Institute for Government report claims returning to in-house control could improve quality and deliver cost benefits

The government should look at outsourced service and consider bringing some back in house, think tank the Institute for Government has said, arguing that doing so could improve their quality.

In a report following last week’s announcement that more probation services are to be renationalised, the IfG argued that bringing privately run public services back under government control could also make them more reliable and better value for money.

Among the success stories of services that have been returned to in-house management are some high-profile technology deals.

The Driver and Vehicle Licensing Agency’s decision to move its IT services back in house, for example, has saved a reported £60m, while “several” local authorities have improved the quality and reliability of services by insourcing them.

Public bodies should consider following this lead in four circumstances, the think tank said: 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 integratingit with another.

The IfG noted the government’s own admission, on announcing the return of probation services to the Ministry of Justice’s control from June 2021, that it needed to be flexible in responding to any “future challenges that Covid-19 presents”.

The coronavirus crisis has forced the government to intervene in the delivery of several services, the report said. For example, the NHS has negotiated an agreement to use the entire capacity of private hospitals to treat coronavirus 
patients, while the Department for Transport has bailed out rail and bus operators.

While these are short-term measures, the IfG said the pandemic had coincided with a growing interest in bringing outsourced services back in house. This interest, among both government and public bodies like the NHS, comes after four decades of successive governments extending the role of the private sector in government work.

There have been several success stories where public bodies have taken control of services that were previously privatised, the think tank said – usually where outsourcing “has not worked or has ceased to work”.

However, it said any such move should be taken with caution. Plans to bring any services back in house should begin two years in advance and include a pilot scheme in the case of national or complex services.

And government bodies should conduct a thorough review of any services they want to bring in house, including their budget and staffing arrangements, and hire experienced managers to oversee the transition, the report said.

“Just as with contracting out, government bodies must be clear about where theycan do things better – and where they cannot,” it said. “Decisions about how services are delivered should be based not on whim, assumption or ideology but on rigorous cost-benefit assessment.”

It added: “The ultimate ambition should be that for each service they run, government bodies are able to switch from more use of external providers to more direct control, and vice versa, based on their assessment of the circumstances they face. Such an approach would hold on to what has worked over the last 40 years while allowing government to run better, cheaper services itself where it can.”