Thursday, 23 June 2011

Public Sector Workers Need a New Type of Strike to Win Pensions Battle

Writing in The Times recently, Matthew Parish stated that public sector workers will not win the battle over changes to their pensions through striking. The basis for his view was the comments which readers have been posting on the end of online newspaper articles. I had noticed these postings myself. They are not very favourable to public sector workers. Of course people who write on newspaper websites are not necessarily representative of the wider public. However, large numbers of negative comments appear across websites representing a range of political opinions. Even articles on the Guardian website have negative postings. The coalition Government has been pumping out propaganda for ages about gold plated public pensions and it sems to have sunk into the popular consciousness. Contrast this with Greece. Their public sector workers have much more privileges than we do in the U.K. However, the population as a whole blame the Government and the banks for their problems. Please bear in mind that I am basing my observations only on news items. However, from what I can see workers in different sectors do not appear to gave turned on each other.
This lack of popular support in the U.K. is a major obstacle for public sector workers. A second obstacle is fear. Local authorities are likely to lose about a quarter of their workforces over the next four years. People are already experiencing wage freezes and are worried about their jobs. They may feel that poorer pension provision is better than no job. They may also feel that they cannot afford financially to take part in a protracted strike which may end up in defeat. Many other workers are concerned about the effect of public spending cuts on the people they work with and will not want to add to this by withdrawing services.
Then there is the Government's need to look tough. Ed Balls suggested that the Tories were spoiling for a fight and that public sector workers would be falling into a trap by striking. He is possibly right. However, he offers no suggestions for what public sector workers ought to do. Does he think they should just rollover and accept these attacks on their terms and conditions? The Labour party has no answers and no leadership for public sector workers. This is why I don't pay a political levy.
So- Is it hopeless? I would say definately not. However there needs to be new strategies.
Firstly, I feel there needs to be a change in accent to how the arguments are presented to the public. Changes in public sector pensions are just part of a larger attack on public services. This includes cuts in spending on health and social care, moves towards greater privitisation, ill-thought out health reforms and possible reductions in the responsibilities of local authorities. Unions need to make common cause with service users, patients, and the public at large. Protests on pensions needs to be part of a wider protest about cuts in services, protests against job losses etc.
Secondly, I feel that a new type of strike is needed. This would be a strike which does not have any of the chartacteristics of strikes as we know them. The type of strike I am suggesting would have no negative impacts on the public or service users. It would involve no loss of money for workers or any other type of loss. In fact, it would leave them better off. It would not require a ballot. It would not be illegal or break any laws. Anyone could join in-even people who were not in the public service or in the unions.It would however, have a very dramatic effect on the Government and the financial markets. It would result in front page headlines and send the Conservatives and their friends in the city into a spin.
So what is this strike and how would it work?
What I am suggesting is a strike on spending. One day a week every public sector worker in the country should refuse to spend any money other than their bus/train fare to work (or up to £5 worth of petrol), a pint of milk and a sandwich. We could call, this #spendingstrikethursday if we decided to do it on a Thursday. On this day public sector workers would not go shopping for clothes, groceries, books, haircuts, outings to cinema or restaurants, holiday bookings, online spending or anything else which is not essential for that day. Obviously rent, mortgage, utilities and anything on a direct debit would still be paid.
The effect of this spending strike would be a massive blow to the economic figures. The snow last winter was extimated to cost the economy £1.2 billion per day. A soending strike would have a similiar effect. Of course, some spending would just be delayed one day but much spending would not take place at all. For example nobody is going to order two days worth of coffees the next day and a lot of impulse purchases would not happen. Also,many impulse purchases would not take place. For workers the spending strike days allow them to save money to go into a war chest for their family to help get them through the recession or to save for something special. There would also be benfits for people's health from sweets and alcohol not purchased. Over time it may result in people changing lifestyle habits as they see that they can get through the day without buying lots of coffee or chocolate and that they can enjoy saving some money.
However, the biggest impact of the spending strike will be on on the Government and the city. The only thing which the coalition appear to be concerned about is how Britain is regarded by credit ratings agencies and the financial markets. A protracted spending strike of one or two days per week would blow a hole under the water in the Government's hopes for the kind of results which suggest an economic recovery. This would be front page in FT. It would also send Britain's retail and service sector (which makes up a very large part of the economy) into despair. There would be fear on the part of big business that people's habits would change permanaently and they would get less used to spending lots of money and being addicted to consumerism. Workers to wear badges stating that they were takimg part in the spending strike and they could call in at or phone places that they would normally spend money in that day to explain why they had withdrawn their purchasing power.
One possible objection to this plan would be that people might think that public sector workers were sabotaging the economy. However, the defense against this criticism is that public sector workers are just demonstrating what is going to happen when they lose their jobs or enter the retirement in poverty. Another objection is that people will not have the discipline not to spend. However, a spending strike involves a lot less hardship that going on normal strike.
Today's FT carries a story that the Bank of England is considering another round of quantitiative easing. This is a sign of desperation. It shows that Osborne's economic medicine is not working. Economic growth is in the doldrums. #spendingstrikethursday could push economic growth figures over the edge into double dip recession territory. The Government would fear it a lot more than a normal strike. Workers have nothing at all to lose. Anyone who supports public services can join in. It could become part of a wider protest against current Govt policies and form part of a move to unite workers in different sectors and industries against the politics of austerity. After all, an increase in public spending could involve increased investment in public sector construction projects and other measures to get people back into work- so there is something in it for proivate sector workers to join in and demand a change in course by the Government.
If you like this idea and think it has potential then tweet a link to this article, tweet about #spendingstrikethursday,suggest the idea to your union rep, talk about it on Facebook etc.
Please let me know what you think of this idea and leave a comment.

