Spending conspiracies, lack of transparency and questions of ethos - government outsourcing in the dock

Profile picture for user slauchlan By Stuart Lauchlan September 19, 2019
Summary:
Outsourcing in government needs to be more transparent and more focused on quality service delivery than cost savings that have long since eroded, says IfG panel.

IfG
Liddington and Sasse

Earlier this week the Institute for Government released a lengthy report on the role of outsourcing in the public sector - Government Outsourcing - what’s worked and what needs reform? It’s a report that covers a lot of ground and one that bears a good deal of scrutiny for policy-makers and officials at all levels of government.

As a follow-up to the report’s publication, the IfG hosted a panel debate which both considered the findings of the study and tapped into the real world experience of panelists in relation to outsourcing in government.

Kicking off the debate, Tom Sasse, Senior Researcher, Institute for Government,  noted that there is renewed political debate over public and private service provision:

That debate is indeed a fierce one and there are good arguments on both sides. Yet it's a debate that often has generated more heat than light and has obscured a more basic set of questions. Where has outsourcing worked delivering better outcomes to the public and where hasn't it worked leading to services that were poor or unreliable and what factors explained success or failure?

Reiterating a major point from the report, Sasse noted that while there are high-profile failures of outsourcing to be pointed to, it’s important to note that:

It does not mean that outsourcing has not worked. Early savings have effectively been banked and competition has been a key driver of improving public sector efficiency. So in areas where outsourcing has worked, removing competition by returning services to government hands entirely would therefore be risky.

Conspiracy

But something has to change, an argument powerfully put forward by  Sir David Lidington MP, Member of Parliament for Aylesbury and former Chancellor of the Duchy of Lancaster, who has been an outsourcing advocate. That change needs to start with a much greater degree of centralisation of policy and practice within government.

Liddington pointed to the creation of the Outsourcing Playbook, published in February of this year, which is intended to provide examples of best practice, principles and procedures upon which to base outsourcing decisions. It’s a good idea, but to date there has been one problem:

Some departments are better than others that implementing those principles and I think that it will be important that from Number 10 and the Treasury there is strong support for the Cabinet Office in insisting that certain basic ground rules are followed when it comes to outsourcing.

That also means ending what Liddington bluntly calls “a tacit conspiracy” related to public spending rounds when HM Treasury agrees budgets and financial plans with individual departments:

I can remember public spending rounds where in the final horse trading, an assumption was made about inflation that everybody knew was very unlikely to be delivered, but it was needed to make the figures fit.  I think some of what we're seeing derives from a culture in public spending rounds where what the Treasury is interested in is getting the numbers to pan out, department by department on a bilateral basis, and the spending department is willing to make a heroic assumption about the savings it can make to come to a settlement.

And the outsourcing vendors need to take some of the blame for agreeing to targets and objectives just to win business, he added:

I do rather think that the some of the contracting companies themselves have been party to this and said that, ‘We can manage this, yes of course’. And then two years, three years it all risks going belly-up because the genuine costs have not been exposed at the start. That does require a pretty big cultural change and in my view it means that the Treasury needs to be thinking in these terms, needs to focus on the quality of spending as well as on the on the outcomes of spending as well as on just the numbers that are involved, the number of pounds that are being spent.

Ethos

Rachel Reeves, MP for Leeds West and Chair of the Business, Energy and Industrial Strategy Select Committee, wanted to raise a wider issue around public service ethos and the commercial objectives of outsourcing and outsourcing firms:

With the contracting out of public services, what was the focus and what was the ethos? Was the ethos about delivering for shareholders or was the ethos about delivering large dividends and bonuses or was the ethos about delivering excellent public services? I fear that the gradual creep into [outsourcing] more and more services, particularly for those people who are vulnerable, does create an issue about who the service is aimed at and who is going to be the ultimate beneficiary? Is it the people who are the recipients of that service? Is it the taxpayers who pay for those services?  Or is it the shareholders of the company which is delivering the service?

I think that we should be more concerned about those values of public service ethos which I think have been lost through the encroachment of outsourcing into more and more parts of our public life.  I think the link to that is the issue about where do these savings come from? A lot of the savings are delivered from paying staff less than what they were paid when they were delivering the service in the public sector. Is that really a genuine efficiency saving or is it just the transfer of income from one set of people to another?

