Labour’s proposals for an outsourcing revamp reflect a trend of insourcing

22 Jul 19

Reviews of outsourced public service contracts - as proposed by Labour - should involve a range of stakeholders, says outsourcing commentator John Tizard.  

Carillion van


John McDonnell and Andrew Gwynne announced this weekend that Labour will reset the default for local government services to be publicly owned, publicly managed and publicly accountable.

The policy proposal with its associated guidance is entitled ‘Democratising Local Public Services – a plan for twenty first century insourcing’ is both radical and timely. 

Over the last few decades since the Thatcher government there was been a growing trend for local authorities and indeed other parts of the public sector to outsource services to companies many of which are major corporations. Successive governments have promoted this model of service delivery with the Conservative led Coalition government in its Public Services White Paper in 2013 arguing that the presumption should be to outsource all but a very small number of public services. 

Despite a lack of any comprehensive evidence-based analysis of the efficacy of outsourcing, the policy and practice gained momentum. It was extended to an ever-wider range of services. However, over the last few years a growing number of local authorities have called a halt and have begun to insource previously outsourced services. These have included Conservative as well as Labour controlled councils.

The public service outsourcing model has been seriously challenged by Carillion’s collapse and a litany of high-profile failures. Council leaders and senior executives have also questioned the outsourcing model for several practical and financial reasons. They understand all too well that ultimate risks firmly remain with the public sector. And they have responded to public to shifts in public opinion.

Labour is clear that the default should be inhouse publicly owned and publicly managed services. It is challenging and reversing four decades of an expectation and sometimes directives that local authorities must outsource services. It will legislate to this end and stop the current government’s ideological commitment to the marketisation and outsourcing of public services. 

'Labour is not simply arguing to return to a post 1979 position but to reset the dial so that public services are more democratic and accountable and are responsive to local place and local people.'

Labour is not simply arguing to return to a post 1979 position but to reset the dial so that public services are more democratic and accountable and are responsive to local place and local people.

The overarching aim is to eliminate outsourcing especially to large corporates by local government – though for the moment social care is excluded from the proposals - but I suspect, as Labour recognises there will be some limited outsourcing for the foreseeable period. This may be because of a lack of capacity or expertise or because the service requirement is very specialist. Even then there may opportunities to grow shared public sector capacity and expertise. 

Labour is expecting most if not all contracted services to be brought back inhouse. The policy and guidance rightly suggests that in many cases the most appropriate time to bring services back ‘in-house’ will be when contracts reach their end of life. The aim is to have eliminated nearly all local authority outsourcing within five years though in reality many existing contracts will not expire within the next five years. However, as it also recognises, in some cases it may be possible and desirable to end contracts early. Therefore, every significant contract should be reviewed. 

I would argue that such reviews should involve key stakeholders including staff, trade unions, service users, their representatives and advocates. A review could recommend early termination, contract revision -where this is feasible - or that the contract should run its term. In such a review a council would wish to consider factors such as:  

  • when the contract expires and whether it makes sense to let it run its course
  • how well the contract is performing including the public’s views 
  • the scope for contract renegotiation and the cost benefit/disbenefit of such renegotiation 
  • the legal and other rationale for early termination, the potential financial liabilities of such early termination and consequently the cost benefit/disbenefit 
  • the capacity of the authority to transfer services ‘in-house’ and subsequently to manage them. 

When outsourcing is considered there should be an assessment to address issues such as service quality, and the holistic financial, social, economic, equality, political and environmental impact for the local economy, community and wider public sector. Staff, unions and citizens should be involved in the decision making process. 

If services are to be outsourced for whatever reason, public interest contractual conditions should be applied. I would expect these to include 

  • applying the Freedom of Information Act to contractors on the same basis as the public sector; and for them to be subject to local authority internal and external auditors and inspectorates 
  • involving staff, trade unions, service users and their representative groups in service design; and in monitoring and reviewing performance 
  • public reporting of operational and financial performance of contracts
  • profit ‘capping’ 
  • ‘open book accounting’ to agreed accounting standards 
  • specified employment terms and conditions with no precarious contracts
  • TUPE being honoured throughout the lifetime of a contract; and for all new staff being employed on terms and conditions including pensions no less favourable than TUPE’d staff
  • trade union recognition and facilities 
  • local purchase of supplies and goods, and recruitment wherever possible as part of a wider community wealth building strategy
  • robust whistleblowing policies contractors being obliged to appear before local authority overview and scrutiny committees
  • these conditions applying throughout a contractor’s supply chain

I would suggest that local authorities should, as far as the law allows, consider a bidder’s tax and remuneration policy, governance, ethos and ownership. 

On this basis there are sound reasons for authorities wishing to support a range of socially owned and managed public services. They may choose to grant aid or contract with voluntary and community organisations, social enterprises and co-operatives and sometimes socially driven SMEs for specialist services.  In respect of the VCS relational partnerships are preferable to full blown outsourcing based on competitive tendering and complex contracts.  This is not the same as outsourcing to a major corporate. 

Local authority outsourcing is declining. Labour’s policy captures this trend and the puts the public interest at the heart of local authority expenditure and its service model.

Outsourcing, competitive tendering and markets have dominated the last four decades.

We now can reset the public service dial with a focus on citizens, staff, social value, public service ethos, place and democracy. Not a bad focus to have. 

See here PF’s in depth look at local government insourcing

  • John Tizard
    John Tizard is an independent strategic adviser and commentator on public policy and public services. He works with a range of public, private, third, union and academic organisations. He now holds several non-executive, trustee and chair roles in the VCS and arts sectors. He was a senior executive both at Capita and Scope, and is a former joint council leader

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