Is the tide turning on public sector outsourcing?
The G4S Olympic security shambles is such a spectacular outsourcing disaster that it is leading to a period of soul searching in political and media circles about the nature of privatisation.
As with so much public debate since the 2008 crash, it seems that yet another of the central tenets of the political economy of the last 30 years, the superiority of the market in delivering services, is up for a serious re-think.
The public has never really bought it, in any case. Repeated surveys have shown that people are at best sceptical about the virtues of privatisation and most are outright hostile. Upcoming work by the Fabian Society looking into attitudes towards public service reform is expected to reinforce this message once again.
And in the UK and across Europe, public authorities are bringing services back in house in growing numbers as they realise the value for money, efficiency and flexibility that derives from publicly owned, controlled and delivered public services.
Outsourcing in the public sector is nothing new. Since the days of Compulsory Competitive Tendering in the 1980s, we’ve seen successive waves of services tendered out to mostly private sector providers.
Oxford Economics estimates the current outsourced market for public services has an annual turnover of £82bn, representing around 24 per cent of the total spend on public services in the UK. In the NHS, the proportion of spend on external contracts delivering front line care rises to over 30 per cent. In local government it is above 40 per cent while over 90 per cent of full day care places are provided by private and voluntary sector providers.
Under current government policy, outsourcing is set to increase. The Prime Minister has signaled his intention to dismantle the state “brick by brick” and the government’s programme of legislation outlined in its Open Public Services White Paper has been designed to make this happen. From NHS restructuring to the Localism Act (with its already notorious Community Right to Challenge), public services are being opened up wholesale to the market.
The Financial Times reported this week that the UK is currently gripped by the biggest wave of outsourcing since the 1980s, with public service tenders amounting to £4bn advertised in the Official Journal of the European Union this year alone. Analysis from the University of Leeds indicates that with around £25bn of NHS services now up for grabs, outsourcing could soon account for over 60 per cent of the frontline care budget.
But at the same time, privatisation has become a dirty word. Distrust of private providers delivering core public services that many regard as a right is pervasive. And no wonder, the public know that privatisation of public services has become synonymous with rising costs, increasing liabilities on the taxpayer, concentration of the market in the hands of unaccountable corporations and, most importantly, a deterioration in service quality.
Research by the University of Greenwich and by Landman Economics demonstrates how outsourcing leads to fragmented services and downward pressure on job security and conditions of the workforce leading to poor service quality. Just this week, the Care Quality Commission ordered Serco to improve its failing out of hours GP service after finding that a quarter of staff had not received mandatory training, standards for the protection of vulnerable children and adults were not being met and the company was providing false reporting on its performance.
In a report on public service reform soon to be published by the Fabian Society, public ambivalence to outsourcing is clear. When asked the question “Do you think tax-funded public services should be provided mainly by national or local government or mainly through private companies or charities?” a mere 5 per cent opted for the latter compared to 62 per cent who supported public provision. In addition, the statement that people identified as most applicable in regard to outsourcing public services was that it led to “waste, duplication and profiteering”.
When G4S leave the public in the lurch while keeping hold of £57m and when private equity firm Blackstone pocket £500m profit on the back of the collapse of Southern Cross care homes, these feelings of distrust understandably turn into something more intense.
We are at that point now. Even Tory grandees like William Waldegrave are publicly expressing their (admirably eloquent) opposition to the ideological zeal for privatisation manifested by this government. He suggests that Cameron shares these concerns. As a PR man, Cameron knows the stigma attached to privatisation which is why you’ll find marketisation couched in friendlier terms, for privatisation read ‘choice’, ‘empowerment’, ‘diversity’ and, yes, the ‘big society’.
For years now, privatisation orthodoxy has been so ascendant that outsourcing has been seen by practitioners, academics and politicians alike as an inevitable process. But this is far from the case.
Unions and local activists have been able to launch successful anti-outsourcing campaigns such as the coalition of organisations that helped prevent the spin out of health services in Gloucester.
At the same time, public authority commissioners are increasingly viewing in-sourcing as an attractive alternative to high-risk, costly and inflexible service contracts. As the FT reports, the G4S problem has put a halt to outsourcing plans in the police service. The Association of Public Service Excellence (APSE) has published research that shows dozens of local authorities across the UK have taken services back in-house, citing benefits as value for money, service quality, flexibility and integration with other services.
Interestingly, APSE makes the point that in-sourcing is being seen by many as a response to austerity, running contrary to the more common narrative of a recent intensification of outsourcing being driven by spending cuts. APSE reports that:
Severe budgetary pressure faced by local authorities across the UK is encouraging councils to review their service delivery arrangements. Decisions as to how to respond depend upon both the overall strategic direction of the authority and pragmatic analysis of circumstances on a service-by-service basis. While some authorities are externalising as much as possible, there is evidence that others are bringing a significant number and range of services back in-house in order to gain maximum value from decreasing resources.
Austerity is forcing a re-assessment of the benefits of outsourcing, as The Financial Times reported earlier this year:
Local authorities have grown sceptical about the savings outsourcing can deliver, as well as fearing a backlash against private companies making large profits from the taxpayer.
Further research by the Public Services International Research Unit at Greenwich University indicates that despite increasing liberalisation measures at EU level, on the ground re-municipalisation is increasing across Europe. In 2011 a study by Leipzig University of 100 German municipalities reported that “the trend is towards greater provision by the public sector” and in France, a pioneer in privatised water services, increasing numbers of authorities are taking water utilities and public transport into public control.
Slowly this thinking is beginning to make headway in political circles. Ed Miliband’s call for G4S to be barred from further police service contracts and Maria Eagle’s tentative steps to address years of disastrous rail privatisation are small moves in the right direction. Even the Treasury has cottoned on to the fact that PFI has been a costly (some might say outrageous) failure, launching a review in December last year in order to undertake “a fundamental reassessment of PFI”, albeit through developing a new model that draws on “private sector innovation”. Although while the Treasury expresses its scepticism, Chancellor George Osborne has given the green light to over 61 PFI projects worth nearly £10bn since coming to power.
As Seamus Milne in The Guardian put it, this emerging consensus has to find a real voice in national politics – a “political sea change”. Meanwhile, the TUC and trade unions can help build this momentum in a number of ways. Three key means might be to:
- Work with local politicians and commissioners to ensure that Best Value and EU procurement legislation is used to its fullest effect to ensure that in-house models of delivery are competing on a level playing surface whenever a commissioning process is being undertaken. And that the process is designed in a way to capture the widest possible interpretation of best value, incorporating positive outcomes for the community, social, environmental and economic factors, and accountability.
- Build a rigorous evidence base on the benefits of public service delivery, not only in terms of the moral and political arguments around accountability and the public service ethos, but in terms of efficiency, innovation, value for money, flexibility and service quality. The TUC is building networks of academics and think tanks to help build this evidence base that is crucial in challenging misplaced assumptions about the superiority of the private sector.
- Work with local people, community groups and the voluntary sector to bring pressure to bear on politicians and commissioners on a local and national level and to challenge the Open Public Services agenda for what it is – a massive drive to privatisation, no matter how it is dressed up.