The bailout has failed – time to nationalise the banks

Word is that the Treasury is thinking of bailing out the banks again.

The Prime Minister denies its a priority, preferring to talk about how he’s going to create jobs to curb rising unemployment.

But it’s clear that the stated aim of the bailout – to increase lending to businesses and to new start-ups and small businesses in particular – has failed.

And without strong action, the recession will deepen – schemes to curb unemployment will have no effect unless they are matched by efforts to stop jobs being lost in the first place.

The only solution to the credit crisis is spelled out in the latest edition of Red Pepper:

Rebuilding banking

Leo Panitch argues that what is needed is for the banks to become a public utility

First, let’s be clear about capitalism – and with it the character of the state under capitalism. There is a conventional assumption, a leftover of the cold war perhaps, that somehow capitalism is essentially about the market and socialism is essentially about the state. In fact, a central historical feature of the state in capitalist societies is the role it plays as guarantor of private property and, most importantly for the smooth running of the financial markets, that it will always honour its bonds – that is, its borrowing from the private banks.

Because of this guarantee – the promise to pay others back from taxation revenue in the future – government bonds, whether issued to finance war or to finance welfare, constitute the least risky form of lending. As such, it forms the foundation of financial markets’ role in sustaining the ability of capitalists generally to accumulate – to continue to invest and make profits. This centrality of the state for capitalist accumulation is most notable with respect to those dominant states, like the USA, whose bonds are the foundation on which all calculations of value in global capitalism are based; states that host and support the main centres of international financial markets, such as New York and the City of London.

Understanding the role of the state in a capitalist society helps us to see why, when a government bails them out with public money, the bankers do not see this as the start of socialism. On the contrary, they see it as the government fulfilling its duty to the financial markets – whose smooth running it both depends on and sustains, by providing the basis of confidence in the credibility of the banking system.

So it is misleading to see government involvement in the banks – whether it be the pure bailout of the original Paulson program in the US, or the subsequent non-controlling equities taken by the US, British and other governments – as per se a move away even from neoliberalism. (It is also misleading to see neoliberalism as being about the withdrawal of the state from the markets – and therefore this current involvement of the state as a defeat of neoliberalism. The state under neoliberalism has been very active in promoting the vast expansion of financial markets and facilitating their volatile growth; and, as this volatility inevitably led to repeated financial crises, in keeping the financial system going from moments of chaos to moments of chaos.)

Does this mean that this present crisis of the financial markets is not an opportunity to debate and press for alternatives? And where do we start?

It is an opportunity because in this crisis it is clear that what has been misleadingly billed as the ‘free market’ has failed and is seen to have failed, and also because it is clear that states have been responsible for promoting what has now failed, and that they now need to come to the rescue of the banks. This concentrates the minds of most people on the problem: their pay cheques are deposited with banks, their pension savings are invested in the stock market, their consumption is reliant on bank credit, and is the roof over the heads, as heavily-mortgaged home owners.

It is notable in this respect that going back over the last century, alongside the various movements that arose to struggle for the vote for working people, there has always been pressure to control the financial system, and even to bring the banks under public ownership, reflecting a certain common sense that the financial system ought to be accountable to or even belong to the people – that money should be become a public resource and banks a public utility. Indeed, this democratic pressure system was not without results: some of the regulations that states did put on the banking system after previous crises were also a response to demands from below that people should not be fleeced by the bankers.

For example, the nationalisation of the Bank of England was meant to bring the government’s agent in the financial markets under democratic control – although in fact the Bank of England now acted inside the state as the voice of the City within the state, representing the power of financial capital.

The lessons began to be learnt in the wake of the rise of the new left and the crisis of the Keynesian welfare state in the 1970s. It was recognised that the only way to overcome the contradictions of the Keynesian welfare state in a positive manner was to take the financial system into public control. (The best popularly written example of this, and still worth reading today, is Richard Minns, Take Over the City: the case for public ownership of financial institutions, Pluto 1982.) The left in the British Labour Party was able to secure the passage of a conference resolution to nationalise the big banks and insurance companies in the City of London, albeit with no effect on a Labour government that embraced one of the IMF’s first structural adjustment programmes. We are still paying for the defeat of these ideas (and the industrial strategies referred to by Stuart Holland on page 22). It is now necessary to build on their proposals and make them relevant at the current juncture.

