Working to make government more effective

Comment

Labour would be wise to pick its battles on outsourcing

The vastly contrasting manifesto offers on the merits of privately-operated public services fail to take account of past successes and failures.

The vastly contrasting manifesto offers on the merits of privately-operated public services fail to take account of past successes and failures, writes Tom Sasse.

The Labour and Conservative manifestos offer starkly different visions for the future of public services. As well as proposing to spend much more, Labour wants to change how public money is spent by curtailing private provision of public services – including a pledge to “end all privatisation” in the NHS.

While the Conservatives have pledged to increase public spending, they have not suggested any significant changes to how public money is spent. But if Labour wants to expand the public sector while protecting and improving the quality of services, particularly in health, it should avoid adopting a blanket approach to outsourcing.

The private sector plays a small, but important, role in the NHS

What is often referred to as NHS ‘privatisation’ is actually outsourcing – the contracting of services, rather than the transfer of assets. This has always been a feature of the system. For example, almost all GPs, dentists, pharmacists and opticians are private businesses, and have been since the NHS’s inception.

The NHS will always rely on the private sector to some degree, because it cannot realistically produce its own equipment or consumables. For example, in 2018–19, the NHS spent £18.9 billion on purchasing medicine.

Over the last 20 years, this has been added to by governments outsourcing some clinical services. The Health Service Journal recently estimated that NHS England spent at least 9% of its total budget, or £10.5 billion, on purchasing healthcare from external providers (excluding GPs) in 2018–19. This represents a rise over the last six years, but one that only amounts to 1.5% of overall NHS England spend.

A blanket ban on outsourcing in the NHS could be bad for patients

Labour is right to flag up examples where outsourcing has not worked. The failure of Hinchingbrooke hospital is the most high-profile case of this in the health sector; Serco’s early contract termination in Cornwall in 2013 is another prominent example. In both cases, contracts were poorly designed and managed, and problems could and should have been identified much earlier in the tendering process.

And even where outsourcing has worked, in some cases bringing services back in-house might bring improvements. Insourcing can give a contracting authority more flexibility over how it delivers a service and allows greater co-ordination and integration. This may be of particular relevance to the NHS, which is starting to move towards more integrated care.

But the solution is not to row back on all outsourcing – with better commercial and contract management capabilities, government could avoid repeating the same outsourcing mistakes across the public sector. And there is evidence that the public sector as a whole has become more efficient in response to outsourcing.

There is also little sign that that the NHS has the capacity to bring all clinical services back in-house immediately. This is particularly true for certain elective treatments. For example, 30% of all NHS-funded hip replacements are now performed by independent sector treatment centres (ISTCs).

Stopping all clinical outsourcing would also risk losing some of its benefits. On balance, ISTCs have reduced the amount the NHS has to pay for treatments and maintained service quality. Private provision paid for by the NHS is often the most effective means of meeting acute patient demand. Taking a hard line against all private involvement immediately could mean a serious decline in the availability of many elective treatments and diagnostic services.

The government should only bring services in-house if it believes they will be improved

Our research shows that there has been both outsourcing successes and outsourcing failures. In areas like waste collection, cleaning, catering, and maintenance, and in some aspects of government back-office operations and the prison service, outsourcing has delivered significant savings and benefits to citizens.

At the same time, successive governments have overestimated potential savings – and the disaster of probation outsourcing shows that the private sector is not the cure-all that some advocates suggest. However, it is wrong of Labour’s Andrew Gwynne to claim that there is “not a shred of evidence” that outsourcing has ever worked. And there certainly isn’t enough evidence to suggest that insourcing will always work.

This government’s track-record on outsourcing is decidedly mixed, but the Conservative manifesto makes no mention of past failures. The Labour manifesto, on the other hand, has much to say about the role of the private sector in delivering public services.

But if a future Labour government is determined to roll back outsourcing, then it should choose its targets carefully – and on the basis of solid evidence. Getting it wrong risks damaging the quality of the services on offer, especially in the NHS.

With additional research by Colm Britchfield.

Keywords
NHS
Political party
Labour
Publisher
Institute for Government

Related content

17 SEP 2019 Online event
17 September 2019

How to fix government outsourcing

The Rt Hon Sir David Lidington MP joined us to launch our new report which assesses the government's record of outsourcing over the last four decades.

08 FEB 2024 Podcast

Sunak gambles as Starmer U-turns

Times Health Commission chair, Rachel Sylvester, joins the team to discuss the PM's PMQs bust-up with Keir Starmer and how to fix the NHS.