Is Corbyn right to pledge to ‘insource’ council services?

Author: Jack Airey   |   05/09/2016

If successful in the Labour leadership election and then a general election, one of the ten policies which Jeremy Corbyn has said he would implement as Prime Minister is “to ‘insource’ our public and local council services”. Similar to his and fellow leadership candidate Owen Smith’s pledges to establish a “fully public” NHS, this would mean that all services provided by the council would also be delivered by them.

In many ways this is music to his supporters’ ears. The delivery of public services by private providers is a totemic issue not just for many in the Labour Party, but also the general public as a whole – a recent poll showed three in five people think that councils should run services by default. After all, who would object to ‘keeping council services public’?

But while the policy is likely to be effective in winning a leadership election, what it would actually mean in practice is really quite complicated.

How many and what services are outsourced?

All sorts of services are outsourced by local authorities, but they tend to be back office functions such as human resources, revenue and benefits and IT services. Outsourced services are delivered by a variety of different providers, from private companies to the voluntary sector.

Last year £756 million worth of outsourcing contracts were signed by local government. This was an increase of 23% from 2014 and, as the graph below shows, is indicative of the steady rise in spending by local authorities on external providers.

Between 2000-01 to 2013-14, procurement expenditure on external contractors as a percentage of total procurement expenditure rose from 34.5% to 49.8%. Although there is no official data beyond 2013-14, it is likely that over half of all council expenditure on the procurement of services is now spent with external contractors.

Sources: Local Government Financial Statistics England 2016 (for data from 2010-11 to 2013-14), 2012 (for data from 2006-07 to 2009-10), 2008 (for data from 2003-04 to 2005-06), 2004 (for 2002-03 data), 2003 for (2001-02 data) and 2002 (for 2000-01 data).

Why do councils outsource?

As we outlined in our recent report with the Local Government Association, dwindling funding has forced local authorities of all types of political orientation and size to completely rethink how they provide services to local residents. Many are becoming more and more entrepreneurial, of which re-evaluating their commissioning approach – which can sometimes mean outsourcing – is one part. Without such activities, 8/10 councils say they would have to cut services and raise taxes.

The reality is that many councils – Labour councils – use a variety of non-state providers to deliver statutory services. ‘Cooperative Councils’ in particular, which a large number of Labour-controlled councils pride themselves to be (such as Oldham and Lambeth), tend to commission services to local mutuals and voluntary organisations. They do so because they want local citizens to be actively involved in designing the service they use, rather than passive recipients.

Local flexibility is key

None of this is to say that councils cannot or should not run services themselves. Indeed some local authorities are already bringing services back in-house. There are often good reasons to do so. A deal may have been poor value and the council may have felt they could deliver the service better and more efficiently in-house. Contract inflexibilities may also hamper efforts to integrate services.

The point is that decisions to outsource or insource services are rarely driven by ideology; but what local councillors feel is the best way of delivering the best possible services for their residents within their local authority’s budget (in our Commercial Councils report we found that 84% of councils felt their entrepreneurialism had driven better commissioning outcomes). A blanket ban on commissioning non-state providers of council services would not allow that, and moreover would completely override local decision making.

The costs of insourcing

Perhaps more pertinently for the local taxpayers, it could also have financial implications for councils. The average outsourcing contract signed by councils last year was worth £37.8 million and will last 66 months. That is either a substantial amount of compensation to be paid or a long time to wait.

Taking the most recent figure for expenditure on external contractors by English local authorities – £30.2 billion in 2013/14 – we have calculated the possible cost of insourcing council services.

How much compensation would need to be paid to providers if councils ended contracts without good reason, we do not know for sure. But it certainly will not come cheap. Whether this would be a huge waste of money, or a necessary cost of purity, is up to the reader.