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Spreading private sector growth throughout the UK

Author : Mark Fox, Chief Executive of the BSA – The Business Services Association

20 December 2012

New research commissioned from Oxford Economics and published by the BSA has revealed the extent to which the outsourced services sector is an engine of growth for the UK economy. It directly supports 10.5% of all jobs in the UK, contributes around £113 billion a year (8.5%) to the gross value added measure of UK output, and is responsible for 9.5% of the three main business taxes HM Treasury receives each year.

The Prime Minister recently called for every Whitehall department to be a “growth department” and evoked a wartime spirit to drive the regeneration of the British economy, building on the 1% growth in the economy in the three months to September and falling unemployment figures. As a significant employer our industry has a huge part to play on the frontline of that challenge for two reasons – we generate private sector jobs, and those jobs are spread across the UK.

Over the long term, as the UK emerges from a difficult economic position, self-supporting, geographically balanced private sector job creation can share the benefits of growth to a wider area than just London and the South East.

Oxford Economics’ research reveals, for the first time, the footprint of the outsourced services sector across the UK – by region and by parliamentary constituency. The research defines outsourced services as being those which are “governed by an ongoing or time-specific agreement involving a degree of delegation of management responsibility” and would “more typically provided by an in-house team of the customer themselves.” This is an important first step because the industry spreads over a number of statistical categories which have never before been logically grouped together.

The share of gross value added from our sector is above the national average not only in London and the South East, but also the West Midlands and the East of England, and only marginally below in the North West. By sharp contrast, for financial and insurance services, London is twice the national average, with all other UK regions falling below the national average. The lesson – a strong and prosperous outsourced services sector is good for the whole of the UK.

Also, growth of the outsourced services sector is far from dependent on winning public sector contracts. 64% of the sector’s work is for private sector clients, compared to just 36% for the public sector. The message from the Oxford Economics report backs up the BSA’s annual industry review ‘Business Services: Realising the Potential’ which we published in November. Our report highlighted the vital role our industry will play in economic recovery. For example, the UK industry has a global reputation as a world leader in creating outsourcing solutions to complex problems across the private and public sectors. One survey has shown how the UK is second only to the US and home to almost a fifth of all outsourcing contracts. Recent figures show that the Total Contract Value of global outsourcing grew by 7% between Q2 of 2011 and Q2 of 2012 which will only oil this engine of growth.

In addition, BSA members help employees develop their skills by providing an estimated 50,000 days of training per year, and help SMEs to prosper through supporting 250,000 such firms through supply chains. A successful outsourced services sector spreads benefits to its staff and suppliers which in turn has a positive knock-on effect on the economy as a whole.

Given the benefits of a strong outsourced services sector to the UK economy, what is on the sector’s Christmas list to catalyse these benefits further still? Continued support from the Cabinet Office for the modification of EU Procurement Directives to reduce burdens on procurers and suppliers, and the Government redoubling its efforts on wider public services reform would all be welcome steps. With recent polling suggesting that 75% of people agree with the statement that “the most important thing is to have high quality, free public services, not who is involved in running them” there is a strong electoral constituency for getting the best value possible out of our public services. Hopefully this will embolden ministers and civil servants to take the necessary steps for reform. Continued efforts to keep borrowing costs down, help exporters and ensure a competitive corporate tax regime for the UK will fuel private sector growth.

With private sector outsourcing growing, and The Economist predicting a 57% rise in national and local government outsourcing by 2015, ours is a sector which, in 2013, has huge potential for growth. The latest research, published by the BSA, shows that this growth will in turn bring significant benefits to UK plc.

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