Outsourcing of Public Services

Chris White Excerpts

Tuesday 18th December 2012 Westminster Hall

[Chris White (Warwick and Leamington) (Con)]

I called for a debate this afternoon on the outsourcing of our public services. I am grateful to Social Enterprise UK, in particular Celia Richardson, for putting together the report, “The Shadow State”, and for raising this important matter and providing fresh insight.

Although politicians can easily become fixated on the high-level discussions in politics, we need to remember that one of the most important roles of government for most people is the provision of high-quality, front-line public services. Over the past 200 years in Britain and throughout the world, Government have become more and more central to the delivery of services vital for millions of people: health care, child care, policing, prisons, helping people back to work, education and transport are just a few of the areas that the public sector reaches. Since 1945, Britain has seen a vast centralisation of such responsibilities away from the local level and from independent organisations and towards central Government. In 2010 prices, the budget has gone from £234 billion in 1945 to £660 billion.

A large proportion of the budget has been spent on public services, and we have seen massive improvements in many areas. I am proud of some of the achievements that have been secured, but we face difficult economic times and cannot expect to keep spending large quantities of money in order to increase the quality of public services. The vast structures of the public sector, which were appropriate in the 1940s and ’50s, are now starting to struggle to deliver the improvements in services and the productivity increases that we need for the decades ahead.

Over the past 20 years, Governments of all colours have increasingly turned to the private sector for delivery of public services, in order to reduce costs and to provide better outcomes. Oxford Economics has estimated that the current outsourced market for public services has an annual turnover of £82 billion, representing 24% of the total spend on goods and services by public services. Rightly, therefore, in July 2011 the Government released their “Open Public Services” White Paper, which sought to lay out the future direction of public services through five key principles: first, wherever possible to increase choice; secondly, to decentralise public services to the lowest appropriate levels; thirdly, to open public services to a range of providers; fourthly, to ensure fair access to public services; and, fifthly, to make public services accountable to users and taxpayers alike.

[Jim Shannon (Strangford) (DUP)]

Is the hon. Gentleman aware that a recent Confederation of British Industry report stated that more opportunity for private and independent sourcing of public services could produce savings of £22.6 billion, while maintaining the quality of service? Is that what we should be looking at?

[Chris White]

I appreciate both the point made by the hon. Gentleman and the CBI’s report. I will be coming to some of those issues later in my comments.

I support those five principles, which I am confident that Members in all parties support as well. The Government have been clear that they are seeking to increase the amount of public services delivered by independent organisations. Seymour Pierce has predicted that the value of the public services sector will increase to £140 billion by 2014. That is a huge amount of public money and, rightly, we should be concentrating on how that money is spent and on how we ensure maximum benefit for our community. A concern, however, is that the principles outlined in the “Open Public Services” White Paper, to make our public services more accountable, more transparent and more in the control of communities, have not been realised in practice.

One deep concern is explained in the Social Enterprise UK report, “The Shadow State”, which has highlighted a significant lack of transparency and accountability, with information from those delivering our public services hard to come by. It also highlighted the increasing dominance of our public services by a small group of large multinational businesses and the difficulties that small business, charities and social enterprises have experienced in accessing provision of our public services.

[Richard Fuller (Bedford) (Con)]

My hon. Friend is a champion of social enterprise in the House, and we pay great tribute to his work. He is making a point about large private sector organisations. Is he, like me, sceptical about the big state, but also sceptical about big private corporations? The Government are making some strides in promoting local organisations, but does he believe they are being somewhat timid in their agenda to promote social enterprise locally?

[Chris White]

My hon. Friend is also a champion of such issues. My speech is about that very subject: the change from public sector monopolies to, perhaps, private sector monopolies. We should be sceptical about that, as he said.

We need to be clear that, if we are opening our public services, we are doing so to achieve what is best for our communities, in a way that gives choice to commissioners and service users and that ensures appropriate levels of accountability. Unless the Government are able to deliver on their principles, we will not get the outcomes that we want from public sector outsourcing.

Over the past two years, through my work on the Public Services (Social Value) Act 2012, I have had the opportunity to speak to many community organisations and social enterprises about the Government proposals for opening up public services. Most are keen to engage in the process and to deliver services that are important to their local community. There appears, however, to be a number of obstacles to their involvement, some of which have been highlighted in the report.

First, the size of many contracts is a problem. I appreciate that commissioning on a large scale can create efficient economies of scale, but those are not the only economies that we should be focusing on; the most useful economy is secured through successful outcomes. Large contracts do not always lead to better outcomes, and can increase costs in the long term. For example, the UK Border Agency issued £1.7 billion in contracts for asylum-seeker services in March this year, but each of the contracts was for more than £100 million, completely locking out our charities, social enterprises and small businesses. The Work programme, in which £3.3 billion of contracts were awarded, saw one quarter of the contracts go to one company. That is not the opening- up of public services. Only a handful of organisations can bid for contracts of such size. More accessible contract sizes would go a long way to change the situation, as well as enabling a larger degree of social value, as such contracts are able to target additional benefits to be created through the commissioning process.

Secondly, there is an issue of governance and transparency. Despite extensive research, it is difficult for the public to access information about many public sector contracts. If I or my constituents have questions about state-delivered public services, we may ask questions in this place or through correspondence with Departments to get the appropriate answer. Private companies, however, are often not so willing or forthcoming with information, leaving a sense of unease among the public. Only greater levels of transparency and accountability can change that. I fully support the Government’s efforts to provide details on public spending over £100,000 at both central and local government level. That transparency should and can be extended to all public service providers. We cannot have one rule for public sector organisations and another for private sector providers. I appreciate that some information will be commercially sensitive, but I am confident that we can find a method that balances the public’s right to know with commercial privacy.

