successful.
1372 We have had a certain amount of success here. I understand that Maldon District Council went in for private refuse disposal and saved £50,000. Rochford Council saved, I understand, £150,000, where previously the cost had been £500,000. If those two councils can effect savings of that kind, surely other councils can follow suit.
Before concluding, I should like to mention something that Kent County Council has done. In my opinion, Kent County Council is a very good council; I have a home in Kent. The council runs its affairs quite efficiently and it has been extremely successful with a combination of private contract and voluntary effort. A community care scheme to look after old people in their own homes has been extremely successful. That arrangement has been far nicer for the old people, which of course is the most important point. It has also saved a great deal of money, and I hope that other councils might follow the example.
A few weeks ago I read that Lambeth Council employs even a poet laureate. I do not know whether that was a joke. But there ought to be some rationale in what councils do. I think that some of the services or facilities provided by councils must have come about by accident. Why should some councils have tennis courts and some have riding schools? I understand that some councils have swimming baths. There are many other examples, including the provision of bowling alleys. I think there ought to be some rationale. For instance, why should ratepayers have to pay for riding schools? I am all for riding schools, but I understand that one or two councils have riding schools. I think that is a bit hard on ratepayers who do not ride. You could say the same, I suppose, about tennis, but I think that is a bit different because far more people play tennis.
I will not speak any longer, but I should like to say—I see one or two trade unionists opposite me—that it is said by councils as an excuse sometimes that they dare not do away with a certain service because they would get trade union opposition, but I do not think that is strictly true. There may be intimidation in some cases, but, on the whole, I think that is an excuse for councils not taking a firmer hand.
I shall be very pleased to hear what my noble friend on the Front Bench says. I hope he will give some hope that expenditure by local authorities can be scaled down somehow, and presumably the only way it can be scaled down is to have more private enterprise doing jobs that councils do. Take capital equipment. If a council requires some extremely expensive capital equipment, it must surely be far cheaper for them to hire it. As anyone who has had a factory, as I have had, knows, if you have expensive machines you have got to keep them running all the time; you have got to keep them running 24 hours a day if you can. There again, I think that is an area where councils ought to be able to work with private enterprise to their advantage and to the ratepayers' advantage.
§ Baroness Phillips
My Lords, before the noble Viscount sits down, he said there should be more control over these activities. As one who has suffered constantly from the total inefficiency of the private builder and has had no control over trying to get him 1373 to finish a job, I wonder how the noble Viscount would suggest that you could have control over the activities of private enterprise as opposed to the activities of public enterprise.
§ Viscount Massereene and Ferrard
My Lords, I am not a builder and I really do not know very much about it; but, regarding private builders, presumably you have a time-clause in the contract so that if they do not complete the building by a certain time they have to pay fines.
§ 6.43 p.m.
§ Lord Bellwin
My Lords, I am most grateful to my noble friend Lord Gisborough for raising this important subject today, and I, too, very much welcome debate in this area and, of course, I have listened with interest to the views expressed this evening. I must compliment my noble friend on the powerful case he made. The savings figures in certain circumstances to which he referred were certainly impressive. I must say that most of what he said is not new to me, but I suspect it is to many people—perhaps not in your Lordships' House, but to many others who might read of it—and I think it is good to give the topic the maximum possible airing.
The subject of privatisation (and I, too, do not like the word at all, but I have not yet come across one which seems to sum up the situation better) is especially relevant today, at a time when the rest of the economy can no longer afford to continue the steady expansion in public sector resources which has taken place over most of this century. Now more than ever it is in the interests of all local authorities and of the electors and ratepayers that they serve to review all the services they provide with a view to securing the greatest possible value for money.
The private sector has much to offer here. Industry and commerce have long experience in exercising the discipline necessary to survive in difficult times. The force of competition and the profit motive give them strong incentives to achieve efficiency—incentives which apply to a far greater extent than (I have to say) in the field of local government. Let me assure the noble Lord, Lord Bruce, with whom, if I may say so, it is a great pleasure to be crossing swords once again, that despite my unqualified support for the role of local authorities I nevertheless firmly support the need to urge local authorities to look to private firms as possible suppliers of the services they at present provide directly; and in no way do I consider this to be a contradiction because local authorities should be, and hope that they are, as concerned as anyone to get the best value for the money they spend. The noble Lord, Lord Pitt, said that local authorities have a duty to be efficient. I entirely agree, and "duty" is the operative word.
