Time for the Coalition Government to grasp the outsourcing nettle

18 March 2011

The more that the Coalition Government can do to drive better value from public services through outsourcing the better. This includes, says Mark Fox, ‘unblocking’ the Efficiency and Reform Group which was established to cut waste and set specific proportions of services delivered by non-state providers, but has failed to deliver.

The Prime Minister and Chancellor of the Exchequer claim have two overriding objectives at the heart of their economic policy. The first is to cut Britain’s structural deficit.
The second is to stimulate Britain’s economic recovery through boosting private sector growth. Both goals can be pursued simultaneously through increased outsourcing of public services.
The Government has taken positive steps in this direction already, and this is to be welcomed. Streamlined procurement procedures and set proportions of services to be delivered by external providers are important policy measures which can improve public services and save taxpayers money. However, I suggest that there are further steps the Government can take to drive better value.
Vital role
The private sector has a vital and legitimate role to play in helping deliver the full range of public services, alongside existing public sector providers, voluntary and other groups. Opening up services to competition typically saves between 10 and 30 percent for the taxpayer, even if an inhouse team wins that contract.
In health and housing alone, recent BSA analysis has revealed that the Government could save £1bn and £2.4bn, respectively, by increasing the use of outsourcing. BSA members run prisons and welfare to work programmes, build schools and roads, and collect rubbish. Saving money and improving quality in each sector.
Bold
Government has been bold in many areas since taking the reigns of power. For example: the Department of Health has, through the Health and Social Care Bill, proposed significant NHS reform led from the bottom-up. The Department for Education has legislated under the Academies Act to create new Free Schools. The Localism Bill promises radical decentralisation. Now the coalition should push through reforms to help reduce unnecessary cost burdens on private sector contractors.
What started as a welcome tidal surge of reforming activity – for example, the creation of the Efficiency and Reform Group (ERG) to cut waste in government and pledges to set specific proportions of services delivered by non-state providers – has petered out to a trickle.
The pipeline has been blocked by a lack of clear objectives and an over-emphasis on process. The Government must be confident and flush that blockage out. January’s GDP figures issue a stark warning that pressure on the public finances is building once again in the absence of private sector growth to ease the stress.
But there are steps that the Government can take immediately unlock private growth in the business services sector.Three-quarters of the UK outsourcing industry is business to business, and British firms are already starting to move operations overseas to the Middle East, the United States and Australia because UK markets are uncompetitive.
Streamlined
Progress made by the ERG to streamline procurement processes is certainly welcome. However, the ERG needs to work harder on the deeper problem of a lack of trust between public and private sectors. This manifests itself in disputes over risk transfer and difficulties in sharing ideas and best practice.
Similarly, the coalition has made a promising start in terms of expanding access to data, but the cost of procuring in-house services needs to be broken open so that procurers can actually benchmark inhouse providers against external providers and make an informed choice about which offers the best value.
This is important work, but the ERG has been beset by delays, having only been accorded statutory powers on the 20th December, well behind the date set by the Cabinet Office’s Business Plan. In short, the ERG needs less process and more outcomes.
As an industry, we are beyond the simple dichotomy of public versus private provision. Plans for central government to procure 25 percent of their services from small and medium sized enterprises and proposals in the Commissioning Green Paper to make it easier for civil society organisations to deliver public services are both welcome developments which can lead to healthier competition between a plurality of providers. Amongst BSA members there is a real appetite to work with government to make this vision a reality, and as major suppliers have already worked with the Cabinet Office to reduce costs where possible.
Yet the voluntary sector cannot deliver the scale of change planned by the Government on its own, and the BSA believes that there is a significantly larger role for the outsourced service sector to play in creating a more efficient public sector.
I want to see the Government capitalise on its good start on public service reform, and take further steps to make the most of the better value that outsourced service providers can offer.
● Mark Fox is Chief Executive of the Business Services Association
　