The scale of the crisis today provides an opening for the renewal of radical politics that advances a systemic alternative to capitalism. It would be a tragedy if a more ambitious goal than making financial capital more prudent was not on the agenda.

It is hard to see how anyone can be serious about converting our economy to green priorities without understanding that we need a democratic means of planning through new sets of public institutions that would enable us to take collective decisions about allocating resources for what we produce and how and where we produce the things we need to sustain our lives and our relationship to our environment. The reasons why trading in carbon offsets as a solution to the climate crisis is a dead end are shown in this financial crisis. It would involve depending on the kinds of derivatives markets that are so volatile and are so inherently open to financial manipulation and to financial crashes. (The recently published Green New Deal begins to address these questions.)

In terms of immediate reforms – in a situation where the only safe debt is public debt – we should start with demands for vast programmes to provide for collective services and infrastructures that not only compensate for those that have atrophied but meet new definitions of basic human needs and come to terms with today’s ecological challenges.

Such reforms would soon come up against the limits posed by the reproduction of capitalism. This is why it is so important to raise not merely the regulation of finance but the transformation and democratisation of the whole financial system. What is in fact needed is to turn the whole banking system into a public utility so that the distribution of credit and capital would be undertaken in conformity with democratically established priorities rather than short term profit. This would have to involve not only capital controls in relation to international finance but also controls over domestic investment, since the point of taking control over finance is to transform the uses to which it is now put. And it would also require much more than this in terms of the democratisation of both the broader economy and the state.

Of course, without new movements and parties that can rebuild popular class forces this will fall on empty ground. Crucial to this rebuilding is to get people to think ambitiously again. However deep the crisis, however confused and demoralised the financial elite inside and outside the state, and however widespread the popular outrage against them, this will require hard and committed work by a great many activists. We will need to put our minds to the hard questions of what the new institutions of democratic public finance would look like – and what kinds of movements would be needed to build them.

Leo Panitch’s book Renewing Socialism is published by Merlin Press. A further article on ‘The Current Crisis and Socialist Politics’ by Leo Panitch and Sam Gindin can be read online at

TUC calls for a worker-friendly new year

TUC new year message

In his new year message to trade union members published today (Tuesday), TUC General Secretary Brendan Barber said:

‘2009 has to mark a decisive turning point, away from the neo-liberal market-always-knows-best conventional wisdom that brought our economy to the brink of a catastrophic collapse, towards a fairer, more balanced economy delivering sustainable prosperity.

‘This is going to be a grim year. Unemployment will increase every month. Some predict it will hit three million, but in truth no-one knows.

‘First because we have little experience of a recession driven by a financial collapse, and secondly because we do not know how bold our Government – and as importantly, other governments meeting together as the G20 in April in London – will be.

‘Government therefore has three priorities in the year ahead:

* it must take every action necessary to make the recession as short and as shallow as possible;
* it must develop the proper policy response to mass unemployment;
* it must use these and other policies not just to ensure that we do not repeat the mistakes that led to the financial collapse, but also to ensure that we emerge from recession as a fairer, greener and more sustainable economy.

Action to tackle the recession

‘The Government must be prepared to take further bold action to counter the recession and to save jobs.

‘The roots of this recession lie in the failure of the finance and banking sectors, and while the Government deserves praise for setting the international pace on the bail-out of banks, we do not yet have a banking system that is truly serving the interests of business or household borrowers. Banks are putting building up their own balance sheets and paying back government loans as their top priorities. But they also still hold high levels of ‘toxic’ debts which prevent them from dealing with other banks in a normal way. The Government and the Bank of England must therefore consider injecting even more support into the financial system to get credit flowing again.

