Chris Morgan got a job as an electrician repairing council houses in Stoke-on-Trent just over five years ago. Although he enjoyed his job, Morgan, 36, says he did not always feel he could raise issues with his line manager. “Our supervisors weren’t always in the trade we were in,” he says. The city council had outsourced its housing repairs service to Kier group in 2008. But since the council brought the work in-house last year, Morgan says he feels happier. “I know my supervisor knows what I’m on about. It makes me more confident,” he says. “We have had extra talks, health and safety training. They have put in a new canteen and showers, so the facilities are better too.” And with a £1,000 pay rise, plus an extra £500 for doing asbestos work, Morgan is also a bit better off.
Now all repairs, maintenance and home improvements to the council’s housing stock, as well as public building maintenance, are in-house.
A report by the Association for Public Service Excellence (APSE) published today, shows that Stoke is far from unusual, with 77% of UK councils planning to bring services back in-house this year. And the report calculates that between 2016 and 2018, at least 220 local government contracts have been brought back into council control.
Outsourcing began under Margaret Thatcher with compulsory competitive tendering back in the 1980s and was embraced wholeheartely by New Labour. Now attitudes seem to be hardening against contracting out. “What we are seeing is a 40-year experiment in public service delivery being put under the microscope,” says Tom Sasse, a senior researcher at the Institute for Government.
The Labour party has pledged that under a Labour government all frontline services would be provided by the public sector, from railways to social care. Even the Conservative government has been forced to look again at outsourcing, renationalising probation services after outsourcing them disastrously failed. And in the NHS, the cervical cancer screening programme for England will be brought back into the health service later this year, after Capita failed to send more than 40,000 women screening invitations and reminder letters to have a smear test.
“A catalogue of failure has shown that private providers have struggled to generate profit and deliver services of the standards that the community expects,” says Paul Evans, director of NHS Support Federation.
“The rise in insourcing shows that commissioners are being forced to recognise this. Not all contracts display problems, but experience now shows that the risk is high.’
For many public sector bodies, bringing services back in-house is increasingly a pragmatic way to cut costs and improve quality. “On its own, it is not an absolute panacea, but there are significant advantages to bringing services back in-house,” says John Tizard, a former Capita executive and now a strategic adviser on public services.
According to today’s report, 78% of local authorities believe insourcing gives them more flexibility, two-thirds say it also saves money, and more than half say it has improved the quality of the service while simplifying how it is managed.
“Insourcing allows councils to regain control over local services,” says Mo Baines, head of communication and coordination at APSE and author of the APSE report. “Fragmented service delivery through outsourced contracts has failed to deliver on price and quality. It is no longer a viable option.”
Sasse adds: “In the 1980s, there were typically 20% cost savings by outsourcing services like waste collection, but those efficiencies have now been made.”
Steven Griggs, professor of public policy at the local governance research centre at De Montfort University, says: “In the context of austerity, insourcing offers reductions in management costs that can be used to fund frontline services. If you are locked into long-term contracts, then inevitably cuts will fall on remaining services.”
Some councils have opted to insource because the provider walked away from the contract. In Scotland, Highlands council brought cleaning public lavatories back in-house in 2017 after the provider said it wished to terminate the contract because it was no longer commercially viable without increasing the contract value by just under £450,000: a 31% increase.
Griggs says councils are also finding other benefits. “Insourcing builds in-house capacity, facilitates the joining up of services, shores up financial flexibility, keeps the public pound in the local economy and provides opportunities to work with small- and medium-sized businesses to strengthen local supply chains.”
And in some cases it can generate much needed revenue.
In Stoke, the council created a wholly owned trading company, Unitas, to allow the housing repair team to bid for other contracts and generate profits. As housing revenue grant is ringfenced, any surpluses or profits made by the council have to be spent within that budget. But by creating the trading company, any profits could go back to the council’s general fund.
“Last year we returned £4.6m to the council and provided an improved service,” says Steve Wilson, operations director of Unitas. The company has won contracts worth £2m to refurbish civic and other local buildings. It is also hoping to bid for maintenance work with other housing providers. “Rather than line shareholders’ pockets, this approach has generated income for the council, improved customer service and staff morale,” says Carl Brazier, director of housing and customer services at Stoke city council.
According to Wilson, insourcing Stoke’s housing repairs service has not only improved the terms and conditions of workers such as Morgan, but improved productivity, service quality and stimulated the local economy – just under 80% of goods and parts are bought from local suppliers.
All Unitas employees are on the same terms and conditions as council staff, including membership of the local government pension scheme. Sickness absence has halved from 6% to 3% in less than a year, saving £500,000, while productivity has gone up 15%, says Wilson. “Our staff are doing more work because they are happier.”
Industrial relations have also improved. Steve Blakemore, the staff representative for the Unite trade union at Unitas, says insourcing has improved working relations with management and that Unitas “invests in its employees and promotes wellness and wellbeing. The disciplinary process is used as a last resort.” Liverpool city council has also created a trading company, Liverpool Street Scene Ltd, to run its street cleansing, grounds maintenance and refuse and recycling services in order to save costs and improve quality, as well as trade commercially. Highways maintenance and parks and cemeteries services were transferred to LSSL last year. Insourcing these services will have saved the council £2.5m in the year to April 2020 alone.
Unlike Stoke, however, LSSL staff have retained their previous terms and conditions of employment when they moved to LSSL, so with the exception of death-in-service benefits, which are identical, they largely do not have the same benefits as their council counterparts or membership of the local government pension scheme (apart from some staff with long service who were originally employed by the council before being outsourced). It’s something the council and LSSL hope to tackle in future.
