Public service - private masters: Lenin believed that the state would wither away. The Tory sell-off mania could now achieve that, but at a terrible price, says Michael Meacher

WILLIAM WALDEGRAVE's statement to the Commons tomorrow could mark a watershed in the history of Whitehall. A civil service that numbered 730,000 is likely to dwindle to 50,000 by the end of the decade, with even core functions of central government being moved out of the public sector. It may not yet excite political passions in the Fox and Hounds at Ashby-de-la-Zouche, but it will profoundly affect the nature of British society into the next century.

The Government's market testing programme has acquired such a pace and scale that one can foresee the goal of the process as a Whitehall shrunk to 25 rump departments, each with a 'political' officialdom of perhaps 2,000; 150 to 250 hived off executive agencies; more than 1,500 quangos; and thousands upon thousands of specialised contracts. The Eighties' mass privatisation of public industry and utilities has been superseded by the mass market-testing, contractorisation and privatisation of public services in the 1990s.

The 'Next Steps Review 1993' painted the canvas. It revealed that agencies, and announced candidates for agency status, represent 78 per cent of the total staffing strength of the Home Civil Service of 554,000. The inclusion of the Crown Prosecution Service and Serious Fraud Office as candidates for agency status demonstrates how far functions previously regarded as a quintessential public service are being primed to fit the market model.

Like many Whitehall documents, its blandness concealed its real importance. The implicit message is that the behind-the-scenes battle between Waldegrave, who favours the gradual process of market-testing, and the Treasury, which wants to go straight to full-scale privatisation, has been won by the latter. This switch of policy was opaquely acknowledged by Waldegrave when he declared in his foreword to the document: 'This new policy of openness in respect of agency candidates and the review process will provide opportunities for those in outside organisations with innovative ideas about how functions can best be discharged to put them forward in a timely way.' Stripped of Whitehall-ese, this means there is now an 'open to offer' notice outside every Government office.

The implications will be enormous. Mr Waldegrave has announced that savings from this programme already amount to pounds 135m - although he has never stated how the quality of the services may have been affected. This lack of any cost-benefit measure seriously undermines ministers' trumpeting of the value of the whole exercise. However, that is not the key objection.

Now that ministers recognise no limit to their market-testing and/or privatisation ambitions, the central issue must be whether this represents a viable model for running a modern industrialised and highly technological society. Dispersal of some functions is one thing, but comprehensive disaggregation of the entire range of public services is quite another. Clearly the process of fragmentation can be pursued so obsessively that the centre is deprived of the critical mass to operate effectively.

The problem is that the Government never seems to know when to stop. Just as privatisation of industry has been taken to dogmatic excess (water, coal, rail, post office), so privatisation of services has become a compulsive idee fixe. What sense does it make to privatise prisons, taxpayers' records, the Royal Mint, the courts, or key parts of the NHS?

It's not as though early stages of the programme have been encouraging. A while ago, a private company working for the Inland Revenue sent 84,000 annual tax advice packs to the wrong addresses. Group 4 became a laughing stock for its loss of a string of prisoners. Expensive RAF Tornadoes were seriously damaged when Airworks was brought in as a private contractor. And privatised skill centres, when taken over by Astra, ran up thumping debts and ended up in the hands of a proven fraudster. Claims of enhanced value for money ring rather hollow against such a record.

Indeed, there must be doubt whether value for money really is always the Government's objective. Why, for example, did Mr Waldegrave last year override an in-house bid at the Driver and Vehicle Licensing Agency at Swansea that was pounds 1m cheaper than that from the private contractor? And why did he prevent an in-house bid even being made when the Inland Revenue's Information Technology Office was put out to tender? He was recently forced to admit to Parliament that no less than 63 per cent of the 'Competing for Quality' programme - work valued at pounds 392m - was, in his own words, 'awarded to the private sector without in-house competition'.

But perhaps the central problem with a programme of mass privatisation of public services is accountability. How can the replacement of a simple hierarchical system by a wholly disintegrated system be managed by ministers, or be controlled by the Treasury or Cabinet Office, or be accountable to Parliament? Again, there is a need to keep a balance between the competing demands of efficiency (if these changes do in fact promote this) and accountability. Yet under current proposals the latter is entirely swamped by the priority allocated by the market model to efficiency.

At the root of this confusion is the Government's unwillingness or inability to see that the customer philosophy isn't necessarily suited to the public sector. The ethos of the private sector is, where demand rises, to increase supply. In many cases that is not an appropriate model for the public sector, which is often about rationing and arbitration between competing rights. The Government cannot see, or will not acknowledge, that the professional ethic, the source of the highest standards of conduct in the civil service, cannot be replicated by the narrow obligation written into a private contract.

Nor do ministers seem to see that a proliferation of quangos, all feverishly struggling to transfer responsibilities on to others to cut their own costs, is scarcely the best way to safeguard the wider public interest.

Lenin must be amused that his hopes of achieving the withering away of the state, dashed by the collapse of Communism, have been revived by the ideological frenzy of a Conservative government.

The writer is Labour spokesman on public service.

(Photograph omitted)