‘The Government cannot be expected to come to the aid of every company that faces difficulties but it must be prepared to look at providing short term assistance to strategic companies in sectors vital to the future of Britain.

‘The Government should consider a further stimulus package in the Budget. Barack Obama’s team are already talking of a big package to boost the US economy. The UK should follow suit – and also use the April G20 summit in London to create a coalition of the willing to wage war on unemployment, poverty and recession.

‘As well as bringing forward planned infrastructure projects, ministers should be fast tracking new projects to ensure that further work can start when these finish. The UK is still suffering from a lack of investment in the key infrastructure a modern low-carbon economy requires.

Action to help the unemployed

‘Too much government policy towards the unemployed still tends to be trapped in the idea that there are enough jobs to go round, and that the unemployed either lack the skills or the motivation to get work. While of course with rights come responsibilities, the thousands of people losing their jobs every week throughout 2009 should not be treated as potential scroungers but victims of economic forces well beyond their control. They will need help through benefits and support through training and job search.

‘Despite its tough presentation and some objectionable policies such as workfare, there were some good proposals in the welfare reform Green Paper to make Job Centre Plus services better tailored to individual needs. Mass unemployment will make it even harder for those who normally find it more difficult to get work such as disabled people and those juggling child care and work. There needs to be specific help for such groups – such as an increase in child care, which in turn creates jobs.

‘The TUC has already called for better benefits, higher statutory redundancy pay and a bigger tax allowance for redundancy pay to provide more help for the newly unemployed. We now look for action in the Budget on these issues.

Action to create a fairer, greener and more sustainable economy

‘2009 is going to be tough, but it can still be made positive if it becomes a turning point – the year in which we set out to build a deliberately different kind of economy.

‘That first means recognising the mistakes of the past – made not just by this Government, but by governments and the economic and political establishment almost everywhere.

‘We have given far too much weight to the interests of the finance sector, and began to believe it could create wealth simply by moving it around, rather than through long-term investment in the goods and services that people want and need.

‘The challenges we face are clear. Even before the recession we were scarred by poverty, particularly child poverty. Our society was coming under increasing strain from growing inequality as a new class of the super-rich escaped their responsibilities to pay a fair share of tax. We had neglected important sectors of the economy as we gave preference to financial services. We have failed to do enough to meet the environmental imperative.

‘This challenges us all to put the measures we will need to beat the recession to a longer term purpose of building a better greener and fairer economy that can emerge the other side of the downturn.

‘This will require:

* a new kind of industrial strategy – not a return to picking winners and easy hand-outs, but strategic support to the sectors where we are already strong but could do better. Some will be in manufacturing, but others will be in services and parts of the economy often neglected in such discussions such as the creative sectors.
* A green industrial revolution that recognises that many industries will have to adapt to survive, but that also that the environmental challenge can generate thousands of productive worthwhile jobs, and build on the strength of our science base.
* An intensification of efforts to make society fairer – the recession should encourage the government to speed up efforts to eliminate child poverty.
* A fairer tax system. The government is right to increase borrowing to maintain the strength of the economy. But this borrowing and decent public services will have to be paid for, and 2009 must see a real debate on how to make the tax system fairer. There is a real demand for the super-rich to pay a fairer share. President Elect Obama has been a long-time supporter of a crack down on the tax havens used by multi-nationals and the mobile super-rich to avoid tax.
* A new kind of banking system that no longer threatens international economic stability and instead serves the rest of the economy and society. Britain’s banks already look very different. Some are now state-owned, some have large public stakes and all have received substantial help from the Bank of England and the taxpayer. At the very least we will need new regulatory structures to enforce stability but also to protect the consumer in a sector with less competition.

‘2009 will not be easy year, but it could be the turning point that will make 2010 not just the start of recovery, but the first steps in building a new economy.’

More religious leaders attack New Labour’s worship of the super-rich

Strong words from Church of England bishops on New Labour’s devotion to the neoliberal agenda pioneered by the Tories under Thatcher and Major.

Clearly, many people expected Brown to be more moderate than Blair with regards to serving the oligarchy.

