OC&C: Government outsourcing grows to 110 billion

30 April 2015 Consultancy.uk 3 min. read

Public sector spending on outsourced services is projected to increase by £20 billion to £110 billion, an analysis from OC&C Strategy Consultants finds. With the importance of outsourced services on the rise, and spending relative to budgets accelerating, government bodies need to ensure they make the right strategic considerations, ensuring taxpayers’ money is spent wisely.

In a recently released analysis, consulting firm OC&C Strategy Consultants analysed the spending patterns of 176 of the UK’s largest central government bodies to create a database of public sector spending. The database shows that spending on outsourced services has increased from 22% to 28% over the course of the current Parliament.

UK parlement

Even with the steady decline in public sector spending, at 2% annual over the current parliament, the analysis shows that spending on third parties has grown 4% between 2012 and 2014 by the largest public sector players. The increase in spend is an acceleration of the past 25 years’ continuous growth on outsourcing by the UK’s public sector, and follows demographic changes in the UK and growing demand for public services, say the advisors.

Despite the massive amount of funds flooding towards private operators, and the debate which it at times sparks, Vivek Madan, Partner at OC&C Strategy Consultants, highlights that outsourcing can build on a value-adding track record. “Well managed outsourcing can have an immensely positive impact on the country’s ability to deliver world-leading public services. People often forget that frontline staff such as nurses, soldiers and teachers only represent 15% - 20% of departmental spending and that most outsourcing is politically uncontroversial.”

The research reveals a diverse field of suppliers of outsourced services, with tens of private and third sector organisations supplying goods and services to local authorities. The largest 15 managed services players account for around 10% of spending, and include Capita, Veolia and Serco. While public services contracts are worth 36% of all charity funding in the UK.

OC&C - Outsourcing

Looking ahead, public sector outsourcing will continue to grow – by the end of the next parliament the bill for private sector services hosted by third parties is forecasted to increase by £20 billion from £90 billion to £110 billion. With the stakes so high, Madan emphasizes that money spent on outsourcing should be carefully monitored to ensure it lives up to expectations. “Outsourcing neither fundamentally guarantees nor fundamentally prevents the delivery of world-leading public services. What we’ve seen all too often is successive governments and organisations committing one of the three deadly sins of outsourcing – focussing on inputs rather than outcomes, devolving too much or too little control to the contractor, or letting politics rather than reason drive decision-making.”

A key element of the successful approach lies according to Madan in taking a broader view than the political horizon, in order to strike the right balance between short-term incentives with long-term effects. “Regardless of the outcome of this election, it will be up to politicians, civil servants and vendors to find a way of working together that prioritises the common good over salami-slicing short termism.”