Jim Armitage: How to prevent private sector providers from bleeding us taxpayers dry

The John Lewis Partnership is as bourgeois as summer holidays in Provence

When it comes to giving hundreds of millions of pounds of taxpayers’ money to private-sector contractors, the phrase “let’s throw caution to the wind” is not one that we want to be hearing. But that was what David Cameron’s former special adviser demands in response to an astonishing report into how private firms routinely rip off taxpayers.

Sean Worth, currently at the think-tank Policy Exchange, railed against the Institute for Government’s recommendation that ministers slow down their outsourcing until they’ve sorted out the mess our procurement processes are in.

While most of us would, I would surmise, consider the IfG’s recommendations sensible, Mr Worth thinks delay is the last thing we should be doing. Rather than let the incompetent state mess up any more services, he suggests, we should be opening up new areas to public tendering and throwing “caution to the wind”.

Later, Mr Worth, whose views are still heeded in Downing Street, I am sure, explains further: “I’m not saying we should be signing off everything and anything, but we should be going a lot faster instead of always tiptoeing over eggshells in the Civil Service.”

He goes on to make repeated disparaging remarks about state providers of public services, suggesting that the cold wind of competition was the answer to the ills of the NHS, schools and pretty much everything else in public provision.

When challenged that, time after time, private-sector outsourcers seem incompetent, expensive and dishonest due to the inherent conflicts of the profit motive, he responds that, when wrongdoing is found, we can just “sack ‘em”.

But, it is not as simple as that. Public-sector contracts tend to be far too complicated to eject the provider overnight. In most cases, it would take many months to make the switch. And during that handover period, what kind of service will the disgraced incumbent provide to the patients, children, or inmates?

Where he has a better point is in the suggestion that private-sector brains should be brought in to help manage the procurement process on Whitehall’s behalf. He advocates bringing in well-paid procurement chiefs from major plcs on big, public sector-style salaries (£200,000 or so). Let them negotiate with the Fujitsus and Sercos and G4Ses and use the tricks of the trade to draw up more watertight contracts.

It would create a row, of course: mandarins on that kind of money. But it could save us far more in the long run.

Meanwhile, I’ll bet a pint of my rhesus positive that we’ll soon be ruing how Bain Capital bled us dry on last night’s plasma deal. Ho-hum.

Sports Direct is the new economic model

Ministers of most shades evangelise about the economics of the “John Lewis model” when trying to appeal to middle-class voters.

You can see why: few things in the cold world of business are as touchy-feely as the idea of corporate partnerships, where employees get a stake in the business they work for. And John Lewis is as bourgeois as summer holidays in Provence. All key buttons pressed in the fickle middle-income electorate’s hearts.

Cynicism aside, politicians are right to promote them. If the banking crisis taught us anything, it was that employees incentivised with cash bonuses and no significant stakes in the future of their firms, were far more prone to damage their companies.

A welter of reports highlight the economic benefits of employee ownership. Cass Business School found staff-owned businesses were more resilient to recession, created more jobs and retained staff better than traditional firms. Matrix research found they created higher productivity and more innovation. Both studies name-checked the good old John Lewis Partnership.

But yesterday brought us a new contender to the JLP throne in the rather more proletarian form of Sports Direct.

For Sports Direct’s bonus share scheme is one of (if not the) most-lucrative staff-incentive programmes on the high street. This year, 2,000 employees will get shares worth £75,250.

It should be said that 22,000 of its current staff failed to qualify, but still, in terms of generosity to the lucky winners, John Lewis’s bonus –14 per cent of salary – pales in comparison.

Chief executive “Call me Dave” Forsey describes the bonus scheme as a “game changer” which halved employee turnover to 15 per cent within a year of its introduction. “Staff,” says Dave, “feel very much part of everything we do.”

So, come on, Clegg, come on Miliband, forget about the “John Lewis economy”. Let’s have a Sports Direct one instead.

High street slump could mean more housing

In many ways, Britain is already a Sports Direct economy. That is to say, unless you’re selling your goods as cheap as chips, you’re fighting for your life.

Yesterday’s news from the high street showed this more than ever: Sports Direct posted bumper profits, Mothercare took a hit from aggressive discounting, and the Office for National Statistics showed department stores  slashing prices to shift unsold stock.

Little wonder, then, that Mothercare is in the process of cutting its store chain from 311 to 200 outlets. That’s a lot of boarded up premises. The Centre for Retail Research says that around  62,000 stores will close during the next five years.

You could see this as a depressing state of affairs. You could see it as the inevitable result of too many shops being built when credit was underpriced before the financial crisis.

Or you could see it as a heaven-sent opportunity for local governments to solve the housing shortage by granting planning consent to turn retail premises into homes. I know which I prefer.

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