Blair was more vocally religious – in reality neither part of “Christian socialist” could be truthfully applied to him.

Brown however has a religious background so it’s no wonder that a great many people of faith expected him to practice self-criticism rather than defend the legacy of Thatcher, Major, and Blair.

From The Morning Star:

Bishops: New Labour is morally corrupt
(Sunday 28 December 2008)

FURIOUS bishops delivered a damning assessment of new Labour’s record in power on Sunday, branding the government “morally corrupt.”

Five senior figures from the Church of England warned that Britain was suffering from family breakdown, an addiction to debt and a growing gap between rich and poor.

The bishops of Durham, Winchester, Manchester, Carlisle and Hulme accused ministers of squandering their opportunity to transform society and pursuing “scandalous” policies.

The interventions, in separate interviews, followed the Archbishop of Canterbury’s extraordinary public attack on new Labour last week.

Rowan Williams said that Gordon Brown’s plans to spend more in order to tackle the recession were like an “addict returning to the drug” and suggested that the economy had been going in the wrong direction for decades.

Bishop of Durham Tom Wright berated ministers for not doing enough to help the poor since 1997.

“Labour made a lot of promises, but a lot of them have vanished into thin air,” he said.

“We have not seen a raising of aspirations in the last 13 years, but, instead, there is a sense of hopelessness.

“While the rich have got richer, the poor have got poorer. When a big bank or car company goes bankrupt, it gets bailed out, but no-one seems to be bailing out the ordinary people who are losing their jobs and seeing their savings diminished.”

Bishop of Manchester Nigel McCulloch bashed new Labour for encouraging people to get further into debt.

“The government has acted scandalously. This is not just an economic issue but a moral one. It’s about what we value,” he said.

“The government believes that money can answer all of the problems and has encouraged greed and a love of money that the Bible says is the root of all evil.

“It’s morally corrupt because it encourages people to get into a lifestyle of believing they can always get what they want.”

Bishop McCulloch said that the government was guilty of pursuing the same policies championed by Margaret Thatcher.

“Both administrations have been beguiled by money. It’s ironic that, under a Labour government, we have the poor feeling they have been betrayed and the gap is getting ever greater.

“Any government of integrity would have exercised restraint, but this has been sadly lacking.”

Flogging a dead horse – and whatever else is left

So the demutualised banks have either collapsed, been nationalised, or sold to foreign companies, and the privatised utilities are failing to pass on price cuts to consumers, in the name of securing profits for their shareholders.

You’d think that New Labour would have learnt a lesson.

But no.

The sell-off of public assets continues, and since we’re in a recession this constitutes a fire sale. Private investors will pick up, at knock-down prices, shares in resources that have been built up by taxpayers over decades.

After Aldermaston will come:

*Ordnance Survey
*The Met Office
*The Forestry Commission
*The Queen Elizabeth II conference centre in Westminster
*The Covent Garden Market Authority
*The Royal Mint
*The Tote
*Buildings owned by British Waterways
*British Nuclear Fuel’s stake in uranium enrichment company Urenco
*The Oil & Pipeline Agency, which manages the UK’s underground network of fuel distribution pipelines

Hat-tip: David Lindsay

Feeding the poor to sharks?

Crypto-Tory James Purnell (if he was Labour, it’d be Jim) might be good-looking but he isn’t quick-thinking…

The govt wants to privatise the social fund and charge loan-shark rates on what are currently interest-free loans given to the poorest in our society.

There’s all to play for, mind you, and this suggestion could fuel the resistance to the so-called “welfare reforms” which are aimed at cutting the benefits paid to the sick and unemployed.

Given that Purnell is the face of the government’s so-called “welfare reforms” he’s not left sufficient space between one dodgy policy and the next. Hence the commotion.

Note that the Daily Mail isn’t outraged. If it was, the title of the article would be a great deal more urgent and certainly shorter:

Labour MPs revolt over Brown’s plan to charge 27% interest on emergency loans to poor

Gordon Brown and his Work and Pensions Secretary James Purnell were last night accused of behaving ‘like loan sharks’ over plans to slap punishingly high interest rates on vital loans to the poor.

