Outsourcing of Public Services

(Limited Text - Ministerial Extracts only)

Tuesday 18th December 2012 Westminster Hall

[The Economic Secretary to the Treasury (Sajid Javid)]

I am grateful for the opportunity to speak under your chairmanship, Mr Chope.

The outsourcing of public services is an area in which my hon. Friend the Member for Warwick and Leamington (Chris White) has a great deal of experience; he feels strongly indeed. I commend him for the successful private Member’s Bill that he pushed through Parliament with support across the Benches and congratulate him on securing today’s debate. I agree with a number of points that he has made this afternoon, and I hope that he will, in turn, agree with some of the sentiments that I will express.

My hon. Friend referred rightly to the biggest issue facing the country: the size of the public sector deficit. There are a number of ways in which we need to go about fixing that problem. One of the most important is that when we spend public money—the taxes of hard-working people—we receive the best possible value in return. The outsourcing of public services, whether to small and medium-sized enterprises, social enterprises or larger organisations, is an excellent way to achieve that. I want to lay out the broad principles behind the Government’s approach and then talk about some of the specific reforms. I also want to talk about some of the measures that we have taken specifically to help SMEs and social enterprises.

The Government are committed to improving the quality of public services and delivering them more efficiently. Last July, as my hon. Friend rightly said— I am glad that he welcomed this—we published the “Open Public Services” White Paper, which set out five key principles: choice, decentralisation, fairness, accountability and diversity. If we are going to be successful in achieving those principles, transparency, which my hon. Friend also mentioned, is key. He talked about it, rightly, at length. Transparency is important to achieving all those principles.

Key elements of our approach include increasing the amount of services that we commission out, taking advantage of efficiencies and real-world benefits that the voluntary and private sectors can deliver and ensuring a diverse provision of services to drive quality through competition. We are also making greater use of payment by results, which is good for Government, because the financial risk is taken by the investor, not the taxpayer. It is also good for the voluntary sector, as it opens up many more opportunities for social enterprises and charities to deliver public services. I am sure that our thinking is very much in the same sentiment as that of my hon. Friend.

Let me turn to some of the key reforms. I know that it is easy for a Minister to stand on this spot and talk about theories and ideologies, so let me be a bit more specific and give some examples of concrete action that the Government have been taking. An example is the Work programme. The Government have taken tens of thousands of people off benefits and helped them into jobs. Figures released last month show that at least 56% of the scheme’s earliest participants have come off benefits, with 19% spending at least six consecutive months off them.

Another example is social impact bonds. My hon. Friend mentioned the importance of access to finance, particularly for SMEs, if they are to win contracts. Social impact bonds are a valuable new way to involve the voluntary, community and social enterprise sector in Government contracts based on payment by results. Already, almost 10 SIBs have been issued throughout the country, tackling reoffending, youth unemployment, homelessness and family breakdown.

We also have a big new opportunity for payment by results in probation, where we are testing a range of models with the private, public and voluntary sectors. As the Prime Minister said just a couple of months ago:

“With payment by results, your money goes into what works: prisoners going straight, crime coming down, our country getting safer.”

He has indicated that he wants to see payment by results spread right across the rehabilitation system by the end of 2015.

[Richard Fuller]

Regarding payment by results, I urge the Minister to be cautious about the difference between the desire to achieve improved performance based on payment by results in the short term and the provision of competitive tendering for Government contracts in the long term. One of the issues with privatisation is that it was a good way to make a substantial amount of money in the short term, but there have been competitive results in the long term. I think that part of today’s debate is about ensuring that the Government have the right balance between large corporations that can deliver in the short term and providing more availability for small and medium-sized enterprises to provide that competitive tendering in the long term.

[Sajid Javid]

My hon. Friend makes an excellent point about the tensions that sometimes exist between short-term goals and long-term goals, and he has used the excellent example of previous privatisation programmes. The Government will indeed take that into account.

With regard to prison procurement, we currently have five new contracts in train, bringing the total number of contracted-out prisons to 14. Let me move on to another example. In health care, we have seen an increased volume of treatments being delivered via independent providers. We heard an excellent example from my hon. Friend the Member for Woking (Jonathan Lord), who referred to Virgin Care in his own constituency. In 2010-11, 17% of hip replacements were delivered by independent providers—a rise from 0% in 2003-04. By outsourcing the services that I have highlighted, we are not only driving up the quality of services available and saving the public’s money, but increasing the public’s choice about the services that they receive.

My hon. Friend the Member for Warwick and Leamington spoke eloquently about the importance of social value in procurement. He is passionate about improving access to contracts for SMEs and social enterprises. I hope that he is pleased that the Government share that passion. In fact, every Department in Whitehall has a nominated SME Minister who is responsible for delivering an SME procurement action plan for that Minister’s Department. In the case of my Department, that Minister is me, so he will know who to harass if he believes that the Treasury is not making suitable progress in this area.

Thanks to the provision that I have described, more than 2,000 of the 5,700 contracts awarded through the Government’s contracts finder website have been allocated to SMEs, and we are taking steps to give SMEs greater opportunities to bid for contracts. The Government’s procurement pipelines give forward visibility of future potential public sector procurement opportunities, providing greater confidence for industry to invest. The Cabinet Office is tracking a pipeline of about 100 developing and established projects, worth £84 billion in total.

I thank my hon. Friend the Member for Warwick and Leamington not only for allowing us the opportunity to discuss this issue today, but for his tireless work in this area during the past two and a half years. “Procurement” and “outsourcing” are rather dry words that can, if we are perfectly honest, force more than the odd eye to glaze over. I am sure that my hon. Friend would agree, though, that discussions about procurement and outsourcing are crucial to ensuring that public money is spent wisely. I thank all hon. Members for their contributions today and I thank you, Mr Chope, for your chairmanship.

Question put and agreed to.