a great sound bite and as a manual worker something i d say id like the sound of.. does it apply to the folks that supply ambulances? the folks who make blankets? the folks who build hospitals? the very nice lady who takes my blood samples fortnightly? ( can she only charge cost plus 5%, seems not enough to live on) what about the firm that supplies the loos rolls? on the other side does that mean that if your in a contract that makes less than 5% profit would you up your charges to make the same 5% as everyone else.

what if i make 100% in one area but lose 25% in another health trust can i balance them out.. keep it simple david, sorry ed or you ll lose.. or rely on that witch from the north to float your boat..

Absolutely insane idea. Can’t think why any company would take a contract to only make 5%. On top of the ridiculous and commercially non-viable margin, how would they possibly measure it?

Sounds perfectly reasonable. More money spent actually saving lives not filling corporation’s coffers.

If I was only able to return 5% return on investment I’d be looking for a new market.. Shareholders would demand it too.

It’s a classic example of a promise only someone in opposition can make as they know they will never have to put it into practice.

As above: It’s a great soundbite to draw in the voters but utterly meaningless.

5% of a multibillion contract is huge amount of money.

It’s so stupid even though it’s surely just said to appeal to the less enlightened. Set targets then competition for contracts is most efficient approach if that’s what’s wanted. If want to cap profits then maybe have to return 50% over 5% or whatever to at least encourage efficiency.

a great sound bite

and it is nothing other…

5% profit on any contract over £500k – so how are you going to audit the +100k contracts that probably already exist?

And,

as a manual worker something i d say id like the sound of

I could pretty much take any currently profitable contract and make it look like it makes a loss.

Shows a total lack of understanding of how business (and accounting) works – for you, as a manual worker this is understandable. But for a senior politician – it is not…

It’s an insane idea, one that will stifle innovation and drive away investment. Good soundbite but more of the insane clap trap that will probably make Milliband unelectable to be honest. His energy cap idea is bad enough, but this is a joke

5% of a multibillion contract is huge amount of money.

And 95% is even more…

From expereince any company will just charge more , then add another 5% its not rocket science, but makes a good soundbite to bat against labour with.

Can’t think why any company would take a contract to only make 5%

You’ve never worked in construction!

Yeah construction’s ridiculously competitive.

You just end with a Starbucks system with subsidiary’s charging extortiant amounts for a paper clip until all the profits have been funnelled to countries with a more beneficial tax rate.
Yet another sounds great but unworkable policy.

I think some of you might have missed the point that for the vast majority of the contracts to which they’re referring the private sector providers are in competition with public sector NHS providers. I don’t really understand what the advantage to the public is of private providers taking money for shareholders that could be pumped straight back into the health service.

Interestingly Serco lost so much money trying to provide a half decent service whilst undercutting the NHS competition that they had to pull out of clinical services all together. It’s true that Labour’s pledge is just another of their trite sound bites, and they’re no more likely to give the NHS the funding they need than the Tories are, but it does highlight what a lot ridiculous mess the NHS ‘market’ has created.

5% of a multibillion contract is huge amount of money.

In my opinion that’s kind of irrelevant. It’s all about risk and opportunity – a 5% mark up leaves very little room for error.

Building contractors would be highly delighted to have their margin raised to 5%!

For any company investing to provide a service then 5% is too low (10 – 12% return on capital is the minimum)

depends how much risk the contract has I suppose.

In my opinion that’s kind of irrelevant. It’s all about risk and opportunity – a 5% mark up leaves very little room for error.

It’s not about risk and opportunity it’s about people and their health.

5% markup leaves more room for error than healthcare.

craigxxl

exactly that

http://www.theguardian.com/society/2015/mar/21/ow-lucrative–deals-go-to-firms-that-use-tax-havens

The NHS’s biggest problem in this area,
is that it was forced to give away its logistics arm to DHL under last Labour government and is now unable to engage with its downstream supply chain any meaningful (lean) manner.
Factory gate prices have tumbled as the multinationals (Covidien & Johnson&Johnson) have moved manufacturing to China yet prices paid by NHS have remained static…..Hence Milliband’s concerns and ham-fisted thrashing around for a sound bite

It’s not about risk and opportunity it’s about people and their health.

5% markup leaves more room for error than healthcare.

It depends on how the contracts are being procured – it will only be truly risk free for the service provider if they are on a cost-plus contract.

Risk is never truly removed – it just changes hands.

