Outsourcing can reduce public spending pressures and bring cost efficiencies
The pressure on public spending is not going away anytime soon, given the ongoing challenges in balancing tax revenues and expected spending. This means the government will continue to seek cost reductions and efficiency savings across various sectors. The problem is where and how savings can be achieved, as the noise around this week's Spring statement has shown.
One option that hasn't been given airtime is to leverage private sector expertise and outsource more work traditionally undertaken by the public sector. This approach can not only reduce costs but also raise quality and achieve wider benefits such as greater innovation and improved efficiency
I recognise this will be a controversial idea for some. Outsourcing does not always have the best reputation, largely due to high-profile examples of when things have gone wrong. In the UK, cases such as the collapse of a major construction firm, which left projects including NHS hospitals at risk, or the failure of a tagging system for released prisoners, or struggles with security functions at the London 2012 Olympics. These have to some extent shaped public opinion. Some may suggest that outsourced contracts should be the focus for cuts rather than a solution to save money.
Despite these failures, there are plenty of examples where outsourcing has worked well and achieved cost savings. It’s no wonder the public doesn’t hear about these in the media: a good news story about a successful outsourced contract hardly makes for a snappy headline.
A major reason why some cases failed was because they involved big, complex projects with equally complicated management processes. As a report by UK think-tank, the Institute for Government has found, outsourcing works best in support services that are relatively simple to contract for and deliver, such as cleaning or administrative support services.
For example, when cleaning was first outsourced in hospitals, it resulted in significant savings when undertaken by private providers compared to when delivered by the public sector. More recent evidence suggests that these savings are still substantial.
Outsourcing of administrative services or back-office functions has also led to benefits, including large operational savings. For instance, National Savings & Investments, a government agency in the UK, cut its operational costs while improving service delivery by outsourcing its IT, transactional, and customer-facing functions to Siemens. A report by the National Audit Office concluded that NS&I saved £176m, partly due to outsourcing.
As a former senior UK Home Office official, I witnessed first-hand the transformative impact of outsourcing the front end of the visa application process. This strategic programme was developed to mitigate operational and resourcing pressures at UK Missions overseas, while introducing biometrics to the visa process. It resulted in reduced costs to government and a significantly more efficient visa process involving much better utilisation of technology, improved service standards and greater accessibility for applicants. These were important strategic considerations aimed at enhancing the UK position as a destination of choice for business, tourism and study. In practical terms, it released visa officials from routine administrative tasks, allowing them to focus more on the critical task of assessing visa eligibility and strengthening the decision-making process in support of the overall integrity of border control.
Rachel Reeves has said that economic growth is the number one mission of the government. Considering outsourcing more public services may not be the first thing that comes to mind when considering how to relieve the pressure on public spending. But examples like these prove that done sensibly and responsibly, and kept simple, it represents one way for the government to deliver cost savings as well as increased efficiencies.
Tony Mercer is a former Senior Civil Servant at the Home Office.
