HL Deb 27 June 1995 vol 565 cc680-6

7.39 p.m.

Viscount Ullswater rose to move, That the draft order laid before the House on 8th June be approved [22nd Report from the Joint Committee].

The noble Viscount said: My Lords, I beg to move. This order extends the scope of compulsory competitive tendering to three further white collar services: financial, information technology and personnel services. That completes our programme for the extension of competitive tendering to white collar services begun last year when this House approved other orders extending CCT to legal, construction and property services.

Few doubt that competition can stimulate efficiency in the provision of public services and in many cases can offer significant financial savings. Local authority manual services have already been subject to competitive tendering for up to 15 years. We estimate that that has resulted in savings of over £400 million for local taxpayers. There is no reason why the discipline of competition should not also bring better value for money to local authority white collar services: the lawyers, architects and accountants at the heart of the local government machine.

The Government first proposed extending competitive tendering to local authority white collar services in a consultation paper issued in November 1991. Since then we have engaged in a thorough and informed debate on detailed proposals with local authority representatives and other interested parties. This process has been much more than a polite formality where decisions have, in reality, already been taken. The regime has been substantially modified as a result of the valuable input of local authority representatives and the various joint working groups which have been considering CCT extension. While it would be wrong to pretend that local authorities see eye to eye with the Government on the value of CCT, nevertheless I know all parties agree that the extensive consultation on CCT extension has been a valuable and constructive process.

The statutory competitive tendering regime we are putting in place for white collar services is based on that set out in the Local Government Act 1988. Put simply, local authorities cannot undertake certain work in-house unless it has been awarded through fair and even-handed competition. In developing the white collar regime, we have undertaken a thorough view of all aspects of the statutory framework for CCT to ensure that it meets the needs of white collar services. Of necessity there are rules. I hope that those rules are flexible enough to recognise the different approaches individual authorities may take to providing white collar support services.

The order before us this evening defines the new activities to be brought into the regime. Once Parliament has approved the order, then we will bring forward further regulations setting out the timetable for competition and the proportion of work which local authorities are required to expose to tender.

Turning to the services addressed in the order before us today, I should like to describe to noble Lords the regime we are putting in place for each. I should at this point note that we are consulting separately on the application of CCT for those services to police authorities, and my right honourable friend the Home Secretary will bring forward separate proposals shortly.

Taking first financial services, we have drawn up a comprehensive definition of a broad range of activities which may be brigaded together as financial work. These range from internal audit through accountancy services to frontline tasks such as the administration of council tax or benefits. We will expect local authorities to have exposed 35 per cent. by value of this work to competition, a figure which was deliberately chosen to allow a degree of flexibility in deciding what work should be put out to competition.

My honourable friend the Parliamentary Under-Secretary of State announced on 18th May that metropolitan authorities and London boroughs, the first local authorities to be required to expose financial services to CCT, would be allowed an additional six months to prepare for CCT. The timetable in shire authorities depends on the outcome of the local government review and, where appropriate, subsequent reorganisation in their area.

Second of the new services to be subject to CCT is information technology. This definition captures the procurement, development and programming and maintenance of IT systems, but does not impinge on the users of IT. Much of the work described here is readily suited to competitive tender, and indeed many authorities already buy in from outside suppliers a range of services. We are asking authorities to expose 70 per cent. by value of IT work to competitive tender. As with our other services, they will be able to take into account the value of work which has already been outsourced. The implementation timetable for IT CCT places this service at the end of the extension programme, reflecting the fact that decisions taken on IT could be heavily dependent on the outcome of competition for services such as finance which are major users of information technology.

The last of the new services this House is considering this evening is personnel. Once again, the definition is relatively straightforward and includes services such as human resource management, training or health and welfare work. We have agreed that certain work is not suited to competitive tender. We therefore intend to exempt from CCT the operational training of fire fighters, training undertaken by local authorities on behalf of TECs and personnel work undertaken as part of consortia for the pre-imposed qualification training of social workers. The private sector of course has a role to play in all those areas, but not through CCT.

Following consultation, we also reduced to 30 per cent. the proportion of work which authorities will be expected to expose to tender. This is to acknowledge that many elements of the defined activity for various reasons may not be readily suited to tendering. In practice, most local authorities have already brought competition to bear on many aspects of personnel services and CCT will not pose any particular new problems. For that reason we have concluded that the implementation timetable should remain as was originally set out in our consultation paper. The first authorities will be expected to implement personnel CCT by October 1996.

