Study from IfG finds that outsourcing accounts for a third of all Whitehall spending
One third of all government spending is with outsourcing companies, with four departments spending more than half of all their revenue with outside firms, an Institute for Government report has found.
The analysis found that government spends £284bn with external suppliers, and the think-tank said it showed the government procurement could not easily be abandoned even if politicians wanted.
The review highlighted that four departments – the Ministry of Justice, the Department for Transport, the Department for International Trade and the Department for Environment, Food and Rural Affairs – spent more than half of their entire budgets with external suppliers last year.
Government spending with private firms covers everything that the public sector requires, from goods such as stationery and medicine to the construction of schools and roads, and from back office functions such as IT and HR to frontline services such as probation and social care.
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However, despite the scale of outsourcing – and financial problems in the supplier sector that included the collapse of Carillion last January and the planned debt-for-equity swap at Interserve – the IfG found that the data available on procurement and outsourcing is poor.
IfG research director Emma Norris said that with a clearer picture of how much is spent, on what and with which suppliers, government could make better-informed spending decisions.
“Government is spending hundreds of billions of pounds every year with external suppliers – but there are signs that some players involved in outsourcing are struggling, most recently Interserve,” she said.
But “government does not have the data it needs on its own outsourcing and procurement,” she added. “It needs to look hard at the experience of the past 30 years of outsourcing, develop a much stronger sense of what has worked well and what has not, and urgently review the health of its procurement markets.”
Despite the financial troubles of some of the sector’s key players, which has also included a profit warning issued by Capita and a £190m loss at Amey in 2017 – the IfG found that the largest suppliers are winning more and more government business. Last year, roughly a fifth of all central government procurement spending was spent with ‘strategic suppliers’ – companies that receive over £100m in revenue a year from government – up from around an eighth in 2013. This is risky for government, the IfG highlighted, as its top three suppliers in 2016-17 – Capita, Carillion, and Amey – have all experienced financial difficulties.
Recent quarterly statistics from outsourcing firm Arvato showed that, in 2018’s third quarter, UK government bodies signed contracts with external providers worth a total of £1.42bn. Almost 90% of this – £1.27bn – was spent on IT outsourcing deals.
Arvato claimed that much of this spending represented central-government bodies acquiring applications, infrastructure and cloud services via the G-Cloud framework.