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Learning lessons from council outsourcing and searching for alternatives

Source: PSE - April/ May 16

Heather Connolly, senior lecturer in employment relations in the Faculty of Business and Law at De Montfort University, analyses the experiences of local authority outsourcing in recent years.

Local council outsourcing in Britain began under the Thatcher government in the 1980s as compulsory competitive tendering. New Labour continued on the same trajectory in the early 2000s, pushing the creation of markets in public services and developing strategic public-private partnerships (PPP). 

More recently – as councils tried to cut costs after the economic crisis of 2008 and budget cuts – the total number of new strategic PPPs increased by 85% between 2008 and 2013. In a context of austerity and fiscal restraint, local councils are under increasing pressure to outsource, and wide-ranging cuts force them to consider it as a way of reducing costs. 

However, a comprehensive review of the research finds that there is no empirical evidence that the private sector is more efficient. Research by the European Services Strategy Unit to be published later in the year, has found that in the last 15 years, more than a quarter (28%) of outsourced contracts have failed – measured by contract terminations, major reductions in scope, and significant operational problems. 

Although outsourcing might mean cheaper services in the short term, there are possible knock-on effects on employee morale and the quality of service provided – bearing in mind that private companies’ overall motive is profit, not public service. In the longer term councils lose flexibility, control and, crucially, they lose the in-house expertise for letting and managing outsourced services. The loss of public sector expertise, I would argue, is a lesson that has not been learnt from the experiments of privatisation and outsourcing witnessed over the last 30 years or so. The public sector was ill-prepared for outsourcing in the 1980s and this holds true in more recent experiences. 

There have been various experiments around outsourcing in local councils, notably in Birmingham and Barnet.  Barnet was labelled ‘easyCouncil’ by critics that complained services resembled low-cost, no frills airlines such as easyJet. Other councils, such as Essex, Southampton City, Suffolk and Staffordshire, have also taken up the outsourcing model. 

Commission-only model 

Northamptonshire County Council (NCC) is taking the process a step further by transferring 3,850 of its 4,000 employees to four new dividend-paying service providers which would deliver all the council’s services, including social care for the elderly. The chief executive is pushing through with plans to begin outsourcing the services in a move which he says will make a £148m saving by 2020, though some fear the plan is a step towards privatisation. Under EU Procurement Law these contracts will have to go out to tender after three years, so fears of effective privatisation are well-founded. 

The ‘commission-only’ model being adopted by NCC is likely to be increasingly replicated in Conservative-controlled shires and urban areas. There appears to be no real reflection as to how these activities will function under this ‘next generation’ council model and a real lack of transparency surrounding the process and structure of the new companies. NCC has also tried to work around the stigma attached to terms such as ‘privatisation’, ‘PPP’ and ‘outsourcing’ by using the term ‘rightsourcing’, which I argue is a cynical way of hijacking and reframing the debate around outsourcing. 

Alternatives to outsourcing 

What are the alternatives to outsourcing? Assuming that outsourcing will automatically produce cost savings is blind to the experiences of the past, but so is the notion that it will lead to the collapse of public services. Labour branded its approach to running Lambeth as the ‘John Lewis’ council, operating on the basis of mutual and co-operative values. Is this one ‘least worst’ alternative for the local level? 

There is growing evidence to suggest that ‘insourcing’ might be the option favoured by local councils as a way to cut costs and improve quality. A Guardian investigation of the 36 strategic PPPs that local authorities signed between 2000 and 2007 has found that in more than a third (36%) of cases, councils found that delivering services in-house could save more than outsourcing to commercial companies in long-term, multi-service partnerships. Does this suggest that lessons are being learnt from past failures?

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