I would go even further and say that, at a time when the search for greater efficiency is paramount, it is essential that local authorities should consider all the options, and contracting out is one (not of course the only one, by any means, but one) which I hope all authorities will now be looking at closely in the areas where it may be practicable and beneficial. Apart from cost savings, the use of contractors can have a number of other advantages for local authorities. It can offer 1374 them flexibility to cope with varying demands, thus avoiding the need to make over-provision so as to be able to cater for peak period situations. Local authorities can keep their own labour force to the minimum needed to deal with a normal workload. Contracting out can provide local authorities with the opportunity to mobilise private capital investment and so lighten the burden on public funds without any detriment to the service. Nor should the considerable reduction which can take place in the load of day-to-day administration and management activity be overlooked.
One major attraction of considering privatisation is that the authority will often gain a valuable touchstone against which to judge the efficiency of their own operations. Even if they ultimately decide not to contract out a particular activity, evaluating the true costs of direct provision against those of outside contractors may enable them to identify ways of streamlining their own services. In this way it can provide a most valuable contribution to the search for greater efficiency and economy. It is not without significance that where there is a serious known council interest in contracting out, it has been shown to have the effect of concentrating the minds of both the management side and trades unions, particularly in those cases where restrictive practices are contributing greatly to low productivity and unnecessarily high costs of service provision.
The scope for contracting out includes but of course goes well beyond the field of construction and maintenance, which is very much the side served by the direct labour organisations, and I do not intend to say a great deal about that tonight. We have had such lengthy debates on this over so long and so recently in your Lordships' House that t think to go over that aspect of it again would perhaps be counter-productive. But in addition to that, there are local authorities who have already made arrangements for contracting out other services. For instance, a number of them already contract out such across-the-board activities as cleaning, vehicle maintenance and catering; and, as my noble friend Lord Gisborough has said, some use is made of the private sector for the provision of architectural and other professional services.
The Government are doing what they can to help local authorities who are interested in pursuing these possibilities. One of the main obstacles facing them at the moment is the paucity of information which is generally available about the areas where contracting out has been adopted successfully, about the factors which need to be considered and about the practicalities involved in organising the contracting arrangements. This seems to be a prime example of an area where all concerned would benefit from a greater pooling of information and experience about existing practice. The Department of the Environment has therefore commissioned a research project to investigate recent service delivery and pricing decisions in a range of local authority services, including the much talked about refuse collection, recreation and environmental health. The report will be published during the summer, and will be followed by more detailed studies of particularly interesting cases. I hope it will go some way towards promoting more informed debate about contracting out, and provide local authorities with practical advice on the possibilities. In the same 1375 vein, we are looking at what can be done to disseminate central Government experience of contracting out where this is relevant to local authority work.
We are considering ways in which we can keep local authorities informed of appropriate areas. LAMSAC, which does advisory and consultancy work for local authorities in the management services and computer fields, might prove to be a particularly useful channel here. As my noble friend Lord Gisborough so rightly said, there is a wealth of interesting examples of contracting out to be found in other countries, and this is another area where we are making information available to local authorities. There is, as was said, a great deal of experience abroad, in the use of contractors for refuse collection.
This is common practice in France, Germany, the Netherlands, Japan and the United States. As my noble friend said, other services provided by the private sector, surprisingly, include fire protection in Denmark and the United States, park maintenance in West Germany, and even revenue collection in the United States. That is one to make the mind boggle, especially for the noble Lord, Lord Bruce. In the United States, 25 authorities have adopted the approach pioneered in Lakewood, California, where municipal services are almost all provided either by the private sector or by larger public authorities. Examples are many and they range far and wide. Having said that, I am the first to say that overseas experience must be treated cautiously, because of differing circumstances. Nevertheless, it does give some idea of how very wide is the range of possibilities for contracting out. And the number of successful instances overseas can but help to confirm that there may be real benefits to be derived by local authorities in this country.
Another aspect to be considered, is the willingness and ability of private firms to deliver local government services. I know that there are those in local government, as well as some who spoke tonight, who are somewhat sceptical about this. Clearly, greater readiness on the part of local authorities will be the best stimulus to the private sector, but the Government would also like to see firms themselves do more to make local authorities aware of the services they can provide. We are considering ways in which we might help or encourage the trade associations, and other interested organisations, to provide authorities with more information about what they have to offer. But, ultimately, this is up to private firms and their associations themselves. They must publicise their activities more, they must demonstrate why they can and are able to give better value for money, and they must if they can make their case loud and clear for all to see.