Sunday, 5 June 2011

Important Lesson From the Southern Cross care home crisis

The current crisis at Southern Cross is a cause for great concern and has been the subject of much debate. It has come at a time when there is huge concern about the health and social care sector being opened up to more competition,concern about the quality of care in residential care and hospitals and concern about NHS Hospital Trusts in financial crisis.
Unfortunately (though predictably) much of the debate about these important issues involves simplistic arguments about the unsuitability of applying the 'profit motive' to social care. These arguments ignore the fact that the majority of people involved in private sector social care (including most of the managers) are employees and never see any profit. Like their public sector counterparts they are likely to be motivated by wanting to provide a good service to the people they care for. Certainly, they could forced to cut corners by owners to save money- but this is equally true of people working for cash strapped public services.
There ARE reasons to be concerned about the private sector involvement in social care. However, to examine them requires a much more nuanced approach than that on display in some parts of the media.
The current problems with Southern Cross would appear to derive from the business model which the company has been saddled with since 2007.
Southern Cross was purchased in 2004 for £162 million by an American private equity firm called Blackstone. It was floated in 2007 on the stockmarket with a valuation of £423 million. The business model was called sale and leaseback. The company would sell off its valuable property assets, (ie the buildings which housed the care homes) to property investors. These investors apparently include the Qatar Investment Authority and other wealthy landlords who were guaranteed steeply rising returns. The careccompany would then lease back the properties from their rich landlords with 30 year leases which required them to pay ever increasing amounts of money in rent each year. This arrangement assumed that the demand for residential care would increase year on year and that local authorities would be willing to continue to pay increasing amounts of money for residential care.
The money that the company made from the property sales was used as finance for the purchase of additional care homes which were then in turn sold and leased back. As long as property values kept rising and there was the ongoing income from new residents the flow of money continued.
Blackstone made a 300% return on investment from this deal.Four executives at Southern Cross sold their entire holding of the company in December 2007 when the share price was £5.50 per share netting them personally a combined £35 million. The share price plunged just 6 months later and stood at £0.063 per share on 3rd June 2011.
Now the company cannot afford to go on paying the steep rents and local authorities are facing the prospect of having to rehome large numbers of vulnerable older in the event of a collapse.
The Southern Cross collapse was a result of high risk business strategy which had reaped huge profits for a small number of people and a private equity firm. The model was vulnerable to economic and political changes. In any case it would have been cheaper to have funded expansion from loans than from sale and leaseback of peperty.
The long term fallout from this is going to place a great deal of anxiety for vulnerable older people and their relatives, local authorities, council tax payers and current investors.
This is likely to be especially felt in the north east where the care home chain has a strong presence. So far central Govt has shown very little leadership. Their localism agenda seeming to allow them to bail out of any responsibility for anything which they consider to be a 'local' issue. But Southern Cross is not a local issue. It is a regional and a national issue. It requires a national solution and new strategies in dealing with issues of private sector involvement in public sector provision.
I believe the lessons from Southern Cross are as follows:
1. Private sector involvement is not a panacea for the high costs of providing decent health and social care.Research by the Financial Times (4th June 2011 p2)suggests that PFI intiatives are imposing unstainably high costs on a number of hospital trusts accross the country. PFI was once thought to be an easy way iof raising money for capital projects but it is now being realised that PFI schemes have huge long term cost implications.
