Selling public services – where’s the evidence for outsourcing?

In posts over the past few weeks, we’ve looked at the issues of accountability, transparency and reliability raised by the Government’s ‘open public services’ agenda, in particular its plans to outsource more public services. We’ve focused especially on how outsourcing threatens to undermine another recently announced Government initiative, that for ‘open policy making.’ If the Government wants policy to be based on real expertise and evidence, it’s important to ask where the evidence is that outsourcing produces better public services – and who continues to push outsourcing in the absence of this evidence. The answers suggest that we are a long way from genuinely open policy and the independent research that we need to inform better policy.

The outsourcing of public services has never been popular with the public. According to a recent YouGov survey for the Fabian Society, nearly two-thirds of people think that ‘services like health and education should not be run as businesses. They depend on the values and ethos of the public good.’ Two-thirds of people also believe that public services should be provided wholly or mainly by national or local government. A third of the public believes that when politicians talk about ‘choice’ in public services, they really mean privatisation. Most of the public like the idea of public services, publicly delivered – and publicly accountable as well.

Given this, why have governments of all stripes over the past 30 years continually sought to extend outsourcing to more public services ? Where is the evidence that outsourcing works? If outsourcing isn’t popular with the public or the people who provide public services, who is it popular with? The next few posts will examine the arguments and evidence in favour of outsourcing – and who’s being paid to promote outsourcing in more and more public services.

Typically there are three main benefits of outsourcing that are put forward as part of the ‘Whitehall consensus.’ As we’ve discussed in posts over the past few weeks, all of these benefits can be questioned – and need to be if we are going to avoid more public services turning into public policy disasters akin to rail privatisation.

The first claimed benefit is efficiency. The flag bearer for this is the 2008 review commissioned by the previous government and conducted by the DeAnne Julius. This found that the ‘public services industry‘ in the UK is the most developed in the world and is second in size only to that of the US (in 2007-08 it represented nearly 6 per cent of GDP with revenues of £79 billion and employing more than 1.2 million people). But although the Julius review is often cited as evidence in support of outsourcing, it was  never a study of its overall benefits (or disadvantages) – rather it was a review by a corporate insider on how government could support the growth of the public services industry.

The description ‘corporate insider’ is not hyperbole. Julius is a former senior economic advisor at the World Bank, founder member of the Bank of England’s Monetary Policy Committee, and non-executive director of BP. She is also on the board of partners of Deloitte UK, and since last year also an independent non-executive on Deloitte’s main board. Julius was, until December 2007 – that is, when she was appointed to conduct her review – a senior independent non-executive director, and member of the audit committee, remuneration committee, training and development committee, and nomination committee of Serco Group plc and Serco Solutions Ltd. In addition, the advisory panel for her review included representatives of the CBI, Partnerships UK, Cap Gemini, Working Links, Logica CMG, Spire Healthcare, Babcock, KPMG, and Serco itself – all of them with very significant interests in outsourcing.

Regarding the repeated claims for ‘greater efficiency’, of course it’s possible to reduce contract costs through open tendering – you pick the lowest bidder, despite the impact this might have on quality or effectiveness (which is the real measure of value for money). But for such a widely accepted policy (at least in certain circles) there’s little clear-cut or comprehensive evidence that outsourcing improves the real quality or efficiency of public services. As Nick Timmins of the Financial Times noted at the time of the review (in, of all places, Serco’s own journal): “What is still needed, …despite the release of the Julius Review, is a better analysis of where it works well and why. We also need to know why, when it fails, [if] it is due to structural and incentive problems rather than an individual company, or third sector provider, failure.”

The second benefit put forward for outsourcing is that it produces more responsive public services – services that engage more with users and respond to their needs. The Whitehall consensus says that outsourcing helps to break-up bureaucracies and creates far more responsive services – something both left and right can get behind (this is where even supposedly progressive think tanks fall for the notion of more ‘diversified provision’). But as we’ve noted in previous posts, outsourcing and the push for more marketised services generally have often undermined efforts to work with service users and the public – firstly because increasingly fragmented services makes sustained public engagement and real choice more difficult, and secondly because it has led to the growth of very large providers which are too big to care what individual service users – or even the public as a whole – might think.

The third supposed benefit of outsourcing is innovation. In particular the (often left-leaning) ‘innovation industry’ – of which I used to be a (small) part – that calls for ‘new solutions to old problems’ seems to hope that outsourcing will somehow magic innovation out of thin air. But as we’re now being reminded under austerity, innovation on the cheap leaves people without adequate services and support, as much-touted innovations from care in the community to personal budgets have shown. Some of these innovations – however positive the ideas on paper – have helped to prepare the ground for cuts and reduced access to services, for example the way that personal budgets have made it easier to reduce support than it would have been to decommission traditional services.

In reality, there can be little innovation or even improvement without both proper investment and sustained engagement with the people who use and provide services – but these are exactly the people who are marginalised by an outsourcing agenda that they didn’t vote for and don’t agree with (despite being exposed to more than 30 years’ worth of propaganda in its favour).

In many respects the current Government’s open public services agenda merely restates the recommendations from the Julius review, such as its call to open up public service markets and for ‘competitive neutrality’ between public, private and third sector bidders to deliver public services (there is, however, a notable lack of evidence in the open public services white paper – as if the benefits of outsourcing are now so obvious they hardly need to be mentioned). Looking back at the Julius review now, what’s most striking is its complete lack of any other perspectives. For example, there’s no evidence from service users about the quality of outsourced services, and no sense of how public services can be accountable to the public other than by being re-designed as individualised consumer-like services.

We’re still waiting for an independent, rigorous and reliable analysis of the effects of outsourcing – one that incorporates long-term value for money rather than short-term costs, but also evaluates the wider social, economic and political impact of the public services industry. What is especially absent is any analysis about what outsourced public services look like from the perspective of the people who use and provide public services – as opposed to the industry insiders who benefit directly from selling-off public services to the lowest bidder.


One Comment on “Selling public services – where’s the evidence for outsourcing?”

  1. Kevin Ford says:

    Enjoyed reading this post. Agree with your analysis (like your discussion of efficiency, responsiveness and innovation) and conclusions. There is an appalling shortage of sound data about the impacts and effectiveness of outsourcing services. Most of the writing seems to be positional from either proponents or opponents. Neither side appears to have convincing evidence to support their positions. So outsourcing becomes an argument of faith and ideology rather than one about improving service provision.

    It is possible to provide services which are efficient, responsive and innovative located both within the public sector and in outsourced provision. The determining features of these services are their leadership and management and the culture and values which underpin their work. Outsourcing may be a mechanism to create a massive change in service provision in order to disrupt a (perceived) prevailing culture in public services which is neither efficient, responsive nor innovative. If so it is a very blunt and crude approach.


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