Be it rail, housing, pensions or banking, we need to redraw the partnership between the public and private sectors
Soaring energy prices are bad politics, so how can they be stopped or at least eased? That question is worrying both political parties, but has produced some bizarre conclusions.
The prime minister has announced that the government will force energy companies to give the lowest tariff to their customers. Astonishingly, he is admitting that private competition has completely broken down and, even more remarkably, his solution implies there is little point in having six separate companies if they're all required to charge roughly the same price. And that price wouldn't necessarily be all that low if the companies privately collaborated to ensure that their lowest tariff was still high enough to retain most of their present exorbitant profits.
Labour for its part, when the competitive market has patently failed, is now asserting it wants more competition. This is odd to say the least when over the past decade or more so-called competitive markets have presided over a continually widening gap between wholesale and retail energy pricing, an unnavigable array of 500 constantly changing tariffs designed to bamboozle the consumer, and multibillion corporate profits alongside the slide into fuel poverty of 5 million households.
So between suppressing private competition (David Cameron) and demanding more private competition (Caroline Flint) – though again, oddly, the normal party responses are here reversed – how are excessive energy price increases to be curbed? The answer is not confined to energy markets alone.
Recent events over the last year or so reveal a similar breakdown in private markets in several other key areas. Despite the doubling of the taxpayer subsidy to the train companies since privatisation, rail fares are now the highest in Europe and about to soar again with a £1,000 hike in the annual season ticket through much of the commuter arc round London during this parliament. The fiasco over the west coast mainline has exposed the unreliability and riskiness of rail franchising over a 15-year span, with penalty cost for administrative failure adding perhaps another £100m. The overwhelming public demand is now for a return to public ownership.
The breakdown in the housing market has led to the lowest number of houses built since 1923. With 5 million households now on council and housing association waiting lists and with 2.5 million unemployed including tens of thousands of building workers left idle, the private market has generated what is arguably the biggest single cause of social misery in Britain today. It is clear that only a major public sector-driven house-building programme will harness the labour wasted on the dole, break the stagnation that separates supply from demand, and clear the accumulated mass of unfit, damp and decaying housing over the next 10-15 year period.
The pensions private market is equally in very serious disarray. As a result of the gutting of Barbara Castle's state earnings-related pension scheme, nearly half of those in the private sector, between 10-15 million workers, were left with no occupational pension at all. Final salary schemes have been wound up, and pension payouts to private sector workers have fallen by two-thirds through the falling stock market and employers unilaterally taking "contribution holidays". Now private sector workers are being herded into occupational schemes that will still leave a large minority with a pension at the end of a lifetime's contributions that is below the poverty line, meaning they will get nothing from all their contributions that they would not get anyway from means-tested benefits. This abject failure of the pensions private market, again accompanied by huge pension and insurance company profits, can only be reversed by a new high-value, high-quality state secondary pension scheme phased in over a 10-15 year period.
But perhaps the most flagrant example of private market failure lies in banking. The banks have primarily served their own interests by focusing on property, overseas speculation and tax avoidance rather than the country's need for them to concentrate on promoting on industry, investment and exports. Freed from all but minimalist regulation, they recklessly pursued a bonanza in financial derivatives till the crash generated a bailout expected to push national debt to £1.3 trillion by 2015.
Not only should there now be a clean break between investment and retail banking, the big five should be broken up to provide the smaller specialist banks Britain now needs focusing on infrastructure, innovation and science, regional industrial clusters, the green economy and SMEs. And if the rebalancing of the economy is to be carried through, as it must be, control of the money supply must be shifted from the private banks into public hands to ensure that investment is directed on the scale required into the major revival of manufacturing.
Alongside this redrawing of the partnership between the public and private sectors must go a review of the present frenzy for outsourcing. The canard that the private sector is always more efficient has been destroyed not only by the G4S fiasco, but also by the exposure of the A4E welfare to work failures compared with Jobcentre Plus and the growing number of examples of poor performance in health service outsourcing. A thorough review is now needed, shorn of ideology, to examine how the roles of the public and private sectors can be rebalanced to secure the fundamental reconstruction required for Britain's recovery.