‘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.
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.