TOP privatisation company Serco admits that it and other outsourcers built their businesses by “extracting value” from government contracts, with “aggressive behaviour” and too much power in corporate hands.

Serco makes the admission in a potted history of privatisation at the start of its latest annual report. 

The report, covering the 2021-22 financial year, shows the firm had a good pandemic, squeezing hundreds of millions from the government for Covid privatisation.

The report, which shows the firm’s income from privatisation growing to £4.4 billion, includes the admission that they and firms like them became “highly profitable and skilled at extracting value from government contacts.”

Serco’s business is deeply dependent on public service outsourcing. It latest annual report, filed at Companies House in July, contains the admission in a strikingly honest and unflattering history of this ideologically driven privatisation. 

The report says: “For nearly 30 years between 1980 and 2010, Serco grew rapidly as the market for outsourcing public services developed around the world. 

“Inspired by Thatcherism and the policies of President Reagan, privatisation and outsourcing became popular in many countries and drove rapid growth of an industry that had barely existed before. 

“Suppliers became highly profitable and skilled at extracting value from government contacts.” 

Serco admits that “power” had “swung too far in favour of contractors” until at least 2010.

Serco’s history of privatisation claims that after the 2008 “global financial crisis” governments sought to cut costs, and power then swung too far away from the contractors. 

However, even this history makes privatisation sound like an ugly struggle for money, not an attempt to deliver decent public services. 

Serco’s history says: “The story of the UK government services outsourcing industry has been one of acute difficulty for much of the period since 2010. 

“Oversupply, aggressive behaviour by both government and suppliers, and the ill-advised transfer of risks that private companies had no way to mitigate or manage led to the near-destruction of a once thriving industry, as multiple companies suffered huge losses on government contracts.”

According to Serco’s history, privatisers like themselves were skilled at “extracting value” from governments and engaged in “aggressive behaviour,” but things have now settled down and the “past excesses” of privatisers are over.

Serco says: “Having swung too far in favour of contractors, the balance of power in the public services market in the UK swung too far back to government after 2010; it is, we believe, beginning to work its way back towards a more balanced and sustainable position.”

Serco says that the current tension between government and privatisers is now more balanced because “in recent years the UK government has developed a series of ‘playbooks’,” setting out common privatisation approaches.

The financial results show why Serco is very happy with these privatisation “playbooks.” They allowed the firm to cash in on Covid privatisation.

According to Serco chief executive Rupert Soames: “Work supporting governments’ response to Covid-19 lasted much longer than we expected at the start of 2021” and “the net contribution to our profits of this work was significantly larger in 2021 than in 2020.”

Soames says that “we estimate that revenues partially or wholly attributable to Covid support work for governments worldwide were around £700m in 2021.”

£700m is 16 per cent of Serco’s total revenue of £4,424.6m (revenue which itself increased by about 14 per cent on the previous year). 

Serco did well from Covid. Notable contracts highlighted by Soames include Serco’s “contact tracing” support contract: Serco had up to 13,000 staff working from home, phoning up “contacts” of Covid-positive people. 

This was a big contract, but there is no strong evidence that Serco’s unqualified, disorganised “contact-tracing” staff were at all effective in stopping the pandemic. 

It was an amateurish, minimum-wage, script-driven call-centre caricature of how professional contract tracing works. 

Soames also highlighted Serco’s work with asylum-seeker housing: Serco’s record here is very poor, with asylum-seekers poorly looked after in squalid accommodation, but Soames is proud of the contract because it is big and lucrative.

Thanks to Covid work and other public services, Serco is able to suck out this government money and inject it both into building up the company and paying out to shareholders. 

Soames says: “The strong financial performance enables us to deliver all aspects of our capital allocation strategy: investing in the business to drive growth and efficiency; increasing returns to shareholders by increasing dividends.” 

In 2021-22 Serco paid out £26.5m to shareholders, with promises of more dividend payouts for the future.

Soames ends his presentation with some “ESG” issues — this means “environmental and social governance” and is a catch-all for corporate worthiness. 

Soames says Serco “repeated the ex-gratia payments made in 2020 of £100 to all employees not receiving bonuses, which benefited around 50,000 people at a cost of £6m in the year.” 

The £100 bonus was welcome, if small. But it did not get paid to Serco subcontractors — including most of the Covid “test and trace” staff. 

It also looks pretty small compared to Soames’s personal salary, which was £4m.

One final point. Post-Covid, times are tough for a lot of firms and a lot of individuals, thanks to record inflation. However, the annual report says “Serco is well-protected from inflationary effects as the great majority of our contracts have either indexation provisions or are spot-priced under framework contracts.”  

So it looks like the taxpayer will be cushioning Serco from inflation pressure.

Starmaunt or Morder

WHO said this: “As prime minister, my top priority will be to drive growth and competition, build a modern economy for a modern world, help people to live well, and help people to live in safety and security”?  

It could be Keir Starmer, but is actually Mordaunt. Should Penny win, Keir’s retreat into banal technocracy could leave Labour with little to say.

Starmer and Mordaunt talk about “growth” of wealth because they don’t want to talk about distribution of wealth. 

Conjuring “growth” isn’t as easy as they pretend, but they prefer imagining growing the cake to considering who gets the bigger slice.