Scotland needs to reverse outsourcing of services

An analysis carried out by the STUC (reported today) suggests that local authorities have increased their rate of outsourcing of public services by about 40 per cent over four years, and that this may be leading to £3 billion of private profit being drained from the public sector. The STUC is calling for 'insourcing', the return of public services to public delivery.

Why is the public sector so obsessed with outsourcing, why is it increasing so rapidly, what are the benefits and what are the risks? The case for outsourcing generally falls into two categories; efficiency or particular expertise. Either private sector scale, infrastructure, competitiveness and discipline can cut costs and deliver efficiency or very specific skills are sought best found in the private sector.

The risks of this, however, are substantial. The first is straightforward; the terms and conditions in the private sector are almost always worse for staff, and particularly lower-paid frontline staff. There are often lower levels of training and, because the pay and conditions are low, staff often have little reason to be motivated in work.

But the bigger problems are less immediately obvious. One is when suppliers become monopoly or cartel suppliers with undue levels of power over the commissioner. This is major problem in Scotland where years of outsourcing care homes and nursery provision means the government is reliant on existing providers to a degree which greatly limits public sector power over them.

Another is that this reduces integration across the public sector. Again, take the issue of care; care services are inseparable from housing services, health services, policing, social work... Fragmenting these services across private operators each of which claims autonomous data privacy rights makes for poor services.

Outsourcing can also go badly if there isn't sufficient high-level skills to commission the project; these complex outsourcing contracts often go wrong if there is an army of lawyers on the private sector side which is overpowered in comparison to the commissioning side.

This is particularly important when it comes to flexibility. When the public sector delivers a service it can alter the terms of that service at any point as needs change, but the terms of an outsourced contract may well be locked at the outset for an extended period of time and therefore be completely inflexible.

It is also a risk that the specific skills which are needed to deliver a service are quickly lost if the delivery of that service is outsourced. Local authorities become less capable of delivering public services if they abdicate the responsibility of actually doing it.

All of these are well documented. Real evidence reviews of outsourcing suggest that it only brings advantage in a very limited set of circumstances and there is now extensive and well-documented evidence of significant cost savings and efficiencies to be gained from in-sourcing. Basically, the private sector has a habit of competing on cost at first but then trapping the public sector into long contracts which make them dependent and mean the private operator can start bidding up their price.

So why do local authorities still do this? Of course there remain instances where very specific skills are going to be outsourced where they are not continuously needed by a local authority. But there are plenty contracts which do not involve specialisms. The attraction is that this enables cuts to terms and conditions without the local authority having to do it.

Outsourcing is often just a disguised way of cutting pay and making people work longer hours in worse conditions. It is also deeply ideological – as the STUC research shows, this is big business and an enormous amount of money is spent marketing the idea that 'privatisation is good'. And it also reduces transparency - directly delivered public services are covered by Freedom of Information laws but outsourced services are now.

Which takes us to a darker reality; again and again in Scotland we've seen the senior officials who make decisions about outsourcing ending up working for or taking up lucrative Board positions with companies in the same field with weak monitoring of conflict of interest-related conditions.

Put simply, the evidence that outsourcing is good for the public is sparse but the evidence it is costly and harmful is more extensive. It often constitutes mass pay cuts by stealth and is eroding the capacity of the public sector to deliver public services in a competent and integrated way – but it can offer personal gain to those involved in making the decisions.

The scale of outsourcing has grown so much that Scotland should create a national policy of a presumption against outsourcing. Some of what is done in the name of efficiency looks closer to corruption and Common Weal's diligent work on profit extraction and poor quality from care home providers shows exactly what this looks like when it creates conditions which are very clearly against the public interest.