Over the last two decades public policy and practice under both Labour and Conservative Governments has involved the promotion of a greater role for the business sector in the delivery of public services.
I am particularly thinking here about those services which are procured and contracted rather than those where the delivery organisations have been privatised, as with telecommunications, energy, water and to some extent the railways. There are similarities and many differences between contracted services and those which are principally controlled or shaped by government through regulation.
Nor is this article concerned directly with PFI and similar private financing arrangements for infrastructure other than where these include some outsourced service provision.
There has also been a significant growth in those services such as social care where collective provision and/or collective procurement on a ‘wholesale’ basis has given way to a marketplace more akin to the retail sector with individuals purchasing their own services with or without some state financial support. These are outwith the article.
There has never been a consistent narrative from any government to support a policy of contracting and creating collective demand-based markets for a variety of public services. Ministerial arguments made for it have not even been consistent from the same government at the same time and have often varied betweenWhitehalldepartments and specific services. The same applies to local authorities and the wider public sector.
The key reasons propounded have included:
- the need for immediate short-term additional capacity (eg intermediary treatment centres in the NHS)
- the claimed benefits of competition to drive costs down and hopefully quality up (eg very much the argument on which the Government of Mrs Thatcher introduced Compulsory Competitive Tendering – CCT)
- greater choice for users (this is even more the case with direct payments and personalisation in social care)
- a means to address public sector under-performance or failure (Labour’s interventions in local education authorities which had been identified by Ofsted to be failing) or the hope that the threat of outsourcing may be the necessary stimulus to effect change in the public sector (eg some of the early prison service outsourcing and that of the LEAs)
- a potential source of innovation and new approaches including effective business process change (eg in support service business process outsourcing – BPO – in local government)
- access to expertise which is not available in the public sector (eg in IT contracting and development)
- a means of securing investment in change and new systems when public budgets have been tight or allocated to other areas
- a way of ‘transferring risk’ from the public to the private sector, though it might have been better described as ‘the potential to manage risk better between the public and private sectors’ as usually the ultimate risk, as we saw with the Olympics security contract, can never be abdicated by the public sector
- using the business sector to procure and manage diverse supply chains while potentially taking risks of fluctuating volumes of activity, the achievement of complex outcomes and the performance of the supply chain (eg the prime contracting model in the Work Programme)
- and of course nearly always as a means of driving down costs through private sector performance management; economies of scale and specialisms being possible for staff and providers; and better processes – and of course sometimes lower specifications for quality than the public sector was expected to deliver, certainly in the days of CCT and to a continuing if not growing degree today by reducing the terms and conditions for staff
All of the above makes it sound as if the decision to outsource is a simple technical and managerial one. Of course it is far from this. It is very political and much of the trend to advance the role of the business sector has been ideologically driven.
There are and will have been many other reasons advanced to support the application of outsourcing to the business sector. Nearly all of the arguments set out above are used in the Coalition Government’s ‘Open Public Services’ White Paper published last summer.
Parallel and sometimes different cases are made for the use of the social sector including charities, social enterprises and ‘spin-out’ enterprises and co-operatives from the public sector. There are clearly differences as well as similarities between the social sector and the business sector in the delivery of services contracted by the public sector. There are also examples of both sectors collaborating or being in one or the other’s supply chains. However, I wish to focus this article on the business sector’s role in public service outsourcing.
There are examples that can be quoted of successful outsourcing to the business sector, and other examples of less successful and sometimes catastrophic projects. There has been much research by academics, the NAO and the Audit Commission on the effectiveness of outsourcing and there is even more anecdotal ‘evidence’, ‘hearsay’, ‘claim’ and ‘marketing material’ from providers and their clients. The last Government appointed Deanne Julius to undertake a study of the ‘public service industry’ in 2008 (my declaration of interest – I was a member of a stakeholder advisory group to the study). However, this study very much looked at the potential for the industry to grow rather than its effectiveness.
Only last week the Fabian Society published a research report commissioned by the TUC which showed that the public sector does have some reservations about the business sector’s ability to practise a public service ethos and about the expansion of the business sector into core frontline services. Over the last two decades, and specifically in the last few years, there has been a significant advance of the business sector into the NHS, education, custodial services, welfare services including medical assessments, security and policing, with more planned. Recent high-profile cases may have challenged public opinion.
The major problem is that so much of the information and data that is available to the public, policy makers, and public sector commissioners and decision makers is partial and comes from one vested interest or another.
There is a strong and contemporary case for an independent evidence-based review of the effectiveness and ethos of public service outsourcing to the business sector.
Such an enquiry or review could address some related questions, including:
- what are the conditions which make outsourcing effective?
- what are the implications for staff and how can these be addressed?
- can the decision to outsource or not become more inclusive with end user, wider public and staff involvement?
- is it more appropriate in some services or areas of the public sector than others?
- how can contracts and contractors be more transparent, accountable and aligned with wider public, social, environmental and political goals?
- in what other ways might the business sector make a contribution to public services; what are the new models?
- what are the merits and demerits of alternative service delivery models?
I would not envisage such a review addressing public procurement or directly the public sector’s client capacity and competency. These, of course, are all critical.
Given the onward march of the policy and its practical implementation one might have expected such a review to have already been undertaken – what happened to ‘evidence-based policy-making’?
An enquiry is urgently needed now. It would be in the interests of business sector providers, user groups, the social sector, trade unions, public service employees and the public sector to support this call for an enquiry. It would most certainly be in the public interest to have answers based on facts!