There should also be a central register of public sector contracts, both local and national, that are being provided by independent organisations, whether private sector companies, social enterprises, or charities, both past and present. That should outline the size of the contracts, their length, the expected outcome, and information about their success. All that should be online for ease of public access, and would not involve significant cost, because such information should be collected by commissioners in the regular course of their work. That would enable the public to see not only who is providing what services, but how successful providers have been, and could be a useful tool for commissioners.

The Government have rightly championed the cause of transparency to improve our public services, but that must be carried out across providers. I hope that the Government will work with commissioners, private businesses, charities and social enterprises.

[Richard Fuller]

My hon. Friend is making a good point about the role of national Government and supporting local commissioners. Is there a role for national Government to name and shame commissioners who are too slow in opening up to local providers, and to name those who are doing a good job and are at the forefront of the breakthrough of social enterprise, but shame those who just want the default of taking what had been a public service and giving it to the large national contractors?

[Chris White]

Absolutely. Naming and shaming is always a useful tool in such circumstances. Our commissioners should be encouraged to have a greater sense of urgency in dealing with such matters.

The Government have rightly championed the cause of transparency, and public sector commissioners should take a closer look and a closer interest in the corporate structure of the organisations they are commissioning from. Traditional large multinational companies may have some advantages, but the social enterprise model may also have the potential to deliver better outcomes for our communities. At a time when we are seeking to spend every penny possible on better outcomes, there is concern that traditional private sector models that seek to deliver large returns for shareholders may lead to money seeping out of our public services that might otherwise be spent on improvements to those services.

Social enterprise combines the need to deliver profitability, to innovate and to deliver better outcomes with a sense of community purpose. Not only that, but most social enterprises reinvest their profits either back into the services they provide, or into the communities where they are based. Moreover, through the structure of community interest companies, which are a model that many social enterprises are adopting for public service delivery, communities are directly involved in the governance of the organisation. That gives communities greater levels of accountability than if those services are provided by larger organisations with less accessible governance structures such as multinational corporations. Sometimes that will not be possible, but the Government should encourage commissioners to be creative and to experiment with differing governance needs.

Thirdly, the Treasury can help directly by ensuring that small businesses, social enterprises and charities can have access to the finance they need to bid for these contracts directly. The creation of Big Society Capital has been an excellent example of the Government taking a direct approach to stimulate the social investment market, and social impact bonds also have great potential. However, those methods do not resolve all the issues that are in the way of civil society organisations, which is why the Treasury’s internal review of social investment is so important.

We must ensure that we create a new climate of confidence in the social investment market, so that mainstream lenders and institutional investors feel that they can participate. Big Society Capital is an important step forward, but on its own it will not be able rapidly to expand the social investment market. That will take place only when our banks, pension funds and venture capitalists take a full part in the market, so I hope that the Minister will give us an update on the progress of that internal review, and the main policy areas that the Government seek to address. Broadening community investment tax relief into social investment tax relief that gives incentives for direct investment into social enterprises and their intermediaries could be transformational, and relatively inexpensive.

The report—“The Shadow State”— highlights a number of key policy areas, such as child care, prison, welfare to work, and adult social care, which need to be addressed. The report is constructive and proposes solutions. I hope the Minister will take the time to read the report, and I am happy to give him a copy if he has not already read it.

As we embark on a change in how we deliver our public services, it is vital that we do so in the right way so that the public feel engaged in the process and we deliver services not only with the best outcomes, but in the right manner. Confidence in our public services is important because, without confidence, there is a danger that people will not access the services they need, leading to more expensive interventions down the line. Communities need to feel a strong relationship with the provision of those services, and that is why social enterprises, charities and small businesses are often better placed to deliver them.

The Government have rightly identified a problem in our banking sector about institutions that are too big to fail, yet there is a danger that by relying on a small clique of large multinational organisations to deliver our public services, we end up creating the same problem in public service delivery. The way to combat that is through changing the contract process so that we make contracts more winnable for smaller organisations, helping to build supply chains that are resilient and have a plethora of providers. That will not only reduce costs in the long term through proper competition on costs, but will spur forward innovation and enable greater personalisation and localisation of services.

The White Paper, “Open Public Services”, was a step in the right direction, building on a set of principles that have wide-ranging consensus. All parties went into the election promising to open the door for delivery of our public services, particularly to social enterprises, mutuals and charities. We must now all work together to ensure that implementation matches the rhetoric.

“The Shadow State” report has been useful in helping to refocus minds in this debate, and we must consider the issues now, while we are in the process of reform. We have a fantastic opportunity to change our public services for the better, to realise a future in which people feel ownership of the services they are using, and to spur innovation and creativity. The Government have rightly seen the need to reform public services, despite a period of considerable economic difficulty, but we now need to deliver on the principles that we have outlined.

[Jonathan Lord (Woking) (Con)]

I congratulate my hon. Friend on an excellent speech, and on his leadership in this matter. This debate contrasts enormously with another on the same subject in which at least two Opposition Members were decrying any involvement of private companies in the public sector. My Surrey community health care contract has gone to Virgin Care, and even within the first six months of operation, using much the same staff, but lifting the bar and using new working methods, the average waiting time for referral for a first appointment has gone down from 31 days to 19 days, and the waiting time to see a community nurse has gone down from seven days to two days. Customer satisfaction has risen from 71% to 82%. Is that not the sort of improvement that, if it were across the whole public sector, would do enormous good for all our residents?

[Chris White]

My hon. Friend makes a good point, and we should applaud such improvements. The same team is delivering the same products and achieving very different results. We should be able to see that across the sector.

To conclude, I hope that the Government will engage with all sides and work with our civil society organisations to help deliver our public services. We have a window of opportunity; let us use it.