The Government's position is that we will publicise and discuss potential openings for the private sector, and the results of our current research project will themselves, I hope, provoke interest and provide useful information for firms. But I am the first to acknowledge that local circumstances differ, and only the firms themselves can adequately explore, in detail, the opportunities available; and they can do this only by aggressive marketing. The Southend experience which has been mentioned is, as the noble Lord, Lord Pitt, said, an experiment; but it is only an experiment 1376 in its size and in the extent of it, because there is now such a lot of evidence in other places that we can look beyond Southend and see what that might produce. The most interesting aspect of that was the number of firms who tendered. It gave an indication of the number of people who were interested in carrying out this work. Even since then we are getting more information on this. What is encouraging is that it suggests that the tendering process itself generates interest by firms who have the necessary expertise. Some of the companies—to allay the anxieties of noble Lords who were concerned about firms going out of business—were very substantial; although I know that it happens to the most substantial. Nevertheless, in practical terms it should not be more of a problem than has always existed in local government. I can think of the experience of contracting out window cleaning, painting et cetera; but, from time to time, there is always a situation where a firm gets into difficulties and the local authorities must sort out the situation. But there are always other firms and always other ways of doing it. This is part of the general process which those involved know so well.
The benefits of contracting out will vary, according to local circumstances. Ultimately, it must be for each authority to consider the factors involved and draw its own conclusions. In some cases, the benefits of competition may best be injected by developing a mix of public and private sector provision. And there are other ways of harnessing private sector expertise and resources, such as co-operative arrangements with private firms and capital, and rebates or vouchers to consumers wishing to use competing services. Whatever the conclusions reached, the important thing is that decisions must be taken at the local level, after the costs and benefits of all the alternatives have been thoroughly and objectively evaluated.
Contracting out is not a panacea for all that ails local government. It will not work miracles. In no way will it absolve local authorities from the duty to set and maintain proper levels of services. But used in appropriate places and circumstances, and with the most careful pre-examination of the benefits to be gained, it can, and, I forecast, it surely will, become as much a part of the alternatives available to local government in the search for efficiency, as any of the conventional ways of carrying out duties and providing services that exist today.
This mode of provision is growing and expanding all over the world, and no Canute-like attitude is going to turn it back. It is one of the serious new options. There are too many people now engaged in the business, there is too much evidence accruing daily of the benefits; the prize in terms of better service for less cost is too great for it to do other than develop. I say to those who are anxious and who would tend to speak against contracting out, on whatever principles: It will not go away; it is coming. It will be an important factor, not the only one by any means but a significant factor in the future provision of local government services.
I understand Lord Bruce's concern—I do not share it—about possible lack of continuity in the event of a situation arising of the kind he mentioned. I have no reason to believe that it would not be dealt with in the way which experience has shown me local authorities 1377 already deal with situations where this happens in contracts that they place out. He said the Americans have excellent specialised equipment. I understand that they have; but we also have excellent equipment. Local authorities have it. Any private organisation taking on work using less than excellent equipment would be putting themselves so very far behind the start line as to be at great disadvantage, and clearly they would have to have the same standard of equipment. With respect, I think "cowboys" and "pirates" are unfair terms and certainly the calibre of some of the people tendering for this work around the country really would not come within that description.
I welcomed Lord Evans's moderate and reasoned approach and I agree with much of what he said. Like all noble Lords who spoke, his opinion was: "Yes; if there is a better way then we must look at it, not with any dogma. The whole country is in business to get the most for what we spend. That is what it is all about". As for my noble friend Lady Elles, what a pleasure it was to hear her speak. It is the first time I have had that pleasure in this House. Her references to the European experience were most interesting. I can assure her that I have taken careful note of what she said about possibly putting up notices where the European contribution was being made to projects. We will look at that and I will write to her in due course on the other point that she made. I was very interested in what the noble Lord, Lord Pitt, said. I know of his great service in local government. I thought that he, too, in the main did not disagree with the principle, provided that he was satisfied that it was genuinely as good as, or better. Well, better, if you like. I am sure he would not expect me to agree with the last point that he made about the public sector going into competition. However, not for a moment because I would be afraid of what it might produce; only because of what it might cost to those who have to pick up the tab at the end of the day. My goodness! the track record all along the line is such that we would have to be very nervous indeed about that.
So I conclude by saying that the Government's interest in encouraging a closer look into this whole field is solely and simply in recognition of the need—indeed, of the urgency now—for local government to do things better, to give better value for money. When resources are scarce, it does concentrate the mind. When faced with either cutting back services or getting more for what is spent, any local authority worth its salt will go for the latter. My Lords, I repeat my thanks to my noble friend Lord Gisborough for initiating what I think has been a most constructive debate today, and I am grateful to him for that.