Tax experts warned that someone had to pay employers’ national insurance – if the offshore company didn’t, then the agency, LA, or school could be pursued. This meant the bill could ultimately be paid by taxpayers.

It was tempting for agencies, LAs or schools to use this method because it reduced costs – the savings of not paying employers’ NI trickled down to the organisation hiring supply teachers. It also seemed to benefit supply teachers because part of the saving went to them. However, if their employer didn’t pay the employers’ NI contribution then supply teachers would find it affected future benefits and pensions, a tax expert warned.

Crawford Temple of the consultancy firm Professional Passport said he had written to Treasury Minister David Gauke in July 2011 to point out the ‘potentially embarrassing’ issue of public sector agency workers being employed by offshore umbrella companies. He hadn’t received an answer.

The problems are these:

1 HMRC losing millions of pounds of employers’ NI contributions;

2 The possibility of taxpayers having to pay the bill;

3 The pressure on LAs and schools to save money;

4 The competition between agencies to reduce costs;

5 HMRC not enforcing existing rules effectively;

6 The Government failing to tackle the problem.

A tax adviser said public authorities should be careful about how they procure services. Using an offshore company may initially save money but could result in huge bills. What the programme didn’t say was that public authorities could be seen to be complicit in avoiding tax if they failed to ensure that the organisation outsourced to pay wages was paying employers’ NI contributions.

BBC Radio 4’s File on Four has revealed how huge profits could be earned by private companies at the taxpayers’ expense, Channel 4 Dispatches found that one company was profiting from the NHS while offering an inferior service, the National Audit Office (NAO) has warned that public officials who procure services from outsourcing companies need a new set of skills suitable for a commercial environment, the Public Accounts Committee (PAC) has said “due diligence” is missing in the urge to rush through outsourcing contracts and now Radio 5 Live has exposed how HMRC is losing millions from unpaid NI employers’ contributions from an offshore firm outsourced to pay supply teachers.

At the same time the Government makes it known that its preferred method of procurement is through outsourcing. It is failing to confront tax avoidance and cutting HMRC staff who will be needed to implement any measures the Government eventually takes.

And Education Secretary, Michael Gove, attacks the NAO and PAC for being “risk averse”.

Margaret Hodge, PAC chair, told the BBC that “due diligence” was missing in the desire to push through outsourcing contracts quickly. Tim Banfield, NAO, said NAO auditors hadn’t seen sufficient evidence that savings could be made by outsourcing although it was still investigating. He added that it was too simplistic to argue that the public sector always gets it wrong while the private sector always gets it right.

File on Four’s investigation was first broadcast on 23 October, 2012. On the same day, Education Secretary, Michael Gove, attacked the NAO and PAC in a speech to the Politeia Think Tank. He accused the watchdogs of being “risk averse”, too “conservative” (small ‘c’), hampering innovation and holding up reforms.

Why should Gove attack these two influential and respected bodies? Could it be because they aren’t wholly embracing the delivery of public services, which include education, via market forces? Might it be because their measured comments based on investigation and analysis act as a warning against embarking on rushed initiatives?

Gove told his listeners that “we need to move further, faster, now.” This invokes the saying, “He who hesitates is lost.” But the comments by the NAO and PAC invoke Pope’s words: “Fools rush in where Angels fear to tread.”

Margaret Hodge, chair of the Public Accounts Committee (PAC), said there were huge pressures to reduce costs by outsourcing but feared “due diligence” was missing. The pressure to expedite contracts quickly brings dangers. Tim Banfield of the National Audit Office(NAO) said in-house savings take a long time but outsourced contracts showed savings immediately the contract was signed. This could look good on paper but “the reality might be quite different” he warned.

Banfield said the NAO was researching public sector procurement. It was too simplistic, he said, to argue that the public sector always gets it wrong while the private sector always gets it right. The NAO hadn’t seen sufficient evidence that savings could be made by outsourcing although it hadn’t yet completed its work. The BBC noted a trend: local authorities (LAs) were returning services in-house claiming they could provide services more cheaply than by outsourcing.

The BBC described how Ministry of Justice outsourcing led to chaos in court translation services and achieved poor value for money in tracking offenders. One of the firms contracted to provide tagging was Serco Monitoring which purchased its IT services from Serco Geographics. 60% of the substantial profits of Serco Geographics came from the Ministry of Justice contract and much of these were, quite legally, paid to Serco Ltd in dividends. The Network of Forensic Accounts described how profits can be “shuffled” between subsidiaries – this could make it appear that a subsidiary was producing a lower profit thereby being able to show it was making less money out of its business than was the case.

Rory Geoghegan of Policy Exchange had investigated how good a deal the Government was getting from existing “tagging” contracts. He had found it difficult to discover whether tagging contracts were value for money because neither the contracts nor the figures were public. He said the cost to the UK taxpayer was 60% higher than for a similar contract in the USA.

Margaret Hodge said the PAC would look at the Serco tagging contract and added that such cases showed transparency was essential to gauge whether a fair profit was being made at a fair price. Such contracts should not be hidden behind a “veil of secrecy” – commercial confidentiality was used as an excuse for hiding data from taxpayers who paid the bill.

Calls for more outsourcing are becoming increasingly loud. At the same time doubts are being expressed about transparency and effectiveness. And when these calls cover services for vulnerable people – particularly health, social care and education – then it’s essential that the risks in achieving value for money from delivering services through markets are properly understood and evaluated.

Ofsted inspections are outsourced to three firms: Tribal, Serco and CfBT. These firms provide about 60% of the lead inspectors for schools. Serco told TES that all its inspectors were “experienced, fully trained and approved by Ofsted”. CfBT, which also runs a free school and is Lincolnshire County Council’s “preferred” sponsor for academies, refused to say how many of its inspectors had Qualified Teacher Status (QTS). Tribal told TES it was still waiting for “clarification from Ofsted” about whether using lead inspectors without QTS could continue.

An Ofsted spokeswoman said that Ofsted didn’t keep the CVs of its HMIs or whether they had QTS. However, she did say that Ofsted could provide a “pen pic” of inspectors which would give their teaching experience. It’s not clear how this would be achieved if Ofsted records are incomplete.

This is another example of serious grievances about Ofsted. Others include:

1 Accusations that inspectors cut-and-pasted sections from one report into another.

2 Concerns by one lead inspector about Ofsted’s “frightening” new regime.

3 Dubious inspections such as those for Downhills Primary School which changed from “the school is making satisfactory progress in addressing the issues for improvement and in raising the pupils’ achievement” in September 2011 to “Inadequate” in January 2012 (Ofsted Watch carries the story in more details).

4 Newcastle College asking Ofsted inspectors to leave.

5 Constant carping by Ofsted, ministers and the media are leaving teachers demoralised.

6 File on Four’s investigation raised concerns about Ofsted.

7 Increased number of complaints about inspections.

Parents rely on Ofsted inspections when deciding where to send their children.   Michael Gove uses inspection reports to enforce academy conversion.  Adverse inspections impact in teachers’ careers.  It’s essential, therefore, that Ofsted should be trusted.  It’s increasingly becoming apparent that it cannot.