Don’t throw out outsourcing baby with the bathwater, IoG advises Labour

Janet Downs's picture

Outsourcing has been hit by a string of recent failures, but that does not mean that outsourcing has failed. Labour should focus on fixing the problems, rather than create more for itself.’  Institute of Government (IoG), 25 March 2019

Labour is right to highlight ‘significant failures in government outsourcing’ but should be cautious about making the public sector the ‘default provider’, writes Tom Sasse of the IoG.

It would be a ‘huge challenge’ to bring back many outsourced activities in house, he says.  The Government would have to employ more staff to oversee the transition in house at a time when Brexit is likely to dominate government.    Sasse cites the National Audit Office chief:

Government just doesn’t have either the skill or the financial capacity to take back much delivery in house.’

Bringing services back in house might not make them better, Sasse says.  The public sector has had ‘its own failures’ such as safety in government-run prisons.   But Sasse admits the sharp deterioration in prison safety followed spending cuts and lower staff numbers. (Author’s note: failure caused by inadequate funding is not an argument for outsourcing.  Rather, it’s a reminder that public services need adequate financing.)

There are times when outsourcing has worked, Sasse says.  There's ‘evidence that outsourcing has improved efficiency and produced significant savings…although more up to date studies are needed.  (Author’s note: some of this ‘evidence’ is ‘decades old’, the IoG previously found).

Any future government intent on making either the public or private sector the default provider ‘should look hard at the experience of the past 30 years’, Sasse advises.  They should ‘develop a stronger sense’ of where outsourcing has been successful and when it has not.

Sasse concludes that outsourcing ‘tends to work’ best when a market exists for the service, when good and bad performance can be measured and when delivering the service ‘isn’t integral to the purpose and reputation of government’.  If these three conditions are not met, then outsourcing is likely to fail.

Author’s note:

33% of Department for Education spending now goes to ‘third-party providers’, academy trusts and free schools. 

All governments post-2010 have wanted all schools to become academies.   But does this outsourcing meet the three conditions which Sasse describes?  It does not.

First, successive governments (and not just the Coalition and the Tories, see speech by Tony Blair in 2005) have preached the benefit of ‘competition’.   But while businesses prosper or fail according to how competitive they are, public services such as schools and hospitals cannot be run on the basis of competition between them.  They must all be good.  Competition discourages co-operation and encourages undesirable practices.

Second, attempts to measure school performance are heavy-handed and misleading.  Progress 8, for example, discriminates against schools with a large number of disadvantaged children or ones with previous low attainment.  Measurement by numbers isn’t necessarily a sign of educational quality.

Third, education is one of the government’s purposes.  It is the government’s responsibility to fund education properly.

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John Mountford's picture
Wed, 03/04/2019 - 08:24

I attended a meeting for parents in Bath and NE Somerset (BANES) last night, at which it became clear there is mounting acceptance among parent groups that something dire is happening to education beyond the immediate and worsening cash crisis. That represents a major shift in tackling the flawed education reform agenda from my perspective. It is vital that parents understand that funding is just the visible face of a much bigger crisis in education in England and indeed beyond. As I hint, however, there are issues around this that are not fully understood. If this powerful lobbying group is to help bring about a much needed revolution in the governance of education, these other issues must be explored and related to the key objective of successive governments since Thatcher. Too few people see that the underlying root cause of so much that is festering in the system is down to the drive to build a for-profit, free-enterprise market. This is the mirror of what is happening at an even faster pace in the USA.

This article is a vital step in helping to articulate why we must first understand what the agenda is, gather evidence to show how advanced the project is, identify the various players and plan a campaign to bring this to the attention of the public through the direct involvement of parents.

I have not read a more concise, yet detailed exposition of one of the key features of marketisation , identifying what should be the expectations whilst understanding the actual impact of 'third party providers, than is found in your Author's note. I congratulate you on achieving this. As I go forward supporting the BANES group of parents, sponsored by local NAHT officers, who convened the meeting last night, I will be recommending this article as a vital source to help parents get to the heart of this very complex problem. Thank you, Janet.

Roger Titcombe's picture
Fri, 05/04/2019 - 13:22

Labour is right to highlight ‘significant failures in government outsourcing’ 

This is a collosal understatement. Barely a week goes by without an enormous scandal, frequently involving loss of life, from Grenfell House, through the out of control prison and youth custody system, the probation service and now education where a suicide appears to have taken place in an Academy school isolation booth.

