Under both Conservative and Labour governments, public services have been chopped, commodified and contracted – predominantly to big companies operating often in highly restricted markets. They have conflated much needed public reform with outsourcing.
It’s been a revolution. Some £100bn of the UK’s public service work is now contracted out. But we know very little about its value, comparative cost or the unintended consequences and public benefit in the widest sense. The private finance initiative, which overlaps with outsourcing, has now been tried and found guilty by a disinterested judge, the National Audit Office. Its language is restrained but its verdict harsh: the public has been comprehensively ripped off.
Outsourcing has been found wanting. Security at the 2012 Olympics, refugee housing and benefits assessment have seen firms fail. Amey’s Sheffield contract displays rigidity; Carillion’s collapse proves that basic risk cannot be transferred and contracts don’t recognise the cost of implicit public guarantees.
The most recent amplified drive to outsource has had a distinctly partisan element. Since 2010 public bodies have been either compelled or encouraged to tender – driven by an ideological determination to shrink the state and diminish public employment.
One result has been inappropriate decisions, with public services rearranged in the interests of contractors rather than the public – who have largely been excluded from the process. Charities, the wider social sector and SMEs have been forced to compete as if they were global corporates.
The time has come to pause, change course with the default always being publicly managed services but, above all, find out just how big the phenomenon is. The National Audit Office estimates the public services market st £100bn a year, but does not know: no one collects contract data across the public sector. A council and NHS trust might contract with the same company blithely unaware of each other, thus missing vital comparative data on cost, ethos and performance.
In a report for the Smith Institute called Out of Contract; time to move on from the ‘love-in’ with outsourcing and PFI and published today, we make the case for a new direction.
First, we need more and better information and analysis. We simply don’t know how far private interests have interpenetrated and eroded the public realm. We simply do not know the full impact of outsourcing, the extent it happens and the nature, size and actors in key public service markets. Nor do we know when outsourcing has worked and when it has not and why; can it be effective for specific services; or how the public sector can become an excellent and effective client. We need a ‘Domesday book’ of all contracts, contractors and related relevant information.
We are calling for a comprehensive review of the policy. PFI is bust and should be abandoned; difficult and expensive though it might be, an extrication plan for existing PFIs is needed. Local authorities have already shown that outsourcing contracts can be renegotiated or even terminated with staff becoming public employees.
The collapse of Carillion confirms the lesson from G4S and London Underground. In vital public services, risk cannot be transferred; it remains with the state. Risk must be priced and lodged in contract calculations but too often is not. Outsourcing can obfuscate and dilute democratic accountability. It can adversely affect staff. When staff are made redundant or have wages reduced there is a wider cost to local economies and the public sector – for example having to pay benefits and/or tax credits. There should be a holistic cost benefit analysis prior to outsourcing which considers more than an individual departmental budget bottom line.
In our report, we propose regulation to ensure that ‘make or buy’ decisions are transparent and take into account economic, social and environmental factors; and public bodies should consult before outsourcing. There has to be full transparency and accountability for providers and public sector clients. Public bodies must be permitted to impose conditions, on what firms pay directors, their tax arrangements, their policies on diversity, sustainability, employment terms and union recognition.
Preston Council is among those that have shown public procurement can be used to add to local wellbeing and area economic and employment strategies.
The mood is shifting. Labour is committing itself against outsourcing. Conservative councils are taking services back in-house. Now is the moment to press the pause button and adopt publicly managed services as the default.