By Richard Johnstone | 14 March 2014
Outsourcing by government departments risks creating ‘a shadow state’ where public spending is not transparent, and reforms are needed to increase accountability, the Public Accounts Committee has said.
In a scathing report examining the use of outsourcing companies to deliver public services, MPs said the coalition needed to ‘urgently get its house in order’ so all expenditure was properly open to public scrutiny, and put measures in place to improve services.
Half of all public spending now goes to private providers, the committee concluded, and three key reforms were needed to improve transparency. Freedom of Information should be extended to include public contracts with private providers; the National Audit Office should be given access rights to key suppliers; and contracts should include a new requirement for increased openness in accounting for public money, they concluded.
Committee chair Margaret Hodge said that unless these changes were introduced, the government ‘will not be able to move forward on an agenda which is at the heart of what they want to achieve’.
She highlighted failures in recent high-profile deals, including G4S and Serco overcharging the Ministry of Justice for electronic tagging services, and G4S being unable to provide the number of promised security staff to the 2012 London Olympics.
Ministers have ‘got to sort this out’, she added. ‘We are in danger of creating a shadow state that is neither transparent nor accountable, either to parliament or to the public.
‘If this is the direction in which this government wishes to travel – and which future governments will have to handle – transparency, tough competition, much tougher government capability in overseeing the market and ethical standards are absolutely crucial.’
Whitehall should also improve its ability to commission and monitor outsourced services, including attempts to increase the number of providers so no firm become ‘too big to fail’.
The spate of recent failures had exposed serious weaknesses in the government’s ability to negotiate and manage contracts with private companies on behalf of taxpayers, Hodge added.
‘The government has got to create a healthy market and it should only move in the time period where it is able to do that – so don’t massively outsource until you know you have the capability out there to deliver on it.’
The current presumption was that outsourcing contracts would save money amid government expenditure cuts. However, Hodge stressed departments must not put so much pressure on firms to bear down on costs ‘that the only way in which the private company can make money is by cutting corners’.
She added: ‘If you stand back and look at the range of contracts that we’ve examined [in the Public Accounts Committee] over the last two or three years, that has been a feature.
‘There has been such an emphasis on price rather than quality that the winning of that contract forces you down that route [of cutting corners].’
She also revealed that four major contractors – G4S, Atos, Serco and Capita – had all stated they were prepared to accept greater transparency of their finances. ‘It therefore appears that the main barriers to greater transparency lie within government itself,’ she added.
Responding to the report, a Cabinet Office spokeswoman insisted the government is taking action to reform Whitehall and improve the civil service’s commercial capabilities.
‘Our reforms saved taxpayers £3.8bn last year but there’s more to do as part of our long-term economic plan and to build on our world-leading transparency record. When we discovered issues with contracts let before the last general election, we took action, securing £176m of compensation.’
The Institute for Government said MPs were right to call for greater transparency, more competition and improved skills in Whitehall.
Research director Tom Gash said: ‘Without more transparency the public cannot tell who is providing what services where, how well they are doing and at what cost. Without competition, government can find itself with no choice, unable to get a good deal for the taxpayer. Without improved skills, Whitehall will continue to fail to spot under-performance or even fraud.’
He added that standardised transparency clauses could be included in all government contracts, providing details of cost, services and performance.