Ed keeps banging the “evil tories privatising the nhs” drum so why not commit to ending all the private contracts and returning them to public sector ?

I listened to Burnham on R4 about this and it was just nonsense, he doesn’t know if any companies wouuld be affected by this, its just rubbish.

but if a private company can do the job to the standards required cheaper than the NHS, who cares how much profit they make.
the value to us as users of the NHS is greater despite the profit making.

or rely on that witch from the north to float your boat..

In the interest of balance “or just rely on the rich dicks from the south to promise something to the poor then poo all over them 2 minutes after they get in”

Ed keeps banging the “evil tories privatising the nhs” drum so why not commit to ending all the private contracts and returning them to public sector ?

The key word is “contract” it would cost huge amounts in penalties to end anything early.

the value to us as users of the NHS is greater despite the profit making.

The main problem here is that reducing or removing that profit makes it better value still for us as users of the NHS hence why limiting it is appealing.

OK, commit to not renew any private contracts and to turn them over to the public sector.

And on the flip side, could he introduce the 5% cap on existing contacts anyway ?

Absolutely insane idea. Can’t think why any company would take a contract to only make 5%. On top of the ridiculous and commercially non-viable margin, how would they possibly measure it?

Well that’s the figure that all the supermarkets claim they operate on. ‘Claim’ being the operative word. And they all make 1,975 squillion pounds a year.

Given that private healthcare firms make the supermarkets look like almost socialist models of probity in accounting and taxation matters, I reckon that’s reasoable. It might just constrain them, ever so slightly, in how much they **** us all over for. Though realisticly it probably won’t.

Or maybe tell Tesco and sainsbury’s to jack it all in as, despite their billions in profits, it’s clearly not a viable business model 🙄

It’s a fantastic theory as the NHS does get ripped off, and money gets wasted on company profits at the expense of more money being available in the health economy, however that money that gets funnelled in yo the private does play back in to the economy, so everyone benefits. Swing and roundabouts

What I do know though is that there are some privately run orthopaedic centres badged as NHS where you get seen really quickly, but the surgeon isn’t as good, they use the cheapest implant they can, their complication rate is high, and when it goes wrong they ship you to the proper NHS for expensive corrective treatment. The only person benefitting there is the private company, not the NHS or the patient

scrumfled – Member

Its a cheap soundbite. Contract Company A @ 5% profit. They are owned by a holding company, who also own company B. Company A buys a massively overpriced service from company B….. Company A makes 5% profit, company B makes a gazillion percent. Company B is probably offshored somewhere to avoid UK tax.

Sadly you’re right though, the capacity for unethical companies to evade the law is always likely to be greater than the capacity of countries to enforce it. Dishonesty is simply faster.

So Labour are fine with the NHS being privatised as long as the private companies don’t make too much money?

It’s pretty pathetic all round.

We’ll still carry on with the what the Tories are doing, but we’ll try and look like we don’t really want too.

And we’ll ask nicely if they vested interest to be a bit nicer to us, and not bend us over quite as much

Fat cance!

This is such a stupid idea. I can’t be arsed explaining why. Ed Balls has proved himself to be incompitent

Binners, I agree again. I am sick of seeing Labour fight hard against austerity 5 years ago, yet timidly agree with the Tories spending plans now.

tbh no one I’ve worked with in the public sector really understands the world of the private sector, nor what drives it – and my work in our local NHS didn’t give me any comfort that the senior management actually understand how to manage and run anything (efficiently).

But one thing though that not just the public sector suffers with is contract management. It is very difficult and time-consuming and I’ve seen many private organisations fail with this too, mainly due to a lack of understanding/budget-acceptance of the actual cost/time it takes to manage an outsource/purchase contract properly.

The public sector has also fallen into the trap of making the contract requirements so great that only the largest private sector firms can fulfil them and/or take the risk of bidding for them, eg how long before that initial money comes in vs the costs spent (cash-flow), or that you must have a dept that specialises in ‘x’. And to be able to spend a year negotiating the deal and ‘meeting’ with Ministers and the like.

Risk is never truly removed – it just changes hands.

Risk management? It was after the event management…

Absolutely insane idea. Can’t think why any company would take a contract to only make 5%. On top of the ridiculous and commercially non-viable margin, how would they possibly measure it?

