22 April 2005
Private and voluntary bodies could deliver almost a fifth of all public services by 2007, boosted by massive outsourcing plans across the defence, education and health sectors.
Estimates published this week by public sector analysts Kable indicate that direct delivery of public services by private organisations could rise by 50% within three years. That would raise local and central government outsourced spending from £45bn in 2004/05 to £68bn by 2006/07 – 18% of total government spending.
The study was published shortly after political parties outlined plans to expand the use of private partners.
The Labour government's election manifesto indicates it would expand the use of private firms in health and education and open up new markets to contractors. Labour would 'welcome new independent and voluntary sector partners to provide job-seeking services', for example.
Labour has targeted £21.5bn in annual efficiency savings by 2008, much of it fuelled by public-private partnering. Paul Smith, Kable's research director said: 'Whitehall [civil service] outsourcing alone could reach £7bn a year directly as a result of the Gershon efficiency review.'
Conservative Party leaders have also committed to extensive use of the private sector to meet the party's annual £35bn efficiency target.
Perhaps the Kable report's most interesting finding, however, is the anticipated change in the nature of outsourcing.
At the moment the NHS (£8bn per year) and local government (£7.8bn) are the largest outsourcing sectors, with 19% and 17% of market share respectively. But Smith expects other sectors to boom by 2007.
Outsourced education services could grow by 107% to £10.3bn and NHS expansion will continue, with growth of up to 164% (to £16.4bn). Defence outsourcing could grow by 300%, accounting for £4.2bn annually, compared with just £1.1bn in 2004/05.
As well as contributing to efficiency savings, many departments use private partners because the borrowing involved is moved 'off-balance sheet' and does not count against the government's capital expenditure limit.
Critics bemoan the use of taxpayers' cash to fund company profits, but proponents claim the Treasury has few alternatives if it wants to fund capital investment, because it would otherwise have to pay huge costs up front.
Rod Aldridge, executive chair of the Capita Group, said outsourcing appealed to governments because of the potential for 'immediate efficiencies' and access to vital infrastructure to 'help meet current and future expectations across communities'.
But trade unions this week issued a warning over the growth expected by Kable. A TUC spokeswoman said: 'The level of outsourcing proposed by Kable would have a negative impact on the quality of services delivered. Outsourcing does not improve services, but builds in a low-cost, contract-led culture with tight specifications and a lack of flexibility.'
Commenting on the expected growth, Tim Gosling, researcher at the Institute for Public Policy Research, said: 'We're talking about rapid growth rates from low bases. In the larger scheme of things, the level of public sector spend on private contractors will be low compared with overall government budgets for the public services.'
Gosling added that, should the Labour government be returned to power for a third term with a reduced majority, there may be 'inherent opposition to some outsourcing plans within the parliamentary Labour Party.
'Additionally, there are some early signs that Number 11 is moving towards the idea of placing limits on the use of the private sector.'
PFapr2005