“LSSL and Liverpool city council, with the support of the trade unions, continue to work together to further improve employment terms for LSSL staff wherever possible,” says Mike Brown, its chief operating officer. But some question the use of trading companies. “I do not think that is precisely insourcing, but is it is returning a service to a form of public ownership. Trading companies have a role but taking care about risk management is essential and commercial expertise is required. They can unfortunately be used to deny decent terms and conditions for staff,” says Tizard. Even for councils not looking to generate profits by insourcing, bringing services back in-house has led to significant savings.
In Cheshire, Halton borough council has saved £750,000 a year by bringing its three leisure centres back in-house, while Nottingham has saved £500,000 annually by insourcing maintenance of its civic buildings and cut the cost of staff catering by 17% by bringing it back in-house.
One of the biggest insourcing programmes has been in the London borough of Islington. Following its 2011 fairness commission, the council has brought back about £380m of services, helping to improve the pay and conditions of 1,200 frontline staff and generating net savings of about £14m for the council. Services brought back in-house include building cleaning; housing repairs and maintenance; waste and recycling; grounds maintenance; and temporary accommodation.
Today’s report argues that the economic case for insourcing means all councils should consider it. “In an age of austerity, councils can no longer afford outsourcing failures. Most can deliver quality services at a better price and without sacrificing the workforce on the altar of the lowest bidder.”
Effective outsourcing by Uk Local Authorities
The ever-increasing pressures from budget cuts and higher demand for services means local authorities are continuously looking at ways of delivering their services more efficiently and cost-effectively while also seeking to ensure continued high levels of service.
Outsourcing remains a popular option for local authorities with an increasing number of contracts being outsourced to the private sector. A recent report by Arvato UK Outsourcing Index indicated that spending on IT and technology procurement increased dramatically last year with over £800m of outsourcing deals signed by local authorities. In some cases, local authorities are using their collective purchasing powers to outsource jointly; for example last year there was a joint deal between five councils to outsource a range of corporate and facilities management services.
Outsourcing can produce significant savings for a local authority if done correctly. A review at the end of 2016 on a contract between Barnet Council and Capita which had been entered into in 2013 for the outsourcing of the council’s HR, finance, IT and estates, and a host of other services, revealed overall savings of £31m and high levels of resident satisfaction.
However, recently several local authorities have terminated their outsourced contracts, bringing them back in house. This may have been for performance-related issues, or because the level of savings had not met the expectations or because more was actually being spent, among other reasons. For example, a number of social care services are to be brought back in-house by Buckinghamshire County Council after it “lost confidence” in its care provider.
Outsourcing is not the only alternative model considered by councils for service delivery. They are also looking at shared services, local authority-owned companies, joint ventures, collaborations, and staff-led mutuals. The London Borough of Southwark, for example, has recently agreed to end its outsourcing contract with Capita for IT services and join a partnership to share IT services with two other London boroughs.
When considering outsourcing and how to ensure its success, it is important for local authorities to consider:
These measures can help a local authority engage in successful arrangements to deliver desired outcomes and achieve savings / income generation or both.
If you have any issues or queries regarding the above, please contact a member of our Central, Devolved and Local Government Team.
However, many of these services are now outsourced to private companies, in expensive and underperforming contracts which leave councils with no bargaining power or flexibility.
In the early 20th century local councils, or ‘municipal corporations’ as they were then, were responsible for all sorts of vital public services, and had the power to deliver them. After the second world war, councils gradually ceded power and funding to the central government. By the 70’s, 60% of local government funding was decided by the central government. By the 2000s the proportion was 85%. Without the power to decide their budgets, councils began to outsource their services in an attempt to decrease their workload.
Council outsourcing, like much other privatisation in the UK, began in the 1980s under Thatcher. It started out as a Conservative ideology, but shifted into the mainstream in the early 2000s. Research in 2012 found that more than 1/3 of all council leaders from all parties believed that all council services could be outsourced to private contractors.
However the evidence all points to the conclusion that outsourcing is useless. It doesn’t save money, and in fact it is usually more expensive to outsource! Outsourced contracts are also highly likely to fail – be abandoned early, or run into serious problems that affect the delivery of services to our communities.
Between 2008 – 2013 councils were desperate to cut costs. Outsourced contrasts increased by 85% during this time. But over a quarter of them FAILED.
And we’ve noticed. According to our polling (Survation, Nov 2015) 73% of us think that we should be consulted before services are contracted out to private companies. The majority of the country want local councils to run services as a default, only switching to private if the council fails to run the a good quality service at a reasonable cost.
More damningly, we found that companies who take contracts from local councils are widely mistrusted by the public. Only 5% and 7% of people polled had a ‘high level of trust’ in the outsourcing companies Serco and Capita, respectively.
Since 2018, outsourcing has descended into chaos. In 2018, outsourcing giant Carillion went into liquidation. The company had racked up £1.5bn in debts after losing money on several big contracts. 2,403 people were made redundant after Carillion collapsed. The collapse saw work being done for crucial services such as schools and hospitals delayed by months.
Then, in 2019, another major ourtsourcing firm – Interserve – went into administration. Interserve’s share price was plummeting from 2014. In 2018 its share price fell by 70%. Alongside this, it faced major financial difficulties due to delayed and cancelled construction contracts, as well as its bungled work in waste-to-energy projects in which it accrued £630 million of debt.
The collapse of Carillion and Interserve demonstrates the impact outsourcing has on our public services. It puts them at the whims of markets and at the mercy of private companies’ ability to make profit from them.
We can’t risk important services being subject to the kind of uncertainty they face in the hands of companies like Carillion and Interserve.
Luckily, insourced council services are working brilliantly. Take Sevenoaks, who insourced all of their local services and have balanced their budget.
Read more about the case for local public ownership, and find more examples of great local councils running fantastic public services in house.
Still don’t believe us? Check out our Local Public Ownership Awards:
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