DanaC, you have a far different set of circumstances and labels you use over there. They don't fit in the US.
The idea for privatizing a lot of work is this:
1) There will be competition for the contract to do the work. That competition will result in far lower cost to the gov't, and nearly always bring in more efficient practices.
2) In negotiating wages, it's much better to have it handled by a private company. Whenever politicians are involved in negotiations with labor unions, the people lose their britches. The politician isn't dealing with HIS/HER own money, so they're careless about spending it, and they can be "bought" easily, just by the union leaders saying "you help us with these wages and benefits, and we'll donate $$$ to your re-election campaign, and recommend you to our members".
3) When a gov't labor union goes out on strike, there is typically no one who can replace them. They have the gov't by the short hairs, and they know it.
An example of that was when the Air Traffic Controllers all went out on strike, during a recession when Reagan was President.
Nationwide, they were ALL going to go out on strike, because they were all members of the union - you couldn't work that job, without being a member of the union.
Well, SummABitch there!
So Reagan fired them all, unless they reported for work, in short order.
Problem fixed, but very few gov't leaders had Reagan's courage and ability to communicate his point of view, to everyone.
The thing is, you have to make your market really free - not "free" as in "I get to plunder it with no competition". These kinds of "carve outs" are killers to free market capitalism, and unfortunately, GB is famous for having zillions of them.
Free market practices didn't make it difficult. Carve outs did, and if you didn't have socialist practices in place, the Carve outs would have created great social unrest in G.B., as they always do.
To the extent that you have financial regulations and practices that do not treat citizens equally, your markets are not free.