The government has done a lot in the last few years to ensure that more and more workers directly employed by governments local or central are paid a living wage, that they have a decent pension, they have secure contracts. Those things don’t exist in a lot of the outsourcing companies and as the outsourcing companies then subcontract more and more of those services, you have even less of a grip of whether workers are being paid at a real living wage where they could contribute to a decent pension scheme or whether they have secure contracts in the government. There’s also the issue of risk and where risk lies. I think it does need to be much more clear where in services that outsource who was responsible for different risks.

Clarity

Lack of clarity and transparency around outsourcing contracts was a bone of contention for the final panelists, Richard Cockett, Senior Editor, at The Economist:

I think what  is very clear is how little we know and how in certain areas how little evidence there is, how little information we have about key KPIs, for instance. Even the NAO  [National Audit Office] is amazed at how little information they’re given to work with often and this makes the whole sector very opaque.

It's very hard to defend [outsourcing companies], even if you want to defend them, because we know so little often about what they do. This is the top of things to fix in the outsourcing sector because it not only leads to inefficiency, because often governments and outsourcers and civil servants are operating in a fog of uncertainty, in a lack of evidence, however well-intentioned they may be. It also presents I think a big political problem in that this is a very, very opaque sector whereas in all aspects of government everything is being driven toward greater transparency, greater accountability etc.

The outsourcing sector in many ways seems to live in a in another age, some Neanderthal age fifty years ago where all this can be done in secret and  there’s little obligation to publish much. They hide behind a cloak of ‘commercial sensitivity’,  ie they don't want to give too much information away in case that gives their competitors an advantage.  All this should be much more in the public domain.

Cockett also argued that the cost savings drivers for outsourcing have vanished over the decades:

The obvious rationale for outsourcing that led the Thatcher government and then successive governments to increase outsourcing, that has largely been eroded over time, by sort of the very success of outsourcing. Outsourcing used to deliver 20% savings etc. That age has  gone and that's partly because those gains have already been captured over several generations of outsourcing. Also the public sector has got better at doing jobs that they might have lost to outsourcers a couple of generations ago, so in many ways that sort of age has gone.  So now we have to think differently about it and one conclusion from that is that outsourcers have to be better in terms of quality. They can't just sort of claim that they're saving a lot of money anymore because that's much harder to do now.

And this is a global issue, he added:

Writing about this for The Economist, over the years there we’ve done a lot of international comparisons on this and that is true all around the world now, so this is not a British phenomenon. That is true around the world. If you go to all the comparative work done in Germany, America, Holland where I think they now do more outsourcing than Britain as a share of GDP. They made much bigger savings - 40%, 50% - when they started these programs 20 or 30 years ago. Those savings have come down to 10%, 5% now. So this is a worldwide phenomenon and the outsourcing business will just have to get used to it.

For his part, Liddington’s overall view appears to chime with that of the IfG that outsourcing in government is at something of a nexus point and one that’s not been helped by Brexit:

I'm afraid it's a brutal truth that Brexit for the last year has been sucking out huge amounts of energy, attention, time and civil service resource right across Whitehall.  This area of policy is by no means the only one that has suffered as a consequence of that.  I think the big test will be when we get to the next spending review settlement because that is the moment I think when we'll be able to see whether the center of government really does see the approach set out in the Outsourcing Playbook as a way of improving quality of service and not just trying to get you a one-off and sometimes fictional cost-saving.

My take

An excellent and frank analysis of the outsourcing sector in government from four panelists on top of their brief and who left more questions than answers in their wake. With a General Election looking more and more likely in the near future, the direction of travel for outsourcing policy is one that is likely to be up for grabs. The Labour Party is committed to ending outsourcing on a wholesale basis; the Conservatives are likely to maintain continuity of policy; the resurgent Liberal Democrats have a long history of opposition to outsourcing in principle. Outsourcing policy isn’t likely to feature in any televised election debates - it'll be the B-word, not the O-word that dominates - but there will be a lot at stake for delivery of public services in the post-Brexit years to come nonetheless.