The great Civil Service sell-off: Dozens of services and 75,000 staff set to be transferred to private sector

Unions denounce sale as ‘privatisation by stealth’

Chancellor George Osborne and Chief Secretary to the Treasury Danny Alexander, outside the Treasury (PA)

Ministers are preparing to spin off “dozens” of state-owned services into independent companies in what could be one of the largest privatisation programmes since the 1980s.

Under plans being rolled out by the Cabinet Office, millions of pounds’ worth of state-owned services will be spun off into independent companies – jointly owned by private-sector investors and their employees – within the next two years. Eventually as many as one in six civil servants – or 75,000 staff – could be transferred into the private sector with the Government maintaining a minority stake and offering long-term contracts to the new companies to encourage investment.

Today the Cabinet Office minister Francis Maude will announce that the Government’s Behavioural Insights Team – known as the “nudge unit” – will become the most high-profile area of Government to be “mutualised”.

It will be turned into a profit-making joint venture with private companies being invited to bid for a stake of up to 50 per cent in the new business. Under the plan, the Government would guarantee contracts for a number of years – with the business free to sell its services outside Whitehall.

But the move will herald a much wider sell-off of government functions and assets over the coming months.

Among the areas under active consideration are Whitehall’s IT, personnel and legal functions. Cabinet Office sources said they hoped to support “dozens of such spin-offs” in a programme which is expected to raise millions of pounds for the Treasury. It will leave a dramatically slimmed-down Civil Service providing only core functions of policy advice and implementation.

Eventually other government bodies such as the Land Registry and the Office for National Statistics could also become candidates for mutualisation, although government sources stressed that these were not under consideration at present.

The move has been condemned by public sector unions which fear it will lead to job cuts and erosion of services as the private outsourcing companies that are expected to take stakes in the new ventures look to cut costs.

Dave Prentis, the general secretary of the public sector union Unison, said the plan amounted to “privatisation by stealth”.

He said: “The involvement of big private companies makes mutuals just another Tory party ploy to sell off public services. The Government is stretching the definition of mutuals to the limit – genuine co-ops and mutuals will be up in arms.

“Staff will be plunged into confusion and could face being taken out of public sector pension schemes and having their pay and conditions seriously harmed.”

The Government has long championed the idea of John Lewis-style mutuals, but until this month only one part of central government – the Civil Service pension provider MyCSP – had been sold off.

The next two years are expected to see a significant rolling out of the scheme in a drive to boost public sector productivity – and capitalise on expertise that can be marketed to the private sector. Sources close to Mr Maude said the model of mutualisation that the Government was adopting would “finesse some of the problems of naked privatisation” while keeping alive the “Thatcherite principle” of a small state.

They stressed that all the spun-off businesses would have at least 25 per cent employee ownership – allowing workers a true say in the direction of the business as well as a stake in profits. They added that workers would be fully consulted before being transferred to the new entities.

A source close to Mr Maude said: “This accelerates our drive to make public assets pay their way. We hope to support dozens more new spin-outs over the next few years. This is a whole new growth area and Britain is leading the way.”

Mr Maude has previously pointed to figures showing that more than half of every pound of the UK’s wealth is spent by the state and he has spoken about “the perils of state monopolies over service provision”, saying: “The state is an inherently monopolistic entity and a state monopoly can be the enemy of enterprise.

“Within the public sector there is a legion of entrepreneurs, fired with the public service ethos but deeply frustrated with the constraints imposed by the monolith within which they are imprisoned. Liberating them as leaders of a new cohort of public-service mutuals will create a whole new enterprise sector in our economy.”

But Mark Serwotka, head of the Public and Commercial Services Union said there was “nothing mutual or co-operative” about the proposals and that its first attempt to privatise Civil Service pensions had been imposed on staff against their wishes. “The route to improving public services is investment, not gimmicks and back-door privatisation,” Mr Serwotka said.

Q&A: Mutualisation explained

What is mutualisation?

It’s a form of privatisation – but where employees have a stake in the spun-off company. Under government proposals the “shares” in the company would be split between a private sector investor, the employees and the Government.

Why does the Government think it is a good idea?

Tory ministers point to figures from the ONS which, they claim, show that public sector productivity failed to rise under the previous Labour government. Mutuals, they believe will improve this by harnessing private sector efficiencies while giving workers a stake.

What do the critics say?

Public sector unions in particular believe that this is privatisation by the back door. They fear that over the long term, terms and conditions will deteriorate for workers while big private sector outsourcing companies like Capita will effectively run the businesses.