Even where deaths and serious injuries have not resulted, there have been huge drains on the public purse. I give a local example. Highways England is a quango (state body organised like a private company) responsible for all major trunk roads. Having no internal technical expertise, Highways England contracts such responsibilities to local private contractors. These in turn sub contract to other companies, who in turn subcontract to other companies etc. etc. The bottom of the pile contractors still make big profits (eg the temporary traffic light contractors that cause huge disruption for the most minor works or often for no actual work going on at all).

My gripe for many years is that the contractor responsible for the A590, the only road link between Barrow and the M6, Kier Construction, has been unable to ensure that in the many sections of carriageway lighting, said lamps come on in the daytime and go off at night. Highways England have recently told me that the reason is that Kier Construction subcontracted the carriageway lighting to a company that used its own complex computerised system to obviate the need for light sensors on each lamp fitting. This company went bankrupt leaving no-one at Kier Contruction or anywher else in the world able to fix the programme faults that result in daylight burning. Sorry if this is boring you, but back in the days when Cumbria County Council managed the A590. with far fewer senior managers paid a fraction of the  Executive Director salaries and bonuses of the outsourced companies, there were no problems.

Why is it that outsourcing is such a failure? It is because of the proliferation of perverse incentives that always result. The over-arching perverse incentive is profit making, but this generates a plethora of suborninate bad decision making driven by the 'incentive bonus' ideology that believes that no-one can be trusted to acquire outstanding expertise and ability merely in exchange for a a modest salary, decent pension and the job satisfaction that comes from having done a good job.

Instead of encouraging public-private joint enterprises that have such a shocking record of failure (eg the PFI model) the golden rule should always be the construction ond maintenance of an unbreachable firewall between them that eliminates corruption and filters out all unevidenced crappy decision making.

I hope and trust that Jeremy Corbyn and Co will treat the advice of the Institute of Government with the necessary caution.

See this article for the reasons why the privatisation ideology continues to lower standards in our school system.

Also see this article by Nancy Bailey about why the same disaster has been taking place in the US, for the same reasons..


Roger Titcombe's picture
Sun, 07/04/2019 - 10:34

I omitted to mention the most obvious example of the need for a firewall between the public and private sectors. This is the failure of the US Federal Aviation Administration (FAA) to properly check the airworthyness of the Boeing 737 MAX aircraft, two of which recenently crashed with huge loss of life. It appears that the cause is massive design failures that could only have come about through collusion brought about by the Boeing profit motive contamination of the FAA. I read in the press that such collusion is inevitable because of the lack of specialist technical expertise in the FAA. Clearly the US government ideology doesn't like the idea of huge and expensive taxpayer funded organisations. Could our Civil Aviation Authority suffer from the same risk of contamination? You wouldn't bet against this Conservative government encouraging such a 'commercial' approach.

Although it seems totally unrelated, the same principles apply to the English education system. There is currently much debate as to whether OfSTED has the academic and operational expertise to effectively regulate our school system. See this latest post on the Reclaiming Schools website.

This begs the question as to whether Academy MATs know enough about education to be allowed to run schools in the first place. The appointment of an ex MAT executive as Head of OfSTED  compounds the likelyhood of the very bad outcomes for the English school system that are emerging with such increasing frequency.

John Mountford's picture
Sun, 07/04/2019 - 16:06

There is a great deal to commend the views of the Institute of Government. The time has come to question outsourcing and how it works in practice. It seems to me there are likely situations where it works and may even be cost efficient. But as Janet points out, in relation to the three conditions set out by the IoG's Sasse, this will never apply to education in general. There might be specific instances when administrative tasks could be outsourced to good effect but when it comes to the core activities of education, government policy must not act in any way that compromises one of its key purposes. This should apply to whichever party in in power.

As to whether Labour will be in pole postion after the next general election and will be faced with how to deal with the runaway train that is outsourcing, the jury is out. If that happens and their plans to re-nationalise all they talk about doing, theirs will be a short time in office. Common sense has to prevail, especially as public confidence in our tragic political leadership is deservedly at an all time low.

Janet Downs's picture
Mon, 08/04/2019 - 10:35

You're right to point out the mismatch between what is ideal (all public work administered centrally) and what is practically possible.  If Labour wins the next election it will not only have to bring back much outsourcing in-house as promised but deal with Brexit (including talks about our future relationship with the EU) and any renationalisation.  It could overreach itself and fail (much to the delight of the opposition which would then be poised for a come back).

