The multibillion pound surge in outsourcing of public services during Covid-19 has attracted many headlines, but it is not just a public spending scandal. It is a vivid demonstration of our government’s inability to perform the essential roles society asks of it. Furthermore, this dependency on outsourcing to profit-driven companies undermines any promise to “build back better”.
After drastic public health services cuts over the past decade – coupled with extensive outsourcing of procurement to commercial logistics companies – a stripped-down health service was under-resourced for the challenge of a pandemic. The only feasible response was what is increasingly the default choice across government: outsource the work required. Covid-19 has prompted a gold rush for government contracts not seen since the heady days of New Labour’s private finance initiative.
The richest seam of all for the private companies cashing in has been the test and trace system, handed to Serco on contracts officially priced at up to £410m and to the French company Sitel for up to £310m (with other outsourcing behemoths such as G4S also getting in on the act). Such is the opacity of the arrangements, however, that no details of actual payments to these firms have yet been published. Approximate figures released by the chancellor, Rishi Sunak, suggest the final bill will run into several billions of pounds.
But it doesn’t end there. Contracts for managing the procurement of ventilators, PPE and even the job of keeping tabs on all these contracts – what might be thought of as core government responsibilities – have been awarded to battalions of management consultants for hundreds of millions of pounds.
A crisis on the scale of Covid, even when the need to be prepared was clear, was always going to demand additional resources. But bringing in extra personnel is very different to farming out services wholesale, as the UK government has done. So the coordination of testing conducted by private sector staff has been performed not by health officials, but by consultants from Deloitte at an undisclosed but almost certainly much greater cost. Details reported by Private Eye last week show that junior Deloitte staff supplied to another public body, the British Business Bank (which operates Covid financial support packages), are costing the taxpayer salaries comparable to that of the prime minister.
In the teeth of a public health crisis the direct financial cost is of course a secondary matter. Of more immediate concern is the quality of the service – but here again outsourcing proves calamitous. Handing over a central tracing service to 25,000 people with no experience and very little training in a skilled area, for example, demands that processes are standardised and computerised to the point of ineffectiveness, with all discretion removed. The results have been all too painful to see. Success in tracing the contacts of those testing positive is far lower in the central service outsourced to Serco et al (around 64%, at the latest count) than in the smaller number of more complex cases handled by local public health teams (over 97%). Better performance can be found in countries where a substantial public health service has remained at the core of the process. Germany’s well-established public health network was able to manage the efforts of thousands of extra tracers expertly.
Given the recent history of outsourcing, the UK’s failure is not surprising. The same firm now entrusted with tracing Covid contacts, Serco, has in the past few years admitted fraud and false accounting in contracts for offender-tagging. Its auditor and now partner on testing and tracing, Deloitte, was also fined £4.2m for signing off Serco’s fiddled numbers. Meanwhile, the effect of outsourcing probation services to private companies was so damaging that the job had to be brought back “in-house” last year, the chief probation inspector judging it “irredeemably flawed”. A study of outsourcing last year by the Institute for Government found that, while contracting more routine services such as catering and waste collection from private companies appears effective, “government should be cautious about extending outsourcing of frontline services”.
The arithmetic of outsourcing explains much of the problem. To make it worthwhile, public bodies typically look for savings of around 20 to 30% of existing costs. The private company also needs its own double-digit profit margin, so the cost at which it provides the service needs to be far lower than it was in the public sector. Lower wages and skills and thus poorer service follow.
Such narrow calculations in any case miss the longer-term costs foisted on the taxpayer: dealing with the increased reoffending from failed probation and prison rehabilitation, for example; or picking up the pieces from what MPs called the “fiasco” of outsourced disability benefit assessments or an “abysmal” deal for Capita to run military recruitment.
Of yet more profound consequence is the erosion of the state’s ability to perform its core jobs. The Covid crisis has exposed the extent to which management consultancy prescriptions now shape services, gearing them up for yet more outsourcing. The “vision, purpose and narrative” of the new National Institute for Health Protection, for example, comes courtesy of McKinsey. Small wonder even a Cabinet Office minister, Lord Agnew, last month warned that Whitehall was “too dependent on management consultants”, which “infantilises the civil service”.
This gets closer to the true cost of outsourcing on a grand scale. Farming out its functions hits the state’s core capability. When new challenges emerge – whether health crises or economic upheavals such as Brexit (another boon for the consultants) – it lacks the expertise to deal with them. What passes for experience and “institutional memory”, never mind anything resembling a workforce, are absent from public bodies. The only answer is to repeat the outsourcing cycle, further eroding public sector competence.
The “new Jerusalem” that Boris Johnson promised in his party conference speech last week requires more than wind farms, expensive rail lines or even dozens of new hospitals. More importantly, it demands rebuilding the capability of the British state to perform the essential functions required of it by its citizens. Procuring the arrows of desire and operating the chariot of fire cannot be outsourced.