'Shadow' sector making shady profits

6 December 2012
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6 December 2012 | Adam Leach

Shareholders in private sector companies that have taken on the duties of delivering public services such as hospitals and children’s homes are making “unacceptable profits”, according to a report.

The Shadow State, published this week by Social Enterprise UK, conducted a survey and found that the majority of the 2,012 respondents objected to the profits being made by private sector companies and their shareholders through delivering services that are traditionally state-run. It found that two-thirds of respondents see profits from running hospitals, other health services, children's homes and police services as unacceptable. A slightly smaller majority, 63 per cent, object to profits from care homes for elderly and disabled people.

Lord Victor Adebowale, chief executive of Turning Point, said: “I have nothing against the private sector in public services. But private sector organisations are making money from the taxpayer, and from the taxpayer's point of view that money needs to stay in public services… If you're taking money out of social services or health, it doesn't really matter if you're more efficient, ultimately it could still cost us all more.”

The report called on the government to take steps to “even the playing field” for social enterprises and private sector organisations by toughening up the Social Value Act, which comes into law in January. It said it “must ensure” that community and social benefits included in contract bids are factored into tender evaluations so that deals are awarded on an overall value basis.

One of the central policies of the current coalition government has been to open up the delivery of public services to private and third sector organisations in order to increase efficiency and reduce the burden on the taxpayer’s purse. The Shadow State argues that the actions of successive governments have led to the value of outsourced services rising to £81 billion and that legislation such as the controversial Health and Social Care Act and initiatives including the Work Programme will increase that amount to £140 billion by 2014.

A Cabinet Office spokesman said: “We are determined to improve our public services and to remain Britain's most transparent government ever. That's why we are doing more than ever before to ensure a diverse range of providers can compete on a level playing field.

“We have already made real progress. The Social Value Act cements social impact in contracting for the first time, Big Society Capital has up to £600 million to invest in social ventures and all our contract opportunities are now published online. We train commissioners about the benefits of social enterprise and we even fund social enterprises to prepare for contracts and investment."

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