Private punishment?

14 December 2004

Sanjiv Sachdev, Principal Lecturer at the School of HRM in Kingston Business School, discusses the employment relations of public private partnerships in the Prison Service.

Few issues in the debate over the Private Finance Initiative (PFI) are as controversial as those concerning the workforce. These issues have stoked the opposition of trade unions to PFI and repeatedly taken centre stage at Labour Party conferences. Private contractors claim that the efficiencies they make in managing employees are central to the success of PFI. The Treasury says that PFI has brought 'considerable innovation' in workforce practices. Tens of thousands of workers – at least – are involved. Yet, despite the scale of the controversy, the large numbers of workers involved and the existence of PFI for well over a decade, there is little robust evidence of its impact on public service workers. Extravagant claims – be they by government, management consultants, trade unions or the CBI – are generally unsupported by independent, in-depth evidence. The (2002) House of Commons Health Select Committee report on PFI is instructive in noting 'the lack of evidence backing many of the claims made. Despite numerous requests to the private sector for examples of innovation, we received few'.

The Prison Service is a partial exception to this wider neglect. PFI has been pursued for over a decade in the Prison Service, going beyond schemes in health and education to providing the whole service – not just Facilities Management or infrastructure support. The Service has been extolled by the Prime Minister, the Chancellor, the Institute of Public Policy Research and the CBI as a PFI success story and a model for others. Some 7% of all prisoners are in private prisons.

Unlike other public services, where the cloak of commercial confidentiality blocks a detailed investigation of PFI labour issues, there is a substantial body of credible evidence on pay and conditions in the Prison Service. A range of official research, from the House of Commons Public Accounts Committee (PAC), the Home Office, the Prison Pay Review Body (PSPRB), the National Audit Office (NAO), the Prison Inspectorate and the Treasury, enables a detailed picture to been drawn on the impact of the private sector. This evidence is largely uncontested and often striking.

The performance of PFI prisons
There is little doubt that private prisons are generally cheaper to run than public sector ones: on average, contracted prisons cost 2% more to 11% less than comparable public sector prisons. But the evidence on the performance of private prisons is more complex; while there is some innovation from the private sector, the overall impact of the private sector is decidedly mixed. According to the National Audit Office, the best PFI prisons outperformed most public prisons but the worst prison was also a PFI one; it was a report on a PFI prison that was described by the Chief Inspector of Prisons as "probably the most depressing I have issued".

As to their use of staff, shift patterns in private prisons are more flexible. Paid sickness absence is lower in the private sector (12.5 days, compared to 13.3 in the public sector) but the National Audit Office recently found a sharp convergence between the two sectors, despite the private sector having a markedly less generous sickness scheme and a much younger workforce. Little difference exists in the daily routines of prisons. Private prisons generally perform better on the Prison Service's decency agenda, such as respect shown to prisoners. However, they generally perform less well in areas such as safety and security – the balance between the two areas seems to be difficult for any prison to achieve, whether private or public. The private sector has been, in the words of the NAO, 'less successful' in developing staff for senior management roles. Directors at private prisons have been recruited from the ranks of experienced Prison Service governors, rather than internally (despite the fact that contractors have been managing prisons for 10 years). The inexperience of PFI prison staff and low staffing levels are a recurring concern of the Prison Inspectorate.

Pay and conditions
The evidence that the pay and conditions in PFI prisons are markedly inferior to that of the public sector is overwhelming and uncontested. The cheaper running costs of the private sector was, in the words of the Public Accounts Committee, 'almost wholly to do with different wage rates and different staff levels, and also pension arrangements and different lengths of the working week'. Table 1 outlines the differences¹.

For prison officers, the private sector pay packages are sharply inferior to those in the public sector. Not only is average basic pay much lower but private average basic pay rate is below the starting basic pay rate of the public sector. The overall pay scales are much more modest, the contracted working hours longer, and the overtime and annual leave arrangements less favourable (public sector staff get, on average, seven days' more leave). Richard Tilt, the former Director-General of the Prison Service in England and Wales, told the PAC that, before the introduction of competition, "it was very difficult to negotiate down pay rates and conditions of service…it becomes a slightly more viable option once you get a degree of competition". Competition is not seen as a force for higher pay. On an hourly level, public sector Prison Officer pay rates are, on average, 51% greater than that of their private sector counterparts; when the value of pension and holiday benefits are added, this difference rises to 70%.