It makes sense to follow the IoG advice and look at where outsourcing has worked and when it hasn't and apply the Three Pillars.  Bring back in house responsibilities which don't meet these three principles.  Education is one.




Roger Titcombe's picture
Mon, 08/04/2019 - 11:19

Not so. As for Brexit, it is not certain to happen. Even if it does, any Labour version will end up similar to Norway, so no economic harm apart from the £millions already wasted.

On nationalisation, the costs will be minimal and the savings massive. The railways and utilities all cost the taxpayer and their 'customers' more now than they did when run by the the state. Come back North West Regional Electricity Board and North West Water - I can't wait. Labour is not proposing private sector buy-outs with public money. The railways are a good example - the franchises are just not renewed when they expire and are then taken over by an ever growing equivalent of The British Railways Board, which contrary to propaganda, ran the best national railway network in the world in the 1970s. The East Coast Main Line has already been renationalised twice wth great success each time. Another important example is the Post Office. As the banks increasingly remove their services from the public in the pursuit of profits, the nationalised Post Office will run a national banking service, as it once did - remember National Girobank.

I would be very interested to know from IoG where outsourcing has worked. I can't think of any examples. BT currently performs poorly when it comes to customer service. There might be an odd example if you search hard enough, but the scales are still massively weighted against. Even the outsourcing companies themselves like Crapita are increasingly admitting that it is a bad idea.

Of course education stands out as one of the most shocking failures, the true horrific scale of which is yet to fully emerge. This also includes Further and Higher Education where low standards sit alongside hyper inflated 'executive' salaries and £millions spent on advertising by the likes of the University of Central Lancashire and its like with their ruthless 'bums on seats' and First Class Degree inflation culture.

Once again Labour provides the solution through its National Education Service plans. 

John Mountford's picture
Mon, 08/04/2019 - 14:16

Sadly, Roger, I must disagree with some of your approach. It's my humble oppiniion that the majority of voters will not be convinced that Labour could or even should re-nationalise all those services that were hived off to the private sector without sufficient care to the details and how it would work out for the people using those services. I agree with you that markets are held to work only if they make heafty profits for shareholders and that in the process, it is part of another deluded gospel that the executives have to be bribed with ridiculous remuneration packages or they will sell themselves to the highest bidder.

That said, I support the idea that the IoG is hoping there will be a balanced move away from outsourcing. It's never a good idea to bite off more than one can chew. There are many and glaring instances of just how disastrous privatisation has been but it would be better to target those key services that meet the Three Pillars criteria and to ensure a tightening, through primary legislation if necessary, of the rules applying in other instances. Much in Labour's National Education Service Plan is to be commended and I would be supportive, if the electorate is willing to trust Labour (any more than any other broken political party at the momen) to see education reformed along those lines.

As an absolute choice, however, I would rather the fiasco around the handling of Brexit helped bring about a change to the way our democracy works in future, starting with education. The final two pages of Learning Matters is devoted to the future direction of change. We have both believed that there is need to de-politicise education governance. The time is ripe for the establishment of a National Commission for Eduaction. I recommend as a starting point for ongoing discussion that your 11 Point plan, as set out on pages 152/3 of Learning Matters, be put forward.

Roger Titcombe's picture
Mon, 08/04/2019 - 14:42

John - Despite the hugely negative coverage in the national media I fear the polling is not with you. To quote from the linked article.

The Lagatum Institute – no friend to socialism – found that 83 percent of respondents to their joint research with Populus supported nationalisation of the water industry. This included 76 percent of Conservative voters at the 2017 general election. The report also found 76 percent supported the nationalisation of the trains, including 65 percent of Conservative voters. A YouGov poll released one month ahead of the 2017 general election found that a majority of voters also supported the nationalisation of bus companies, the energy companies and Royal Mail along with the water industry and the railways. There is huge support for Labour’s nationalisation policy across all age and political groups. 

John Mountford's picture
Mon, 08/04/2019 - 16:55

The thing about polls is, they are so often wrong. The acid test will be when people realise there are big bucks attached to all of that. It isn't that I believe any of these services are safe or approriate in the hands of private companies, I just feel that actual otcomes are not always defined by the rhetoric. We must live in hope!

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