In an astonishing move, rebel Labour MPs joined forces with David Cameron’s Tories to accuse the Government of penalising hundreds of thousands of families on benefits who get interest-free cash advances to cover the cost of unforeseen crises.

More than one million individual loans worth over £600million were paid out from the Government’s social fund last year to hard-up people – many of them disabled – who struggled to afford to repair a broken boiler or cope with some other domestic emergency.

However, in a provocative move, Mr Purnell wants to start charging 26.8 per cent on new loans – the sort of punitive rate found on High Street store cards and way above normal credit-card rates.

This would add nearly £50 to the cost of an average £433 loan and saddle the borrowers, who are almost all on State benefits, with an extra four weeks of repayments.

Senior Labour MP Terry Rooney, chairman of the Commons Work and Pensions Select Committee, led an all-party attack on the proposal. ‘Whoever dreamed this up, particularly at this time of year, must have lost their moral compass,’ he said.

‘It cannot be right to start charging almost 27 per cent interest on loans to the poorest people, who currently pay zero interest.’

Mr Rooney believed that the plan, outlined in a consultation document produced by the Department for Work and Pensions, was a cynical cost-cutting ploy to stop poor families getting the money they need.

He added: ‘I fail to see how Mr Purnell can reconcile raising interest rates for the poor with the Prime Minister’s repeated calls to the banks to pass on interest-rate cuts to struggling mortgage holders. There will be one hell of a row over this.’

Ronnie Campbell, Labour MP for Blyth Valley, said: ‘James Purnell makes me ashamed to be a member of the Labour Party. It is a disgrace the way he is hitting the poor. Not even the Tories would try to do this.’

Labour MPs also suspect that Mr Purnell is worried that the cost of the social fund will rocket as unemployment soars and thousands more people apply for help.

In an embarrassing development for the Government, Labour MPs received support from Tory Work and Pensions spokesman

Chris Grayling, who called on the Government to scrap the plan. ‘This is beyond outrageous,’ he said. ‘It’s nothing more than James Purnell and Gordon Brown re-inventing themselves as loan sharks.

‘That any Government would even consider imposing swingeing interest rates on unemployed people in the middle of a recession is just extraordinary. It’s a sign that this Government is utterly out of touch with what is really going on in Britain.’

And Liberal Democrat Treasury spokesman Vince Cable said: ‘This proposal is perverse and inhumane. The principle of social funds is that they are interest-free to help people cope with emergencies.’

Mr Purnell’s document, which suggests that non-profit-making credit unions could run the loans, spells out in stark terms how the poorest families in Britain would be hit hard in the pocket under the new system. It says: ‘Interest would be charged …at affordable rates compared to those charged by commercial lenders in the same market.

‘We propose to set it at the maximum charged by credit unions of two per cent per month – 26.8 APR.

‘In 2007-08, the average initial budgeting loan award was £433.30. The estimated average loan repayment for all loans was £10.54 a week. If interest were charged at two per cent a month, it would take 46 weeks instead of 42 to repay such a loan at such a repayment rate, with a total interest paid of £47.80.’

Mark Serwotka, general secretary of the Public and Commercial Services Union, whose members administer the social fund, said: ‘This might start with credit unions, but it will become a Trojan horse for the private sector to charge loan-shark rates for distributing public money.

‘It is scandalous that in these dire economic times, vulnerable people in financial difficulties could be exposed to profiteering. Interest of 26.8 per cent rates alongside some of the most expensive store cards.’

But the Government hit back last night, saying that under the proposed scheme, hard-up families would benefit from new advice on how to manage household budgets.

It said it would also be easier and quicker to get the loans, which would become available to working people on low incomes as well as those on benefits.

In the consultation document, Mr Purnell signalled that simply handing people interest-free loans without financial advice did little to help them manage their money.

‘We want to improve the help we give people when many are struggling,’ he said. ‘The social fund helps with money problems in the short term, but not the underlying problems of managing a limited budget.’