The inferiority of private sector pensions is particularly vivid. The effect of the Government's PFI policy has been to relegate private prison workers, at the very time it expresses general concern at the insufficiency of work-based pension provision, from a relatively generous public pension scheme to a markedly inferior private sector one.

The Prison Service Pay Review Body notes that 'greater pay progression was being introduced in private companies but [it] was unlikely to do more than partly reduce the gap'. Pay scales in the private sector are relatively truncated; in the private sector, the average length from minimum to maximum for a Prison Custody officer is £2,000 – for an equivalent Prison Officer in the public sector, it is £8,000. Moreover, research undertaken for the Pay Review Body found that these markedly lower pay levels could not be wholly ascribed to private prisons being in areas of high unemployment, as half of the private prisons were in areas where unemployment is at or below the national average.

Labour turnover in prisons
High levels of labour turnover is a serious problem – and cost – in many PFI prisons. Overall, among Prison Custody Officers, turnover is 25% – 10 times greater than the rate among public sector Prison Officers. High levels of turnover, according to the Pay Review Body, 'caused continuing problems in maintaining staff levels. This put more pressure on existing staff and further exacerbated turnover difficulties'.

The lower salaries of private sector staff, when compared to their public sector equivalents, was, according to the National Audit Office, likely to be a factor in the high levels of turnover. According to the Pay Review Body, three of the seven PFI prisons 'appear unable to offer salaries which are sufficiently attractive to meet the staffing levels stipulated in their contract bids. This can have serious consequences for staffing levels, the quality of staffing employed and their retention levels'. The Prison Service is, however, concerned that turnover is too low in the public sector as 'it is difficult to move forward and change things', although it, too, has difficulties recruiting in areas with particularly buoyant local labour markets.

Conclusion
Despite more than a decade of controversy, the scale and importance of the initiative, and the large numbers of employees affected by it, the employment relations of PFI have been seriously neglected. The Prison Service evidence suggests serious grounds for concern, with PFI fostering both greater income inequality, and a deterioration in the terms and conditions. Future problems may be set in store by the poor pension provision of many private providers of public services, both in terms of greater pensioner poverty and increased demands upon the State.

Confusion seems apparent as to the effect of competition upon pay and conditions: the Prime Minister implies that it leads to 'better pay and conditions'; the Treasury writes of 'protecting' pay and pensions, while the then head of the Prison Service speaks of the difficulty in negotiating 'down pay rates and conditions of service'. Although the private sector has brought some innovation, it is not on the scale warranted by the rhetoric around the virtues of PFI. Nor is there any evidence as to why innovation should entail a degradation of employee pay and conditions. The recent Warwick agreement suggests that greater awareness of the impact of PFI on terms and conditions is now evident – although the agreement excludes the Prison Service from its scope.

Competition can and has exerted a downward pressure upon pay and conditions in what are often highly labour-intensive services. The Prison Service experience suggests that many 'efficiency gains' are secured by three key means: reducing staff numbers and gradings; lowering the average individual remuneration; and work intensification through longer working hours and shorter annual leave, as well as better staff sickness management and some modest innovation. This makes the rhetoric around PFI seem evermore overblown and hyperbolic.

1 This examined the Prison Service and nine privately managed prisons (of which seven were PFI projects).
2 Some private prisons pay staff on a lower rate while under initial training. Figures given are for staff after training.
3 Normal pay scale ends at £24,285. Staff can then receive long service awards.
4 At PCO level, only five prisons have formal progression arrangements that give opportunities to progress beyond starting pay by more than £1,000.

Sanjiv Sachdev is the author of 'Paying the cost: Public Private Partnerships and the public service workforce', available at www.catalystforum.org.uk.