Civil Service crisis could cost billions in tax

BILLIONS of pounds of tax revenue could be lost by the Government because its attempts to commercialise the Civil Service have caused a collapse in morale and efficiency, according to confidential advice given to ministers by a senior official.

In documents seen by the Independent on Sunday, Sir Michael Partridge, permanent secretary at the Department of Social Security - which is meant to collect pounds 39bn of National Insurance contributions this year - warns that ministers' plans to open Whitehall to private companies could lead to a 'failure to keep the social security show on the road'.

The Government, which is struggling to reduce its pounds 50bn borrowing burden, would regard any reduction in the billions of pounds collected by the DSS as a serious threat.

Sir Michael said that uncertainty and unease were spreading among civil servants faced with being forced to work for private contractors if they lose the market testing competitions being carried out for Whitehall work.

William Waldegrave, the public service minister, aims to have contracted out the jobs of 44,000 civil servants - 8 per cent of Whitehall staff - to private managers or newly formed in-house Civil Service teams by September. Next year another 8 per cent will have to bid for their own jobs.

The aim is to save money. But in a letter to Mr Waldegrave and Sir Robin Butler, the head of the Civil Service, on 26 May, Sir Michael warned that, far from achieving that goal, the market testing policy could have 'very serious expenditure costs' because civil servants might refuse to fill vacancies in key areas threatened by privatisation.

Sir Michael was particularly concerned about the collection of pounds 39bn a year in National Insurance contributions, and the pounds 1bn he expected to receive this year from the investigation of social security fraud.

'Failure to keep the social security show on the road would have very serious programme expenditure costs, especially in areas such as contributions collections and fraud, both of which are in the vanguard of our market testing exercise this year,' he said. 'We are already seeing serious costs in terms of staff morale across the whole of my department which in turn impinges on their ability (and willingness) to continue delivering the service.'

Civil servants who lose market testing competitions and do not want to work for private sector managers, however, will have no choice but to resign.

Sir Michael's confidential letter reveals that he wants to combat the demoralisation this threat is causing by offering alternative jobs in his department to civil servants who do not want to be privatised. William Waldegrave's officials appeared baffled by his idea last week. The aim of market testing is to make savings, they said, and spending money on offering new public sector jobs to civil servants who opted out of the process would defeat the whole exercise.

Sir Michael is not alone in having doubts. Senior civil servants across Whitehall are raising objections.

There is strong resistance to Home Office plans to put out to tender law and order services as diverse as drugs licensing, custom control at ports and airports, the Criminal Injuries Compensation Board and, most remarkably, the department's research and planning unit, which provides advice to ministers.