Last night, Work and Pensions Minister Kitty Ussher conceded that there was ‘very strong opposition’ to the plans.

But she dismissed the idea that the social fund was heading for loan-shark levels of interest, pointing out that ‘doorstep lenders can legally charge 180 to 240 per cent. Illegal loan sharks have been known to charge up to 1,000 per cent’.

It is not the first time Gordon Brown has been accused of betraying the poor. As Chancellor, he was criticised for approving a meagre 75p-a-week increase in the State pension. And this year, he was forced to climb down over his decision to scrap the 10p tax rate.

Hat-tip: Harpymarx

No democracy please, we’re New Labour

Diane Abbott, socialist Labour MP and guest on the BBC’s This Week explains why she isn’t at the party conference:

Gradually conference has become overrun with lobbyists. Fewer local delegates go. And, when the prime minister speaks, many find that their seats on the floor of the conference have been taken by party staff. This is because paid staff can be relied upon to clap to order. New Labour loyalists scorn how conference used to be. They point out how embarrassing the public rows about policy were. But a Labour party where ordinary party members had a real say would never have gone to war with Iraq or abolished the 10p tax rate.

The Tribune blog confirms the attitude of Blue Labour to democracy:

Ministers have required some basic education in the democratic process during the new arrangements for negotiating policy with party representatives under the National Policy Forum. One did not understand that everybody in the process had one vote and that ministers could not simply dictate.

Yes, presumably they thought “one man, one vote” meant “I’m the man, my vote decides it”…

The Prime Minister and beleagured Labour leader, Gordon Brown, has been forced to attack the greed of the corporate elite – for even the Tory press speaks about the City slickers with contempt.

Mr Brown said “irresponsibility”, driven partly by the bonus culture, had helped trigger this month’s markets crisis and that elements of the bonus system were “unacceptable” and had to be tackled.

At the same time he’s been stressing on The Andrew Marr Show that his government is pro-business and pro-markets.

Kitty Ussher, economy secretary at the Treasury, appeared at the Labour conference with media baron Rupert Murdoch’s favourite economist, Irwin Steltzer and the private equity boss Simon Walker, to discuss the economy:

Walker said the new crisis would mean more business for private equity and sovereign wealth funds – eg the Chinese and Indian governments — to invest in Britain. So that’s all right then.

However, the Labour faithful should not be too downhearted. Ussher kept calling contributors “comrade” throughout the proceedings.

It must be very disconcerting for these New Labour types.

Jon Cruddas, runner up in last year’s deputy leadership contest and distinctly Bold Labour, has called for a new 45% top rate of income tax to fund tax cuts for low and middle income workers:

Mr Cruddas said too many people had been caught by the current top rate of 40% – but those earning more than £175,000 should pay more.

Speaking at a Labour conference fringe meeting, he said the party needed “clear dividing lines” from the Tories.

He also savaged rebel MPs who have been calling for a leadership contest.

Mr Cruddas told the Compass fringe meeting that the financial turmoil of recent weeks had given Labour a chance to have a radical policy rethink and a “return to the values and ethics” the party believed in.

It should be noted, and noted well, from Frank Luntz’s Newsnight focus group that when a group of Labour and floating voters were shown Nick Clegg’s speech at the Liberal conference in which he called for tax rises for the rich and tax cuts for ordinary workers, the response was overwhelming approval…

Welfare to work = job losses & multinational profits

Phrases of the day are: Reserve army of labour, Workfare, and McJob

Hey, let’s get sick people into work!

But first, let’s make some employed people unemployed!

Yes, thousands of people will lose their jobs at the Department of Work and Pensions…

PCS condemned today’s announcement to slash a further 12,000 jobs and the closure of an additional 200 offices in the Department of Work and Pensions (DWP). The union also accused the government of a dogmatic approach to the privatisation of the welfare state as it confirmed plans to implement the Freud report in full.

