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A third of total government spending on external contractors is ‘risky,’ IfG research finds

The government is spending £284bn, almost a third of its total spending, with external contractors, a new report by Institute for Government (IfG) has revealed.

The new report states that four government departments – the Ministry of Justice, the DfT, the Department for International Trade, and for the Environment, Food, and Rural Affairs, spent more than half of their entire budgets with external suppliers.

The ‘Government procurement: the scale and nature of contracting in the UK’ report found that the largest suppliers are wining more and more government business, and states that “given its scale, government procurement could not be easily abandoned even if politicians wanted.”

The money is being spent on a vast range of things, from goods such as medicine and stationery to the construction of schools and roads, and for back office functions such as IT and HR to frontline services such as social care.

IfG’s director of research, Emma Norris, commented: “Government is spending hundreds of billions of pounds every year with external suppliers – but there are signs that some players involved in outsourcing are struggling, most recently Interserve.

“Government does not have the data it needs on its own outsourcing and procurement. It needs to look hard at the experience of the past 30 years of outsourcing, develop a much stronger sense of what has worked well and what has not, and urgently review the health of its procurement markets.”

Last year, around a fifth of all central government procurement spending was with ‘strategic suppliers,’ the term used for companies that receive over £100m in revenue from the government, which is up from 20% in 2013.

The report said “this is risky for the government,” especially as its top three suppliers have all experienced financial difficulties in recent years.

Earlier this week, Interserve announced that it was seeking a rescue deal as it tries to avoid a Carillion-style collapse and struggles with a £500m debt.

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