This order also amends the definition of building cleaning, which is already subject to CCT under the 1988 Act, to include the cleaning of police buildings. Competition can readily be brought to bear on much of this work, although we have acknowledged that certain sensitive areas within police buildings should not be open to wider public access. For that reason, police authorities will be required to expose to tender 80 per cent. by value of cleaning work within each force.

I have this evening outlined to noble Lords the bare bones of the new regime in each of the new services. The detailed regime has, as I have already said, been subject to thorough consultation and should not, I believe, pose any problem for those authorities willing to take on board competition and realise the benefits it may bring. I hope local authorities will respond by adopting a positive approach to CCT. Competition provides an opportunity for local authorities, for their staff and for the private sector. Those who are willing to meet the challenge head on stand to gain. Their reward for thinking clearly about the nature of service provision within their area will, I anticipate, be higher quality services offering local people better value for money. No one can object to that. I commend this order to the House.

Moved, That the draft order laid before the House on 8th June be approved [22nd Report from the Joint Committee].—(Viscount Ullswater.)

8.45 p.m.

Baroness Hollis of Heigham

My Lords, the Minister has explained the statutory instrument. It is perhaps worth making a couple of general points before making a specific point.

The Minister will be in no doubt that we on these Benches are extremely unhappy about the extension of CCT to white collar services. We do not believe that we need it. Many services have already been tested in the market place and the financial constraints affecting local government over the past few years have pushed costs down to the bare bones. The pressure on blue collar direct service organisations has led to pressure on those support services. The new system, despite some adjustments which the Government have made in response to local authorities, remains extremely complex and bureaucratic.

In relation to more general concerns, first, this will further fragment the provision of local authority services. One of the key justifications for white collar services remaining in-house is the interaction between legal services, advice services, financial services and personnel services to provide a corporate response of local government to its problems. By fragmenting them in this way, one leaves local government less equipped to meet the emerging and changing needs that it will face over the next decade.

Secondly, white collar CCT will create a complex web of contracts because so many of the services overlap. The complex web will also be paralleled by departmental client-contractor split and in the process some of the core values and planning objectives of local authorities will be lost.

Thirdly, I suspect that what will happen under white collar CCT is increasing centralisation at the same time as local authorities are being encouraged, rightly, to bring services closer to the people in the locality. They will have to be brought back into the centre in order to comply with CCT.

Fourthly, there will be severe transaction costs. There will be an increase in the total cost of delivering the service which may not be apparent in the contract price. The local authority associations gave me one such example where, in one London borough, there used to be a single head of legal services and there are now three: one overall head of department, one head of the client side and one of the contractor side. Three senior managers are now required to provide the same service—possibly an interior service—previously provided through one senior manager.

Finally, we believe that there is a loss of democratic accountability because, once implemented, CCT contracts limit the opportunities for variation and flexibility and the fine steer in service delivery that local authority committees can offer. If a contract is lost to the private sector the opportunities for implementing change, except at a very high price in adjusting those contracts, may be severely curtailed. For example, political priorities may change if a council changes political control. But the council will not be able to change the priorities of that service without paying a high price.

We firmly believe that transaction costs are high, that management time will be diverted from improving service delivery and that there is a loss of loyalty and corporate commitment to the organisation and a concentration on narrow financial targets at the expense of the public service. All the experience in blue collar CCT has shown that, disproportionately, the complaints from the public have mounted because the only way those contracts could be won was by cutting pay and conditions of service—unemployment pay, holiday pay, sickness pay, maternity pay and the like. As a result, by pressing down costs, which can only be taken out of employees' wages, CCT has reduced the morale of staff.

There has been a rapid turnover of staff. As a result there has not been the commitment of staff. The staff have been relatively untrained. Consequently, complaints from the public about the quality of service have mounted. It is no accident that a significantly high percentage of contracts that have gone out to private organisations has had subsequently to be called in by the local authority because targets of quality have not been met and a lot of public discontent has been generated. That is one set of problems.

One area about which I am particularly concerned—we argued the point long through the night when we were dealing with the Local Government Bill in Committee—is the extension of CCT to sensitive services like housing benefit. One of the aspects of housing benefit is that one is not just dealing with a mechanical set of calculations as to what benefit anyone is entitled to receive. One is dealing with quite sensitive information which applicants for housing benefit may be very reluctant to reveal when they can have none of the same guarantees about confidentiality, and so on, that they would expect to get from a fully trained and professionalised housing benefit service. We are extremely worried about that. When we debated the Local Government Bill the Ministers at the time tried to assure us that confidentiality would be protected and ring-fenced. That has not occurred and we are extremely concerned about it.

