Should insourcing be the default: What might it mean for charities?

A version of this blog originally appeared in the Municipal Journal.

The Labour Party recently published a paper about local government outsourcing, arguing that it has gone too far and that the default should clearly be for services to be provided in-house. Depending on your prior views, this was either welcomed as a crushing end to some appalling neoliberal behaviour or a massive and regrettable blow against something that has at last forced councils to be more efficient.

The reality appears to be more nuanced. It is actually a rather well thought through paper that gets to the heart of many issues that have bedevilled outsourcing, so I think it is worth taking seriously.

At various times in my career I have written about when using the private sector to provide services seems to make sense and when it does not. Part of this was to try to help people understand that sometimes this was the right way forward to create good services that delivered positive social outcomes but that the conditions for this to be so were limiting. Outsourcing – and its cousin privatisation – became a sort of default, for reasons Labour’s paper describes, and at times they were used in places where they were entirely inappropriate. This brought the whole idea into disrepute.

Clear reasons when one should not use the private sector and outsourcing were outlined in a 1997 IPPR paper I co-authored. They include the nature of the service to be commissioned, the dangers of forcing down employee terms and conditions and the lack of competition in the market. I was also on the advisory group for some work that Tom Gash led at the Institute for Government in 2014 emphasising the danger of powerful incumbents, the inability of the public sector to realistically sack them for poor performance, and the inability to track outcomes and monitor quality.

Labour’s paper sensibly adds to that list by emphasising the fact that contracting out of particular services splinters provision when we often need them to join up; the inflexibility that outsourcing contracts can bring if the service is likely to need to change over time; and familiar problems with outsourced providers underinvesting as contracts are always for a limited period.

Moreover, the paper suggests some interesting ways to alter the statutory framework to slow down and reverse the trend to outsourcing over recent decades.

The easy wins were made some years ago; the problems of private sector provision are becoming clearer: better contracting and tight council budgets have seen the private sector itself pull out of this market or start to go bust.

I have a few concerns, however, with any approach that does not try to learn the lessons from our experiences.

Charities as the providers of services do solve some of the problems that outsourcing critics have pointed to, especially as they remove the profit motive from the equation. Inadvertently or otherwise, there is a major danger that the rush to insourcing sweeps away the valuable inputs charities give.

The clarity brought by having to specify outcomes in contracts is often very useful, both for charities delivering them and for local government itself. It removes vagueness, puts policy makers and commissioners on the spot, and allows the community to see whether they agree with what is being done.

There was after all a reason we got into all this – it was not just a Thatcherite plot. There were cases where public sector monopoly provision was of poor quality and poor value for money and the forces to make it better seemed to be lacking. Throwing in ‘the public service ethos’ as something public sector provision automatically has as an answer to everything is a little naïve and ahistorical as many charities can testify. Producer capture and inefficiencies did and do exist. Councils became defenders of the poor services they ran rather than advocates on behalf of their communities to insist they got better. We will need concrete ideas of how to prevent a return to this in future.

Finally, and as a localist, I want councils to be relatively free to choose the way they deliver services. Ultimately the key driver behind all decision-making in this field must be to provide the best services for the users, whatever sector or location that provider comes from. If one moves too far away from this on the basis of other objectives – however legitimate – then there is a danger of a slippery slope away from those beneficiary needs.

The system needs recalibrating, so there is a level playing field rather than a major bias towards outsourcing, and the ideas in the Labour paper may give enough leeway for such choice. But it is not clear to me where it leaves the balance, so we will need to watch and monitor if these proposals see the light one day in a future Government.

In-sourcing, commissioning and contracts will all be live topics at our annual conference, NPC Ignites, in October. Purchase your tickets here.