Government outsourcing: when and how to bring public services back into government hands

Bringing back services from the private sector to government hands can improve quality, increase reliability, and save money.

This report identifies four circumstances in which the government should consider returning a service to the public sector: an unhealthy or uncompetitive market; the need for flexibility to make changes to the service; a lack of government commercial skills to manage an outsourced contract successfully; or a need to improve the service by integrating it with another.

In its recent decision to take on management of probation services from June 2021, the government has already cited the need for flexibility to respond to any “future challenges that Covid-19 presents”. This report argues that the government should be prepared to intervene in other areas, too, to ensure high-quality services can be delivered.

It also assesses services that have been returned to government hands by local authorities, public bodies and government departments over the past decade. Many have been successful: the DVLA saved £60m by taking back its IT, while several local authorities have made services more reliable or better quality – although in some cases higher spending was needed. 

For four decades, successive governments have expanded the role of the private sector in delivering services – and there are many examples where the private sector has delivered high quality services for less and helped the public sector become more efficient and innovative. However, this report argues that government must reassess where it could run services better itself. The collapse of Carillion in 2018 demonstrated the dangers of the private sector taking on contracts it could not manage.

It also recommends that government bodies considering taking over management of a service should:

• begin planning for any insourcing at least two years before the transition
• run a pilot scheme first if the service is of national scale or particularly complex
• conduct a thorough review of how a service operates, its budget and staffing arrangements
• hire experienced managers to oversee the transition.