Outsourcing could work if it went to companies who value people over profit

From test and trace to care homes, it’s time to bring public services back in house and award contracts to social enterprises

‘England’s test and trace system has been described as barely functional.’ Photograph: Phil Noble/Reuters
Tue 20 Oct 2020 

England’s “world-beating” test-and-trace service has failed to materialise. Riddled with problems since its inception, it has been described as barely functional, with demand up to four times that of capacity and 90% of tests failing to hit the 24-hour turnaround target.

But the problems with test and trace go far deeper than the incompetencies of this government. Over the last 30 years, Britain has shifted from having a market economy to being a market society where large swathes of public services are outsourced to the private sector. NHS test and trace is a prime example of this model, with management consultants such as Deloitte and Serco running large parts of a system where shareholder value appears to have trumped the needs of our frontline services.

Let’s be clear: the money we spend on our public services is not equivalent to other spending decisions we make. Of course price and quality are important, but public services exist to serve citizens, not consumers. They embody vital public values, including democracy and a shared sense of the common good.

Our public services should never have become a gravy train for highly paid consultants and shareholders who are more interested in dividend returns than the needs of people and communities. Yet here we are: with a small number of large firms dominating this market and delivering high returns for their investors while driving down the quality of the services they’re paid to provide.

Outsourcing was the brainchild of Margaret Thatcher’s government, which introduced compulsory competitive tendering in the early 1980s. The government viewed this policy, which forced local authorities to open up in-house services such as cleaning, catering and maintenance to private competitors, as a way to neuter strikes, downsize council and NHS workforces, and ultimately cut costs. White collar workers in the NHS and local authorities suffered the often dramatic reduction in salaries that accompanied this shift.

A growing litany of failures have stemmed from this policy decision. In early 2018, the British multinational company Carillion declared insolvency and started to liquidate its assets. Carillion, whose business model was described in a report for UK parliament as an “unsustainable dash for cash”, derived £1.7bn per year on revenue from public-private partnerships to run services for the NHS, Ministry of Defence and rail projects such as HS2. The company’s collapse cost the UK taxpayer an estimated £148m and resulted in the loss of around 2,300 jobs.

In 2019, meanwhile, the multinational security service company G4S was permanently stripped of its contract to run Birmingham prison after the government was forced to take control of the failing jail, which had earned the reputation as one of the most violent prisons in England and Wales.

And in adult social care, years of outsourcing has created a system where billionaires and private equity barons extract profits from our care home services. It’s no surprise that the four biggest care providers measured by revenue have the worst Care Quality Commission inspection ratings for safety, or that many carers don’t receive sick pay or the living wage.

Outsourcing has also changed the way we view public services. In the 1990s, Britain’s competitive tendering regime emphasised the role that cost should play in public service delivery. Civil servants and local government officers increasingly chased “value for money”, awarding contracts to companies offering the lowest price, regardless of whether they had any experience in areas such as contact tracing or prison management. Meanwhile the opaque nature of some tendering arrangements, and the often impenetrable structures of many large companies, make it difficult to scrutinise the terms and flows of money involved.

What’s needed is a fundamental shift in values in how we deliver public services. Many local authorities have recognised the problems with outsourcing and are starting to bring services such as refuse collection and recycling back in-house. Councils are finding that “insourcing” can reduce costs, retain public money within the public sector and enshrine the values of democracy and accountability. When Liverpool city council insourced a number of its services in 2015, it saved £1.4m and created 100 new jobs in the local area.


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But current arrangements can’t be changed overnight. There are now significant funding restrictions that prevent local authorities from insourcing, especially in England. After 10 years of austerity, funding for local public services is almost half what it was in 2010. Local authorities need a new, generous funding settlement. At the very least, revenue support grants to local authorities and levels of investment in the NHS should return to what they were pre-2010.

Moreover, the economic and social devastation stemming from the pandemic means that every single pound of public money must be used wisely. While many services should arguably be insourced, this is not a one-size-fits-all approach. Local authorities may want to involve organisations and individuals that aren’t part of the state but have similar values and make a positive contribution to the delivery of public services – such as awarding contracts to co-operatives or socially driven, not-for-profit organisations.

A system of “social licensing” would help. This would stipulate the kinds of businesses that could gain access to public sector markets. Businesses that extract profit from the public sector and siphon this to private shareholders and CEOs would be barred from applying – whereas those that enable good outcomes from public spending, such as cooperatives, social enterprises and community businesses, could compete for contracts. Social licensing should also mandate organisations that bid for public contracts to pay fair tax and the living wage.

The free market, as John Maynard Keynes once put it, is “not intelligent, it is not beautiful, it is not just, it is not virtuous – and it doesn’t deliver the goods”. Today, as England deals with the consequences of a failed test-and-trace system that should never have been outsourced, these words could hardly be more apt.

• Tom Lloyd Goodwin is associate director of policy and Neil McInroy is the chief executive of the Centre for Local Economic Strategies