There is currently thought being given to new methods of funding of services such as social impact bonds. The advocates of these funding mechanisms suggest that they will offer reduced risk to the public sector and benefits for investors. However, all of these funding models seem to work on the assumption that it is possible to simultaneously save public money and generate good returns for investors. How these two objectives can co-exist has never been explained to my satisfaction and I challenge anyone to explain how this can happen.
2. Greater regulation and oversight is needed of private involvement in health and social care. This is needed not just in oversight of the quality of care but also in the business models used by providers. The Govt is rightly seeking to reduce some of the pre-qualification checks required of small and medium entrprises in bidding for public sector work. These checks on financial solvency etc. are often far too onerous for people bidding for small pieces of short term work. However, for the long term commitment required of companies who are going to care for vulnerable people, a higher degree of scrutiny is needed. Central Govt needs to act so that the interests of the city for short term profit do not overide the needs of vulnerable people for high quality and secure care. The Southern Cross business model should not have been allowed to operate.
3. A greater understanding of business models and finance is needed for all people involved in social care from social workers to senior managers. As long as local and central Govt are responsible for care of older people they will have to keep a careful watch on who is providing care and how it is being provided. It is not good enough just assume that existing regulatory mechanisms are sufficient.
4. Providing services to the public sector is a high risk endeavour. Many local authority staff are being encouraged to set up social entrprises and co-ops at a time when public sector bodies are cash strapped. These workers should be aware of the risks of being in busiess and the hazards which political and economic change hold for suppliers to the public sector. The Southern Cross business model was built on assumptions about the continued flow of new customers and year on year rises in charges. These have turned out to be ill-founded assumptions.
5. The old adage about not investing in anything you don't understand should apply here. I doubt that so many investors would have put money into the Southern Cross flotation of they understood the business model or just how risky it was. It is likely that the investors included pension funds. British institutional investors seem to be asleep at the wheel a lot. The fact that the executives sold their entire holdings shortly after the flotation should have raised some eyebrows.
6. A greater degree of financial literacy is needed amongst academics and social care managers. As this blog has hopefully illustrated the issues behind the Southern Cross debacle are complex. The need for debate is not served by reducing the issues to the level of public sector=good vs private sector=bad. Involvement of the private sector in health and social care is undoubtedly here to stay. Arguments about the viability of desireability of individual situations needs to be based on their own merits and not on prejudice towards the business sector. Neither are the needs of vulnerable people well served by the view that the private sector is always more efficient or better value for money than public sector provision. Whatever benefits have been achieved in the past by using Southern Cross as a provider are likely to be outweighed by the costs of a bail-out or a disasterous bankrupcy situation.

Southern Cross, the problems associated with PFI and the fragile state of many social care providers in the current austerity period suggest that private sector involvement in social care involves high levels of risk for both Government and investors alike. It is certainly not a panacea or easy solution for covering the rising costs of social care. Critically, it can involve high risks for the most vulnerable people in our society.

Factual information for this post was obtained from articles by Simon Mundy, Sarah O'Conner, Sally Gainsbury, Nicholas Timmins, Sarah Gordon, Jim Pickard and Elizabeth Rigby in the Financial Times on 1st and 4th June 2011. Opinions are my own and do not necessarilly reflect those of any body whom I have worked for or been associated with now or in the past.