Outsourcing: Government Departments

Kim Johnson Excerpts

Wednesday 29th January 2025 Westminster Hall

[Andy McDonald]

I thank my hon. Friend for his kind words and wholeheartedly agree with his comments. The whole premise of outsourcing has been to reduce costs, and that is visited on the workforce in terms of pay and other terms and conditions, with the disproportionate impact that he describes, which I will come on to shortly.

All too often, wider social, environmental and economic implications have been eclipsed by the pursuit of narrow short-term cost savings, with an insufficient assessment of the overall costs and longer-term impacts. Since 1979, under the Conservatives, starting with compulsory competitive tendering, there has been a huge growth of private business involvement in public service delivery and its scale. That has resulted in more fragmented, poorer-quality services run by companies seeking to renegotiate contract terms, with staff—often women and minority ethnic employees, as my hon. Friend described—the subject of squeezed terms and salaries.

The last Labour Government invested in public services but did not slow the growth of outsourcing. That allowed the coalition to expand it further, with austerity encouraging public bodies to turn to outsourcing as a means of reducing costs, while ideologically driving it through a White Paper, “Open Public Services”, which argued that few services should be exempt from outsourcing. That is where we were in the run-up to the recent general election, before which Labour set out a clear message on outsourcing.

In February 2021, at the height of the covid pandemic, the now Chancellor set out her concerns about outsourcing. Spend on outsourcing was worth £249 billion in 2014-15, and by 2019-20 had reached £296 billion—a significant sum that dwarfs the NHS budget. She said:

“Outsourced services are not integrated into the fabric of our communities. Unlike our public services and providers, like charities, many of which offer vital frontline services, outsourced companies have not built up trust over time and lack the vital local knowledge and flexibility required.”

Furthermore, she added:

“A shadow state has emerged and it is unaccountable to the people. Even before the pandemic, the government spent an extraordinary £292bn on outsourcing over a third of all public spending and that level is rising year on year. The public pays for these contracts yet so often it cannot adequately scrutinise many of them. This secrecy must stop.”

To set out the case for insourcing, I want to highlight the experience of outsourced workers represented by a number of unions. In the civil service, the Public and Commercial Services Union states that the two-tier gap between directly employed and outsourced workers is widening as pay and terms and conditions for the latter erode, with civil servants reliant on universal credit and workplace food banks. Departments’ budgets are stretched as they deal with the inefficiency of picking up the cost of tendering and awarding contacts, which have to deliver a profit for the contractors.

[Kim Johnson (Liverpool Riverside) (Lab)]

I thank my hon. Friend for securing this important debate. PCS workers in my constituency who work for the Disclosure and Barring Service are currently in dispute because of inadequate contracts, which put additional burden and stress on them. PCS has continually called for the insourcing of those contracts. Does my hon. Friend agree that the Government need to commit to their policy of insourcing? It is not only workers who are suffering, but children and other adults, because of the outsourcing of local authority services. That needs to change immediately.

[Andy McDonald]

My hon. Friend is entirely right. That is yet another example of the tension and conflict between delivering high-quality public services and driving down costs, which leaves the people who deliver the services in poverty. That has to be addressed.

Similarly, in the railways, the RMT says that outsourced workers struggle to make ends meet, and it directly attributes that to outsourcing firms profiting from low pay. Many outsourced workers’ wages are anchored to the minimum wage, and they do not have the right to occupational sick pay and decent pay schemes. The RMT argues that insourcing would not only lift living standards by putting money into people’s pockets, but raise workers’ productivity, tackle structural inequality and even achieve greater efficiency in public spending. It is time to start a wave of insourcing now.

In the civil service, the Government have come into office with numerous disputes having recently taken place, or currently taking place, between outsourced service contractors and their employees, including various instances of industrial action. That is disruptive and costly to the civil service, and it is a result of those service providers holding down the pay of their staff, particularly in facilities maintenance areas such as cleaning, catering and security.

PCS, the union representing those workers, wrote to the Prime Minister in mid-July to discuss matters faced by workers across the UK civil service, including those working in contracted out and devolved areas. I know that the Chancellor of the Duchy of Lancaster met with the FDA, Prospect and PCS in June, at the earliest opportunity after taking office, but the number of civil service disputes in contracts inherited from the Government’s predecessors requires action. There are multiple disputes involving PCS members employed as cleaners, post room staff, porters, catering and reception staff in several Government Departments, and they are not limited to one outsourced employer, but concern G4S, ISS and OCS.