On job cuts it has to be no, Minister: Madsen Pirie provides some telling insights into ingrained civil service attitudes towards reform

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THE Civil Service, for so long a protected bastion, is now feeling the same forces assail its privileged position as have brought competition and market ideas to the state industries and utilities. This week's report that ministers are preparing a White Paper which could bring cuts of up to 20 per cent in the top ranks suggests that the advance of market forces is becoming serious.

So far, this advance has had three prongs. Outright privatisation has moved some civil servants over to life in the private sector, either by the sale of their operation or by a management-led buy-out. Agency status has created quasi-

corporate entities, run at arm's length from government and controlled by three-year 'framework' documents. Finally, market testing has invited outside firms to bid against civil service teams for particular batches of work.

There is no doubt which of the three is most widely disliked. Privatisation offers the chance to make a go of things in the private sector. Even agency status gives devolved management a chance to show what it can do. It is market testing that arouses fear and loathing in the bureaucracy. Having to compete for one's own job is something private sector workers have done for years, but civil servants do not like it, and have deployed their old skills, and acquired some new ones, to thwart its intentions.

They have a battery of techniques and arguments to persuade weak-minded ministers that their own department or section is just not a suitable candidate for this process. Their first ploy is to claim confidentiality would be threatened if a private firm did the job. Access to personal or financial information can be entrusted, they say, to public officials, but not private ones. This ignores the fact that private sector institutions such as banks have operated for years under the constraints of confidentiality, as have private doctors and lawyers. It also overlooks the fact that confidential documents are sent each week to journalists by anonymous civil servants.

The second argument stresses the danger of a private sector monopoly. Nothing is said, of course, about a public sector monopoly, which is far more injurious and harder to bring to heel. There are no recorded cases in which consumer choice has been lessened by market testing, and many where it has been extended. The fact is that the private sector has been trained to attract customers by offering them choices. The public sector has had captive customers who need not be attended to.

Third, civil servants frighten ministers by claiming that public sector unions would oppose the move and disrupt the activity. Union leaders have opposed virtually every privatisation that ever took place, but their members, on the other hand, bought the shares. Union opposition has not prevented the privatisation of any state industry or utility. It is not part of the function of civil servants to oppose the policies of an elected government. The members know that, even if the leaders do not.

A more insidious, and very clever, argument is supported by figures purporting to show that the changeover costs will exceed any savings achieved. Needless to say, the restructuring and redundancy costs are inflated, and no one ever says that it is maybe these costs which need to be reduced.

My own favourite argument is that market testing must not be introduced because it will prejudice longer term options and significant internal reforms. There are many variants of this. 'Minister, we should let others go first.' 'Minister, the area concerned is undergoing major change and should be allowed to settle down.' 'Minister, we are awaiting the assessment report of the consultants and should not prejudge their findings.' 'Minister, the section concerned is currently preparing for agency status.' If none of these works, the civil servants can move straight to megaton range. 'Minister, we have to await interpretation of the EU directive.'

If consultants have been brought in to review the department, market testing must be delayed until after their report. If not, they must be brought in now before it can sensibly proceed. It cannot be introduced, Minister, because it would involve change to the Royal Charter status. Minister, it simply would not be understood either by the public or (more seriously) by our European partners. The fact that it is perhaps time to change the Royal Charter, to educate the public, or to set yet another brilliant example to our European partners never arises.

Minister, we cannot possibly have this work done at half the price by private firms because it would result in a loss of control by the department. Precisely. The department need not maintain detailed control to preserve accountability. It can in fact protect taxpayers better by tightly written contracts than it can by trying to control its in-house operation. Furthermore, it can change contractors who under-perform; it cannot change its own staff as readily.

If the minister is sufficiently wilful to introduce market testing despite all these excellent arguments, the defence must fall back on more subtle obstructions. The key is the job specification. If it is written exactly around the current way of operating, incoming private firms will be denied the chance to make savings by reorganising the way the job is done.

Another favoured technique is to have only part of the service tested. Knowing that private firms can rationalise and make economies of scale, civil servants offer only a narrow part of the operation for contract, thwarting the ability of the interlopers to introduce cost-saving efficiencies.

Less subtle, but no less effective, is the insistence that any contractor has to use existing staff, buildings and equipment. This prevents new technology, new equipment and more highly trained staff from offering taxpayers better value. The fallback position is to price the in-house bid on the basis that most of the costs would have to be carried anyway. This assumes that contracting out would bring no saving in overheads, and allows what amounts to marginal pricing by the in-house team. It goes without saying that private competitors have to bid with full and realistic costs.

If all of this falls, and private firms go ahead and bid anyway, the civil servants have to retreat to another defensive ditch. From this position they deny the incomer access to the information needed for an informed bid. If bidders seek clarification of the invitation to tender, this can be refused. They can be thwarted in any attempt to compute the liabilities which will arise from taking over the current operation. And just to make sure that staff cannot be reassured and won round, they can be prevented from even meeting the contractor.

Such ingenuity will be applied by the top civil servants - past masters of such techniques - to saving their jobs. Yet, if the progress of market testing is anything to go by, the taxpayer may not be in for the short end of the stick. Ministers in the Treasury and the Office of Public Services and Science have shown unexpected resolve and exhibited increasing irritation that market testing has not reached into the big central overheads, and that contractors have been showing less and less interest as they have been subjected to obfuscatory techniques.

The lesson has not escaped them that competition produces bigger savings if there is no in-house bid, as happened with the Inland Revenue's information technology services. They have also noticed that outright privatisation is much less costly than market testing as a way of restructuring the Civil Service.

It is too soon to see whether civil service resistance will prevail, but there are clear signs that ministers are prepared to use the P-word if thwarted in the drive to secure better value for public funds. And there are encouraging signs, too, that the cobwebs can be swept away from the public services, just as they have been from the nationalised industries, bringing efficiency, innovation and responsiveness.

The author is president of the Adam Smith Institute.

(Photograph omitted)

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