With 30,000 jobs already gone and over 600 offices closed in the DWP, the union expressed its deep concern of the impact that further cuts will have on service delivery. Services to some of the most disadvantaged in society have already suffered as a result of job cuts and office closures, with access to benefits and job seeking help restricted and increasing waiting times for benefits resulting in food parcels being handed out in some parts of the UK.

Accusing the government of pursing a dogmatic policy of privatisation, the union warned that the welfare state was in danger of being run in the interests of shareholders rather than the people it was set up to help.

The union went on to warn that further job cuts combined with privatisation would amount to a huge blow to the morale of staff, who are in a long running dispute over the imposition of a below inflation pay offer, which sees 40% of staff receiving a 0% pay rise this year.

The union will be raising today’s announcement in talks with the Cabinet Office aimed at reaching a negotiated outcome to its national dispute over jobs, services and privatisation. The union is seeking agreement on the avoidance of compulsory redundancies and measures to protect the workforce in the event of privatisation.

Commenting, Mark Serwotka, PCS general secretary, said:

“This announcement comes as yet another blow to a workforce who have battled to provide a service in the face of swingeing cuts and below inflation pay increases. These plans for job cuts and privatisation are purely about crude cost cutting and will do nothing to improve service delivery to some of the most disadvantaged in society. The government, by planning to privatise large chunks of the welfare system, are effectively turning their back on vulnerable members of the public as well as its own public sector workforce, who have consistently outperformed private companies in delivering the lowest unemployment in a generation. Today’s announcement adds renewed urgency to talks with the Cabinet Office in reaching a negotiated outcome to the union’s national dispute as we seek to reach agreements on compulsory redundancies and privatisation.”

And in the capitalist press:

American and Dutch companies are following their Australian counterparts in targeting Britain’s job placement market as the government announces a significant expansion in the private sector’s role in welfare-to-work.

James Purnell, the work and pensions secretary, will today set out a near four-fold increase in the market for private and voluntary organisations to get the long term unemployed off welfare and into work.

He will announce bigger and longer contracts – for at least five years rather than the present three – expected to be worth around £360m a year for the “flexible New Deal”. At present £100m or so is spent on the independent sector contracts.

Some 80 per cent of a contract’s payment will be dependent on actually getting people into work and keeping them there. The biggest payment is likely to depend on people staying in work for six months rather than the present 13 weeks.

In some parts of the country providers will compete within the same area in the hope that will stimulate performance and give the unemployed – and increasingly lone parents – some choice over who provides the personalised service aimed at getting them back to work.

The move is the first step towards implementing the recommendations of the Freud report that envisaged a “multi-billion pound” welfare-to-work market for private and voluntary providers that would attract “major players” from around the world.

In evidence this is beginning to happen, ResCare, one of the biggest US providers of welfare-to-work services has bought Biscom, a small UK provider of job training and placement services as well as Maatwerk, a Dutch company in the same sector that already has some small contracts in the UK.

Maximus, another big US provider, is also looking for a UK acquisition while it and America Works, which operates in New York and California, have both been present at supplier meetings with the Department for Work and Pensions.

Igneus, the Australian company, already owns Work Directions, the UK based welfare-to-work provider, while Mission Australia, the charitable provider, has bought a stake in Working Links, the public- private partnership owned by the government, Manpower and Capgemini.

The big UK services companies, Capita and Serco, are seeking to enter the business alongside domestic providers of the existing programmes such as A4e and Reed-in-Partnership.

Calder, the Dutch company, recently bid unsuccessfully for a Pathways to Work contract, with Lambert Verwijst, its sales director, saying “we would definitely like to be in the UK. It is an interesting market and not so different to Holland”.

Peter Cove, founder of America Works, says his company had agreed an outline contract to work with lone parents with the outgoing Conservative government in 1997, only for Labour to cancel it on taking office. Now, he said, he believes the market for private companies in the UK “really is at a tipping point”.

Mr Purnell is expected today to underline his determination to implement the Freud report in full, with the private sector’s involvement “here to stay and set to grow” , although a big programme to tackle the 2.6m people on incapacity benefits has yet to be agreed.