U.K. Weighs Privatizing Administrative Services

By ALISTAIR MACDONALD

The U.K. is preparing a major push to increase the use of the private sector in operating government back offices as part of its attempts to cut public spending, people familiar with the matter said.

Francis Maude, the minister charged with squeezing efficiencies out of the public sector, is examining back-office areas that can be privatized, such as administration of the state pension and National Health Service prescriptions. The private sector's involvement in the wider NHS back office is also expected to increase.

The drive to privatize such functions could hit tough opposition, however.

The government has already encountered difficulties in its efforts to bring private competition into front-office functions, like the NHS. Attempts to bring the private sector even further into the back office will likely kick off union reaction at a time when the U.K. faces the prospect of a round of public-sector strikes over issues such as job losses and rights.

"Privatization of back office is something we expect and will oppose," said Richard Simcox, a spokesman for the Public and Commercial Services Union.

On Friday, the government got an early taste of that opposition when civil servants who administer the state pension went on strike over proposals to mutualize their department, which will allow holders of pensions to take a stake—but which unions call privatization by the back door.

Earlier this month thousands of civil servants voted to strike as a protest against pension changes.

The government hopes to release a major consultation document on public-sector reform before August. That will include what the government sees as radical ideas, such as people being given individual budgets to pay for public services, like care for the elderly, rather than having civil servants decide how all the budget is spent.

In the new push, government officials have asked private-sector companies to pitch ideas on how they can help run state-run back offices, one person familiar with the matter said. Officials believe that, given their steady cash flows, back-office functions could be marketed to companies seeking dependable returns.

As part of attempts to reduce spending, government departments have had their budgets slashed, some by as much as a third, and some believe outsourcing back-office functions may save money over time, another person said.

A spokeswoman for Mr. Maude didn't return phone calls.

With a budget deficit of over 8%, the government wants private-sector companies to compete with public-sector services in a bid to increase efficiencies, drive down costs and offer greater choice.

Rolling back the state is also a longtime ideological aim of Prime Minister David Cameron's Conservative Party. Last week, though, Mr. Cameron had to water down a banner attempt to bring greater competition into the NHS, after doctors and the public accused the government of trying to privatize the health service.

Despite Mr. Cameron's stalled NHS reform, the health service is one area in which the government has already experimented with allowing the private sector to run back offices. NHS Shared Business Services is jointly owned by the NHS and business-services company Steria. It handles finance, accounting, and other human-resource functions, as well as some procurement for the health-care provider.

John Neilson, its chief executive, says the venture will increase its share of the NHS back-office work. "Over time, it will widen," he said.

NHS SBS currently works for 40% of NHS Trusts, the operational units that deliver NHS care. By the end of the year, Mr. Neilson says, he believes he will work for over half of them, and that this work will be brought across to the bodies that will succeed the Trusts under the government's current reforms to the health service. Mr. Neilson estimates his unit saved the Treasury some £70 million ($113 million) from 2005 to the start of 2010.

Mr. Neilson said he also expects his company to move into other back-office functions like data management.

He says this sort of private-sector involvement in the back office is almost unique to the U.K., though more recently several other European countries have discussed with NHS SBS the possibility of setting up similar models in their countries.

Britain's last government took an even more radical look at privatizing back-office work, and explored bundling government activities such as human resources and information-technology management into commercial companies and selling or listing them.

The British public sector manages an asset base valued at well over £800 billion, according to the Treasury.