11 November 2016

Richard Branson’s healthcare group, Virgin Care, has been awarded a £700 million contract to run essential NHS services. Chris Wajzer says two things must happen to make sure people benefit from this deal.

From April 2017 onwards, Virgin Care will oversee more than 200 health care and social care services in Bath and north-east Somerset including adult social care, continuing healthcare and children’s community health.

This in itself isn’t anything new. The private sector has been providing public services in the health, social care and prison sectors for some time. For example, both G4S and Serco run a number of the UK’s prisons and custodial services.

And Branson’s empire is no virgin to the healthcare industry – having been set up in 2006, it now runs more than 230 NHS health and social care contracts worth over £1 billion.

There are two things the Government can do to ensure that private service provision is managed effectively:

1. Be open about performance

The public are deeply sceptical about privatising services, particularly something as sacred as the NHS. The only way to reassure them is to be open and transparent about how private providers of public services are performing. Currently, it is difficult for the public to know how much providers are being paid and how well providers are performing against these contracts.

Some central government contracts are now required to include transparency provisions (thanks to work we did in 2015).These provisions require private providers of public services to make key information about contract performance available to the public. The Bath Virgin Care contract would do good to include such clauses. Or, even better, Virgin Care would provide this information off its own bat without the need for any legal obligation.

2. Don’t get locked down

The rationale for privatisation is that competition drives efficiency and innovation. But, as we’ve seen in other public services and contracts (for example, from Hinchingbrooke or the G4S and Serco tagging scandal), this has not always the case.

There is a tricky balance to strike between the value for money gained by signing long-term contracts versus the flexibility and competitive pressure offered by short-term contracts. The Virgin Care contract for Bath is a minimum seven-year contract which is at the longer term end of the spectrum. Ensuring sufficient commercial controls, and appropriate clauses to review contract performance, will be vital to maintain competitive tension throughout the contract lifecycle. It also important to allow the contract to be revised to reflect any new innovation or learning from the outside world.

Fierce debate still rages about the relative merits of private, for-profit service provision. Part of the problem is that there is lack of data to compare performance between privately run services, let alone to compare with government-provided services. While the jury is still out on privatisation, open and flexible contracts between the Government and these private sector providers is essential to making them work for citizens.


Hi, interesting posts. I am very interested in the role of markets and competition in public sector provision. Switch to private provision seems to have failed abysmally in housing, have major difficulties in rail and the use of the market in schools has led to worse performance (from academy chains compared to LAs). It seems to me that markets (with, as you say, short-term contracts) can create innovation and best value in supply. but handing over sectors to markets doesn’t necessarily work. There is no reason that the point at which markets clear in, say housing, is the same point at which public need is met. Would be very interested if you could point me to best theory on markets in public sector or to past reports from Institute.

Thank you for a clear and welcome article.
It often seems that 'competition' is cited as the rationale behind privatisation - as though only commercial entities know about competition. The most ferocious competition is between armies, or between children at party games. To permit profiteering from criminality, or illness, is a moral mis-step which citizens are beginning to rue. If we need competition, less us contrive to sack the worst performers and heap honours upon the best within the public service ambit. We don't need to pay dividends to the uber-rich as well!

As a 34 year veteran of the NHS i have seen the bureaucracy and management exponentially increase along with senior managements pay.
The efficiency afforded to the NHS is borne of goodwill and passion, it has been degraded with mountains of paperwork, and thus is highly inefficient. The editor touches on the lack of transparency in the private sector. I wonder if the private sector would be anywhere near the NHS for efficiency or value for money if it had to follow the same open policies and transparency.
In a competitive market, staff and patients will be of second importance to the making of profit. This is apparent in the outsourcing of Hip operations, a healthy 50 yr old goes to the local private hospital whilst the 90 year old with long term rehab problems and intensive nursing care goes to the NHS hospital, I believe the tariff is identical. This leads me to the costing, ( whose costing the costing ? ) it must be a fortune in admin and accountancy, and many of the tariffs are incorrect. Its impossible to run a shop with everything miss-priced.
Thus the private sector will cherry pick the profitable services, which will be quickly dumped if non profitable.