Working in coalition to recover debts

Peter WordsworthFormer Conservative Prime Minister, Benjamin Disraeli, famously declared on 16 December 1852 that “England does not love coalitions”. There are undoubtedly many Conservatives and Liberal Democrats who are not enamoured with the prospect of the two parties working together so closely. Likewise there will be those working in the public sector who are not enamoured at the prospect of collaborative working with the private sector in respect of debt recovery.

Having accepted this reality, it is however important to appreciate that sometimes working in coalition with another party is the only way forward, as in the case of the Conservatives and Liberal Democrats. Furthermore, with debt levels increasing and the government committed to reducing the size of the state, there was no practical alternative but to engage with the private sector. Both coalitions have therefore been born out of necessity.

A common goal
History would indicate that success for any coalition depends on both parties accepting their interdependence and working together to achieve a common goal. Herein lies another clear parallel. Having worked with several different government departments and agencies providing debt recovery solutions, we have found each department has been different but the most successful projects have been where there is a real spirit of partnership between the department and the private sector provider with each focussed on achieving the common goal of recovering the monies outstanding. It is this shared sense of purpose and a mutual determination to succeed that has always delivered the best results.

Looking at the current coalition government, all the indicators point to it serving the country well. There appears to be a real spirit of partnership and a shared and clear focus upon reduction of the deficit. The dilemma here is that because of the need to reduce spending the government does not have the resources internally to deliver some of its key priorities. There has therefore been a recognition at the highest level that the departments must now actively consider working in coalition with the private sector to help them achieve their key objectives in the most cost effective manner. This is very clearly spelt out in paragraph 2.5 of the government’s Spending Review Framework published in June 2010.

Ensuring value for money

For those not familiar with the spending review framework, paragraph 2.5 states the departments will be asked to prioritise their programmes against tough criteria ensuring value for money. A very brief analysis of how the provision of debt recovery services by the private sector measures up against these criteria shows that this is very much in line with the treasury’s thinking. Four of those criteria are set out below with an assessment as to how the provision of debt recovery services by the private sector satisfies them:

  • Is the activity essential to meet government priorities? Given the Government’s number one priority is reducing the deficit then maximising its revenue opportunities through the recovery of debts is undoubtedly crucial.
  • Does the activity provide substantial economic value? This has already been proven with the successful recovery of millions of pounds of debt which would otherwise have not been recovered.
  • Can the activity be provided by a non state provider? This has been successfully demonstrated by the existing government contracts for the provision of debt recovery services.
  • Can the non-state providers be paid to carry out the activity according to the results that they achieve? As debt recovery services are typically paid for by payment of a small percentage of the monies recovered there is a direct correlation between payment for services provided and the results achieved.

Born out of necessity
There are several clear parallels between the two coalitions. Both were born out of necessity and the success of both depends on a willingness to work in partnership and a clear focus on achieving the key objective. It is also clear that those key objectives are very much interconnected – reducing the deficit will require an effective infrastructure and strategy for recovery of the government’s debts which will require an effective coalition with the private sector.

There is a high degree of confidence that the coalition between central government and the private sector for the provision of debt recovery services will be successful, but then the industry has a track record demonstrating that going back to the last Conservative government. Arguably it is too early to know whether the current Conservative/Liberal democrat coalition will be a success, but there would be a neat political symmetry if after 160 years, another Conservative prime minister was able to declare that England does now love coalitions.

Peter Wordsworth is chief executive of Fairfax Solicitors, a leading provider of debt recovery services for Central Government