15. Despite the extent and importance of the UK's use of the private and voluntary sectors to deliver public services, it has been controversial. This section lays out the arguments that we heard in favour of and against outsourcing.
16. Numerous witnesses told us that purchasing services from the private sector reduced costs for the taxpayer by as much as 10-30%.34 The Minister justified this claim by referring to economies of scale resulting from the use of the same company to serve different clients, greater freedom to access specialist knowledge and the imposition of cost discipline.35 His arguments were supported elsewhere by Serco and Mitie.36 These arguments have academic support: John Manzoni, the Chief Executive of the Civil Service, supported the Minister's claim by pointing to studies which say that savings of "about 20%" are achieved when a service is first exposed to competition.37
17. The Global Sourcing Association told us that purchasing services allows the government to access "talent on a global basis".38 Serco agreed, saying that outsourcing enables the Government to bring in new talent with "new ideas" about how to run services.39 Mitie mentioned that bringing in private sector expertise enables the Government to take advantage of the "innovation and leading-edge technology" which companies bring with them.40 The Minister agreed, citing the "range of specialist skills, world class expertise and deeper knowledge" the private sector can bring to problems.41 Paul Davies, an independent infrastructure advisor, said that private companies bring "cost skills and project management skills for implementation" as they are "often doing the same job outside of the public sector".42 Peter Smith, a former government procurement director, argued that it is important to remember that the state often failed to deliver the services that companies now successfully deliver.43
18. The points raised in favour of outsourcing have not gone without challenge. Professor Haslam (Queen Mary University) told us that purchased services could sometimes be more expensive.44 Local Authorities have recently argued that providing services themselves is both cheaper and produces better quality services.45 The Unite Union argued that far from reducing costs, these contracts give "public assets and resources to private individuals or companies that make huge profits".46
19. Critics argue that where there are reduced costs, these "come from driving lower pay, worse terms and conditions".47 The TUC said that private contractors offer worse terms to workers than the public sector for similar jobs.48 This is contested. Rupert Soames, CEO of Serco, "vigorously" denied that they offered worse working conditions than the public sector and said that they "specialise in organising our people well" and hence run services with fewer staff.49 Phil Bentley, CEO of Mitie, said that while some conditions such as pensions might not be as favourable to the employee in the private sector, there might be more career progression.50
20. There is a consensus that the private sector should be able to provide some goods to the public sector. Even opponents of the private sector's involvement in the public sector acknowledge that the public sector should buy goods from the private sector.51 On the other hand, supporters of using the private sector acknowledge that there are some areas (for example, policy analysis by the civil service or decision making) which should not be outsourced and that some contracts have gone badly wrong in the past.52 Opponents of using the private sector tend to extend this boundary. For example, the Scottish Refugee Council "question whether outsourcing to non-public or charitable bodies or the possibility of profit can ever be appropriate in complex services" such as immigration centres.53
21. Public sector capacity limits what can immediately be brought back in house. We were told that it would be difficult to bring services back in house, at least in the short-term. Sir Amyas Morse, the Comptroller and Auditor General, told us that "there are a lot of areas where Government does not have the capacity to do anything else but outsource" and that in some parts of government, "the capability of even acting as a prime contractor is not necessarily there."54 David Walker, a Guardian Journalist and former Audit Commission official, agreed that "within the short run many services could not overnight be switched back".55 As the Institute for Government (IfG) said in advance of the 2015 General Election, "however desirable it might be to act quickly, switching from in-house to outsourced provision (or vice-versa) is not a trivial undertaking".56
22. Most of the witnesses to our inquiry endorsed the conclusion of Professor Simon Wren-Lewis of Oxford University that the right answer to whether the Government should purchase services or goods from outside companies or charities is "it depends".57 Nick Davies from the IfG said that "there is broad agreement that there is probably not a hard line about what should be insourced or outsourced, but there are certain services that are more likely to be able to be outsourced successfully".58 David Walker, from a different perspective, agreed: he told us that, while "public-facing services" should always be in the public sector, it would be "dogmatic to say at any given point that there is a hard and fast division".59
23. At different times, private, charitable and public providers have both succeeded and failed to contribute to successful public services. All the witnesses to our inquiry accepted that the public sector should buy in some goods or services from the private sector, and should insist on providing others internally. The public sector should not contract out the final decision making about policy. The public sector always retains responsibility for the entitlement of individuals to benefits or services. Whether ordinary services should be outsourced though will depend upon the capacity of the public sector, private sector or voluntary sector to deliver them, the comparative cost, and ultimately, the value that each provider can produce.
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34 Q240 (David Simmonds), Q333 (George MacFarlane)
35 Q742
36 Mitie LCC0039, Serco LCC0022
37 Q743. S. Domberger and S. Rimmer, Competitive tendering and contracting in the public sector: a survey International Journal of the Economics of Business Vol. 1 Issue 43 (1994) pp. 439-53. DeAnne Julius, Public services industry review: understanding the Public Services Industry: How big, how good, where next? July 2008. Confederation of British Industry Open Access: Delivering Quality and Value in Our Public Services, September 2012
38 Q329
39 LCC0022 (Serco)
40 LCC0039 (Mitie)
41 David Lidington, Chancellor of the Duchy of Lancaster speech to Reform, June 2018
42 Q561
43 LCC0007 (Peter Smith)
44 Q402)
45 G. Plimmer, How outsourcing fell out of fashion in the UK, Financial Times, February 9 2018
46 Unite LCC0011
47 Unite LCC0011. See also David Walker Q707
48 TUC LCC0018, Q707 (Matt Dykes)
49 Q650
50 Q652
51 Q685 (David Walker), We own it LCC0038
52 Q563 (Margaret Stephens); Q568 (Paul Davies); Q744 (David Lidington MP), LCC0007 (Peter Smith). The Government in 2012 did consider outsourcing some policy development. HM Government The Civil service reform plan (2012) p. 16
53 LCC0016 (Scottish Refugee Council)
54 Q496
55 Q714
56 Institute for Government, Getting a better deal in outsourced services, 2015
57 Simon Wren-Lewis, What Carillion's collapse tells us about public sector outsourcing, London School of Economics British Policy and Politics, January 2018
58 Q408
59 Q685