Outsourcing and mutuals 'will not save councils cash quickly'

4 Oct 11
Councils will not achieve the substantial savings needed over the next three years through either outsourcing or employee-owned mutuals, a Public Finance round table debate agreed this week.

By Mark Smulian | 4 October 2011

Councils will not achieve the substantial savings needed over the next three years through either outsourcing or employee-owned mutuals, a Public Finance round table debate agreed this week.

Round table

The 20 participants at the debate on October 3 believed both approaches had merit but that the government and others were investing unrealistic hopes in them.

Sarah Phillips, deputy director of the Centre for Public Service Partnerships, said outsourcing was less ideologically divisive than it was 20 years ago, but she questioned the degree of political support for it.

‘If the government had wanted to help the outsourcing industry, it did not do so by frontloading the cuts – because a huge [outsourcing] contract takes a long time and costs a lot,’ she said. ‘You cannot deliver a large amount of savings in the first year that way.’

Phillips said the outsourcing industry had to prove to councils that it could produce savings, which it would find harder than in the past as ‘the mad, bad and sad in local government have gone and the savings are less easy to make now’.

Those attending the round table debate included finance directors, academics and representatives from think‑tanks. The event was run in association with Civica.

The London Borough of Wandsworth’s finance director, Chris Buss, advised against using outsourcing to solve a problem without tackling its source. He noted: ‘If you outsource a problem, it is still there.’

Paul Robb, a board member of the National Outsourcing Association, said local authorities should view outsourcing as ‘one of the tools, but not the tool’ available to them.

He also advised caution about undertaking joint venture partnerships. These carried an intrinsic conflict of interest, Robb said, since a council would be both a customer and part of the supplier business.

Robb urged councils to partner each other to develop contracts large enough to give them economies of scale when outsourced, but said they had to be clear about outcomes if those were to be the basis of these contracts.

‘If they want outcomes, I need to know those in the bid process,’ he said. ‘You can’t throw it over a wall and hope the outcomes are met.’

He was sceptical about mutuals, cautioning that people with professional skills in the services concerned would not necessarily know how to manage a business.

‘I really struggle to ask employees to give up their day jobs [to run mutuals],’ he said.

Heather Wakefield, head of local government at Unison, also voiced ‘grave doubts’ about whether mutuals and co-operatives could flourish as a mainstream means of service provision.

‘There is little evidence they generate economies that are different to those of outsourcing, [which are] achieved on the back of the workforce through cuts to pay and pensions,’ she said.

John Harrison, director of strategic resources at Peterborough City Council, said he had looked but found ‘no great mutual network out there’. He warned that councils that tried to use mutuals to work in a market they did not understand would ‘get fleeced’.

A full report of the round table will appear in the November edition of Public Finance.

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