| Outsouring in the UK - Are we storing up future problems? |
I have just come across a very interesting report by Social Enterprise UK about this challenging issue. It is not a new report but one that I have missed and perhaps others have missed too, so I wish to draw out some of the key issues which we all need to think about.
In July 2012, the Financial Times said: ‘The collective growth of the outsourcing sector – dominated by FTSE 100 giants G4S, Capita and Serco – means Britain is in the grip of the biggest wave of outsourcing since the 1980s.’
Few can argue that in times of economic crisis, the value of every pound of public spending needs to be maximised however this report states this is not necessarily happening. The Government appears to be buying services from a narrow range of large companies and the complexity of its relations with these companies means that it has little room for manoeuvre or leverage over them. The research found that in critically important markets, private sector oligopolies are emerging, where a small number of companies have a large share of the market. Firms with large stakes in multiple public service markets are too big or too complex to fail.Does this sound a bit familiar to you? For example if a company provides different services to the government and one of these is not being delivered properly - the government cannot risk playing hard ball with that company for risk of affecting the other services the company provides to the government. Where is the potential control over the outsourcing service delivery outputs and outcomes?
Many of the smaller providers, often the social enterprises and charities that successive governments have marked out as ideal providers, are being forced out of the process. A narrower range of choice of providers is very likely to lead to higher costs for the delivery of outsourced services, if not in this contract round then maybe the next?
Complex business arrangements and a lack of information as a result of commercial confidentiality make it practically impossible to hold many service providers properly to account. When providers do fail to deliver, they often go on to win more business. This is a symptom of market failure as logically this should not happen. If public money is drawn out of the local economy to fund multiple subcontractors (who are not locally based) and other non local investors then what are the effects on our local area? How will that local area business rate base be affected?
for health services, and policing. The majority of people polled for the report had never heard of Atos or Serco,yet these firms and others like them, are receiving and are responsible for many billions of pounds of taxpayers’ money. The public are more likely to have heard of G4S, possibly due to media coverage of its failures in the run-up to the Olympics but that is just the tip of the iceberg. The private firm Atos is in receipt of around £3bn of public money but who has ever heard of them?
If these contracts are let to companies who drastically reduce pay and conditions then there will be associated welfare,economic and public health issues which would never have been factored into the contract bidding evaluation process. Debate about a level of a living wage becomes more relevant here.There is much evidence to show that private firms are placing vulnerable children and adults in parts of the country often many miles from home, but where care is cheapest for the firms to deliver it. This creates a strain on public services in already poorer boroughs and has a great human cost as well. So what at first appears on paper to be a cost saving becomes a driver for future increased costs in terms of improving care for these vulnerable people.
When problems do arise in cases such as the closure of Southern Cross as a result of complex financial deals designed to maximise financial gain, taxpayers are forced to pick up the pieces. The problem of privatised gains and socialised losses that we became familiar with during the banking crisis has many parallels in this process. In future, local authorities will have to bear the service reponsibility if these service providers fail.
A crucial element here is that public understanding of the effects and practices of outsourcing was found to be very low. In public polling carried out for the report, only one in five people knew that the majority of children’s homes are now owned by private companies. Respondents were much more likely to think that the state is still the main provider.
Public support for shareholder profit being made from public services is low.In polling for the report, two-thirds (66%) of adults said it is unacceptable
There should be much more debate on the outsourcing issue - and one of the report's recommendations is an oversight body for public sector outsourcing. Perhaps the PAC can have play a bigger role in this area?
Please read the full report at:
