By Richard Johnstone | 18 July 2013
The government has been urged to slow down plans to expand outsourcing of public services after the Institute for Government warned that Whitehall lacks the skills to manage such deals.
In a report published today, the think-tank said mistakes in the introduction of market-based provision in areas such as social care, schools and employment services had damaged services.
The report comes after the government revealed last week that some probation suppliers might have overcharged the Ministry of Justice.
Markets have been established in a number of service areas, the report found, with private or voluntary providers bidding to win contracts from government. The IfG estimates that these markets are now worth nearly £100bn of taxpayers’ money.
Among the schemes examined were the creation of the Work Programme, the government’s flagship scheme to get people back into employment, which is based on regional payment-by-result deals with providers. Similar contracts are being used in probation services, and education reforms mean that provision is increasingly dependent on private providers, such as chains of academy schools.
However, the ‘pace of the current shift towards using markets to deliver key services’ outstrips the ability of those in Whitehall to implement them effectively, the report warned.
This has already been some ‘poor behaviour’ by service providers, which has affected outcomes for service users, the report stated. For example, there were examples of providers ‘gaming’ the system to their own advantage, such as working only with the easiest-to-help people in payment-by-result deals.
There is also what the institute called ‘anecdotal evidence’ that some private sector providers are concentrating their bids for contracts, across a host of services, in particular geographical areas.
This could have the effect of limiting competition when contracts are tendered, the report warned, but the government does not know the extent to which this is a problem.
The IfG is therefore recommending that the Treasury or the Cabinet Office conduct an ‘urgent cross-government review’ to determine if markets for such outsourcing deals are truly competitive, and ensure they are not dominated by a few providers.
In a bid to ensure that mistakes are not repeated, government should also produce a compulsory ‘competition impact assessment’ before undertaking any new outsourcing programmes worth more than £100m.
Ministers could also do more to ensure that underperforming providers are removed from contracts.
Tom Gash, the IfG’s director of research and lead author of the report, said there were problems with both enforcing rules that could remove sub-standard providers, and ensuring such provisions were in contracts in the first place.
‘Markets in public services can and do often work, but our research shows that mistakes can have a real impact on people’s lives and value for money. Unless Whitehall and other agencies improve their skills and techniques for ensuring public service markets works, mistakes will be made and the public may lose confidence in this approach to reform,’ he said.
‘The current pace and scale of reform is a clear risk and we’re calling for government to think carefully about how fast it is going. We want to see government carry out external reviews of all new outsourcing programmes worth over £100m per year to assure themselves and the public that they will work.’
Responding to the report, a spokesman for the Cabinet Office said the government was ‘looking beyond the stark choice between in-house provision and full-scale privatisation by supporting a range of other providers including mutuals and the voluntary sector’.
‘Since the general election we made it easier for smaller businesses to work with Whitehall and many more are now winning contracts from government.
‘Our reforms already address the need for the civil service to improve its commercial capability and how it manages contracts. But we must accelerate the pace of change to make more savings for the taxpayer, create better quality, more efficient public services and promote growth.’
