Outsourcing: Still such a good idea?
by John Humphrys in Commentary and Editor's picks
Thu July 19, 2012 3:22 p.m. BST
John Humphrys considers why outsourcing may no longer be the best option for the UK
The fiasco over the failure of the security firm, G4S, to provide enough guards to protect the Olympic Games has cast an enormous shadow over what, until then, had seemed like an unusually smooth-running operation. We have yet to see whether there will be any serious consequences for the games themselves. But the debacle has already thrown up a wider question: are we wise to go on outsourcing the provision of vital public services to private contractors?
‘Shambles’ seems recently to have become the favoured word to describe how we botch things up these days. ‘Omnishambles’ and ‘hypershambles’ just express the degree of the mess. But it is hard to imagine a greater foul-up than for a company hired by the state to provide security for London’s hosting of the world’s most prestigious sporting event to admit, two weeks beforehand, that it can’t do the job. G4S was contracted to provide 10,000 security guards for the games. Now the most it can offer is 7,000 and it can’t even guarantee that number. It seems not to have the slightest clue how many of those it thinks it has hired to do this temporary job will actually turn up for work.
The government has been forced to turn to the army to fill the gap. Soldiers, some of whom have just returned from Afghanistan or who are about to go there, have had to give up their summer holidays in order for the games’ organisers to be able to claim that security will not be affected. Extra police have had to be drafted in from around the country. We wait to see whether all will go smoothly.
The birth of outsourcing
To many people, especially those old enough to remember a very different world, it will seem extraordinary that a private firm was ever hired to provide security for an event like the Olympic Games in the first place. Surely, they argue, the prime role of the state is to provide us with security and never more so than when the nation is playing host to the world. Providing that security ought to mean the state employing its own security personnel.
Others would go further. All public services should be in the hands of public employees, not outsourced to private companies employing their own staff. That’s how it used to be, they would say, and that’s how it still should be.
Until about thirty years ago that was indeed broadly the picture. But Mrs Thatcher changed it. She came to power in 1979 largely as a result of public disillusion with public services and, in particular, with public sector unions. They had caused a ‘winter of discontent’, striking against the previous Labour government’s incomes policies, and the public was fed up with them, she believed.
She had two ways of dealing with the problem. One was simply to privatise whole industries, like gas and electricity supply and telephone services, which had been in the public sector. Now they would be private companies from whom the public would buy their services direct. But there were other services which Mrs Thatcher knew voters wanted to remain as public services. Her approach to many of these was to argue that while the state should continue to be responsible for making them available and, in many cases, for paying the bill, there was no reason why the state should actually provide the services themselves. Instead it could pay private firms to do so. Thus ‘outsourcing’ began.
The motivation was twofold. One was ideological, born of the belief that the state was too big and should be reduced and that it was good to promote entrepreneurship in the provision of public services. The other was pragmatic: it was felt that private companies would be more efficient and so cut costs. Under New Labour the policy carried on. Tony Blair was keen for his party to avoid getting itself in hock again to public sector unions and he shared the view that savings could be made. Outsourcing became a genuinely bipartisan issue, so that today an enormous range of public services, involving refuse collection, running prisons, healthcare, helping benefit claimants to find work and much else is provided by private companies.
Cost saving vs efficiency
Three major companies, G4S, Serco and Capita, dominate the sector. David Cameron has potentially opened up all services to such companies. This year alone there are new tenders worth £4bn open to private companies for the provision of public services.
The G4S fiasco, however, throws all this open. Some people have always been highly sceptical of the policy. How, they ask, can we seriously expect both to make savings and get the service we need by paying companies run by executives on vastly inflated salaries and whose prime aim is to maximise the profits of their shareholders? Those companies are bound to cut costs by reducing the wages and conditions of their employees to the point where the provision of the services is at risk, they argue.
The Olympics security debacle proves the point, they say. G4S was given a contract worth £284m to provide 10,000 guards. Does that mean the company was paying each guard £28,400? Of course not. So bad were the terms offered to potential recruits, they claim, that many of them thought it wasn’t worth the candle. That’s why they didn’t turn up and that’s why the company had to raise its hands and confess it couldn’t deliver.
Critics of the policy say that what’s true for the Olympics is true more generally and they point to a Danish study which showed outsourcing has ended up costing the taxpayer more than would have been needed had the service been provided by people already working in the public sector.
Defenders of the policy fight back with counter examples. Do we really think, they ask, that refuse collection was better done in the old days when binmen were directly employed by the local council and public sector unions seemed always to be calling them out on strike? Anecdote, however, is not the same as evidence and the fact is that there is no settled view about whether outsourcing saves costs and is more efficient, or not. Indeed it seems very difficult to find out.
Margaret Hodge, the chairman of the Public Accounts Committee, says the problem is that watchdogs like hers simply can’t get at the facts that would settle the issue one way or the other. That’s because outsourcing companies plead commercial confidentiality when MPs try to scrutinise the contracts drawn up between them and the government.
Outsourcing and the government
The opaqueness of the relationship between government and private companies worries people with suspicious minds in other ways too. They spot the way that senior politicians and other public servants often turn up in important positions in outsourcing companies after they have left public office and that casts a retrospective spotlight on decisions taken by such figures when they were still serving the public.
A further objection is that such outsourcing deals may be OK when things are going well but not when they turn sour. In the good times, the companies can cream off the profit, but in the bad times it’s the taxpayer who has to do the baling out.
In the wake of the G4S shambles Ed Miliband, the Labour leader, has called for a halt to all further outsourcing of core policing functions. Others want a more thorough-going inquiry into the whole outsourcing policy. But at a time when the Prime Minister is warning us that we are likely to go on enduring austerity and the need for further big cuts in public spending right up to 2020, government is not likely to want to give up a bipartisan policy they think saves them money.
What’s your view?
- Were you surprised when you learned that G4S couldn’t provide the security guards it had contracted to supply for the Olympics?
- How do you interpret the fact that many of the people G4S thought it had hired as security guards simply didn’t turn up when required?
- What’s your own experience of outsourced public services? Do you think they provide better services than the ones provided before by public employees, or worse?
- Do you think private companies are more efficient than public bodies at supplying such services, or less?
- Do you think outsourcing companies pay too much to their executives and too little to their employees, or not?
- Are you happy for the government to go on outsourcing or should there be an inquiry into the working of the whole policy?
- And, after the G4S fiasco, do you think the government will carry on with the policy of outsourcing?
Let us know what you think.