You’ve not done business with Tesco and their “Open Book Accounting” then. If are going to supply to them you can’t name your price, they demand to see your accounts, look at your operating costs and decide what margin they’ll allow you to make on any transaction. That might only be 3%. (Tescos own operating margin is 5.2% but they’ve been under pressure from investors to reduce it to 3% “with the aim of ‘destroying competitors’ cash flows and profits’’

You’ll notice occasionally that certain brands disappear off the shelves in Tesco and its because manufacturers will refuse to supply at the margin that Tesco are dictating.

It’s ludicrous.

I think Labour have decided that all they need is their (credulous) core vote and are saying mindless illogical things to stop them voting Green while UKIP split the Tory vote. Maybe that will work.

After the ‘tax avoidance’ hysteria I had to chuckle at SWMBO’s NUT union magazine with an advert for ISAs on the back page with the headline “Shelter £15,000 from tax.”. 🙂

Couple of points.

A 5% margin is meaningless even if you know the amount of revenue it’s being made on. The markets stopped using net profit as a meaningful measure of performance donkeys years ago. The return you make is only meaningful in context of the risk you took making that return.

As for ‘profit’, do they mean PBIT, EBIT, EBITDA, ROCE, ROI, ROA? This might be specified so if anyone that’s read the article knows do shout up.

If you go to cost plus pricing (which is effectively what this will engender), then all that will happen is that costs will be inflated. You’ll just by at the highest price because that’s also the easiest price to buy at and everyone will love you for paying their rate card. What do you care, you’re going to make a guaranteed 5% so there’s no point in trying.

Profit maximisation may well be the popular evil to rally around but it is also the mechanism that drives effeciency (hence why the NHS is so ineffecient, though I’m not saying it should neccessarily any other way.)

Efficiency? I went to A&E the other week and told I had to have an operation. I waited for 4 or so hours for a bed to become free. After my operation the next day I was free to go once I had got my medication brought over – that took 4 hours. So I was taking up a bed for 4 hours just waiting to leave. How much is cost per hour of bed? Maybe I was waiting so long to come in because someone else was waiting for their medication?

but if a private company can do the job to the standards required cheaper than the NHS, who cares how much profit they make.
the value to us as users of the NHS is greater despite the profit making.

Unfortunately, comments like that make it sound like you care more about taking business away from nhs trusts than you do about how your taxes are spent and value to the patient and taxpayer. If you can do it cheaper than the nhs making 10% profit, than you can do it even cheaper again at 5% profit. Tendering is not about dismantling the state, its about gettg the best value for money is what the last 2 governments have been assuring us.

Well that’s the priciple, but as others say the practice of this 5% profit cap looks impossible to administer.

I propose that my imaginary healthcare provider licences the knowledge base and treatment protocol for the treatments i provide from a company located in luxembourg. Since the expert knowledge base constitutes such a high proprtion of the value of the expert treatment my company provides, then i will make almost no profit at all in the uk whereas my Overseas knowledge-licensor is raking it in.

I actually have in mind a niche-of-a-niche of my own clinical practice where the above seems quite feasible, except that the licence and knowledge base is in the USA and a considerable amount of money already exchanges hands to be able to provide this treatment elsewhere in the world. 😕

So Labour are trying to reduce profit made under a scheme they started? 🙄

Another great idea by Milliband. He’s not even in power and he’s screwing people already. His silly announcement about freezing energy prices completely scuppered the energy firms passing on any of the cost savings due to lower energy prices right now just in case Miliband gets into power. Just reinforces his complete and utter lack of understanding of how the real world works and how dangerous it would be if he got into power.

There is only two realistic options for the NHS (ruling out the US style completely private system which nobody in their right mind wants) and the sooner politicians fess upto everybody and let the general public decide then the better for all.

Either the NHS is completely under public ownership – what we all want philisopically but can’t afford unless we all pay a hell of a lot more tax than we do now – The tax take of the NHS and Benefits system is already well over half of tax incomes already – we can’t realistically cut the other elements enough to further increase their tax take, so tax will need to increase in line with the rising cost of health care and the benefits system – and continue to escalate to meet the rising costs as the population increases and people live longer. Can we really afford it as individuals? Is it sustainable?

We continue down the route towards having some form of hybrid public ownership/control utilising private services as most other sensible countries around the world have and get on with perfectly well. Not quite option 1, but near as damn it. In reality Labour has already committed to this so they really know that option 1 isn’t really a viable option so its about time they stopped waffling on about option 1 just to win votes.