We wish to register our dismay about the unnecessary extension of CCT to white collar services. We wish to register our dismay with regard to the fact that, far from producing value for money, all the evidence shows that public dissatisfaction has mounted and a number of contracts have had to be called in. We wish to register our concern that housing benefit administration in particular will be privatised and that with it there will be a loss of confidentiality that claimants of housing benefit have every right to expect.

Viscount Ullswater

My Lords, I had perhaps expected the reaction the noble Baroness has given to the order. It is no secret that the party opposite is unhappy with CCT extension. It has made that clear when we have brought forward orders. I do not agree with the noble Baroness that fragmentation of local authority services will take place in the way she described. One has only to look at the benefits that have occurred over the past 15 years. In my opening remarks I mentioned the figure of some £400 million. But there are not only financial benefits. I believe that an improvement in service quality and efficiency has been brought about by the better management and the clearer strategic focus.

The noble Baroness was concerned about the lack of provision of core services. My answer to that is that the percentage which is subject to the competition requirement in the extension programme that I am announcing today is designed particularly to allow local authorities to retain that client capability and corporate responsibility that she feels would be lacking. The percentages are relatively low in order that the local authority can retain those core services.

The noble Baroness said that the costs of local authorities will be increased at a time when they are stretched by the local government settlement. We have to look very carefully at the estimated reduction of about 7 per cent. of costs overall and indicate that that is purely to the benefit of council tax payers who receive that in a lower council tax and also a better quality service and better efficiency.

Baroness Farrington of Ribbleton

My Lords, does the Minister agree that there can be hidden increased costs? If the majority of people providing services, such as school meal services or cleaning services, fall below the poverty line as a result of the process, they then become eligible for other benefits. There are many examples of people's wages and conditions of service being driven to a far worse point as a result of compulsory competitive tendering. For the record, it is also the case that from these Benches we oppose the compulsory nature of competitive tendering when Whitehall imposes a uniform rule across the country without knowledge of or regard to local circumstances.

Baroness Hollis of Heigham

My Lords, perhaps I may add to my noble friend's point. The Minister made much of 7 per cent. savings. I think he will find that virtually all the savings so far found from CCT have come from the low-paid jobs of catering and cleaning and have disproportionately disadvantaged very poor women. That is where the savings have come from—by pressing women down to and below benefit level.

Viscount Ullswater

My Lords, that may be the noble Baroness's view of how savings have been achieved. I was going on to deal with housing benefit, about which the noble Baroness was particularly concerned, and to quote, for instance, the London Borough of Bromley, where housing benefit claims dealt with correctly, first time, have gone up from 67 per cent. to 95 per cent. That service was contracted out. It was contracted out voluntarily, before the competitive nature of the process was brought about.

I understand that compulsion is what noble Lords opposite are unhappy about. There is a recognition of the improvement in the quality of the service delivered by those local authorities that have undertaken competitive tendering. A considerable number of local authorities have undertaken a lot of competitive tendering with a lot of jobs; IT in particular. Therefore. compulsion on some of these extensions will not affect a great number of local authorities as they are probably undertaking, if not the percentage then very nearly the percentage at the moment.

The noble Baroness was concerned about the confidentiality of housing benefit claims. We have a list of items in the order. Although that is one of them, the percentage is indeed smaller. That would allow any local authority to contract out under compulsory tender sufficient other work, but it would not need to if it did not want to. So there is no compulsion. They are not compelled to subject housing benefit to compulsory competitive tender. Some authorities have already done so. They do not seem to feel that the mechanistic side of the delivery of housing benefit is in any way compromised by what the noble Baroness is concerned about. It is for that benefit that there is no compulsion. The percentage has been set that delivers no compulsion on that side.

I believe that decisions on these matters in the order tonight 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. The noble Baronesses have indicated that they do not agree with some of the answers which have been arrived at in the consultation. That is inevitable. There is perhaps a point of principle between us. I hope that all recognise that we have given each decision very careful consideration.

My department intend to monitor closely the implementation of white collar CCT and will undertake to reconsider aspects 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, a fair regime. The CCT will not impose a rigid model for service delivery, but instead 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 this order to the House.

On Question, Motion agreed to.

The Earl of Lindsay

My Lords, I beg to move that the House do now adjourn during pleasure until 8.30 p.m.

Moved accordingly, and, on Question, Motion agreed to.

[The Sitting was suspended from 8.2 to 8.30 p.m.]