Outsourcing: the joke has always been on the workers

Contracting out doesn’t improve efficiency - it just makes it easier to pay people less.

Sara Gorton is a senior national officer at UNISON

During Fair Pay Fortnight lots of attention is rightly being paid to the continuing pay cap being imposed on public sector workers. Yet, just as damaging is the ongoing fragmentation and privatisation of public services and the downward pressure that this exerts on wages, particularly for the low paid.

Lots of claims have been made for the efficiency benefits of outsourcing public services. In his now infamous 1988 pamphlet ‘The Local Right’, Tory minister Nicholas Ridley argued that more outsourcing “…should do enormous amounts to improve standards of efficiency”.

It was an idea which was given such momentum in the 80’s and early 90’s that, I’m sad to say, the 1997 Labour government often seemed powerless in its thrall.

Fast-forward to 2010 and David Cameron is so impressed by the benefits of contracting out that he says we should no longer seek to justify it, but instead “…the state will have to justify why it should ever operate a monopoly.”

We have reached a point where many people simply assume that contracting out improves efficiency and value for money.

Yet basic logic and a growing amount of evidence suggests that where money is saved by outsourcing, it is often at the expense of wages of already low paid public sector workers. Contracting out doesn’t improve efficiency – it just makes it easier to pay people less.

The clearest way of looking at this is to ask (as Zoe Williams does here), how do private sector contractors actually make their money? Or in the case of the community and voluntary sector, how do they balance the books? Have they really invented a quicker, more ‘efficient’ way of cleaning an office or providing care to an elderly person? There is very little evidence to back this claim, and a large amount to the contrary.

Let’s take social care sector as an example. The Resolution Foundation’s analysis of the sector published last year found that the market for providers comprises over 3,000 private and voluntary organisations. To survive they have felt compelled “to enhance the flexibility of their workforce … and …by adopting various strategies to reduce expenditure on the wages”.

In short, it’s been the workers who have paid the price of ‘efficiency’.

And we are not talking about minor reductions here. Resolution Foundation found that between 160,000 and 220,000 direct care workers are likely to be on less than the National Minimum Wage (that’s the legal minimum, by the way). A later report from the same organisation found that around 150,000 domiciliary care-workers are employed on zero-hours contracts.

The situation is perhaps most stark in social care, but the same pattern has emerged wherever large scale outsourcing of public services has taken place. Take on the contract, fragment terms and conditions, drive down ‘costs’ (translation: wages) and send a profit back to your shareholders.

So why are we suddenly hearing so much more about problems with outsourcing? Basically, the system has broken down. When there was plenty of money around for more adequately funded contracts, the wheels were usually sufficiently greased.

But so severe has the austerity programme been, particularly for local authorities, that even an attack on staff terms and conditions is sometimes not enough to turn a profit. Dodgy charging systems, fake performance indicators or outright service failure can protect the margins for a while, but eventually there has to be a reckoning.

It is precisely this situation which prompted the chief executive of Britain’s biggest local authority to say that “In current circumstances…traditional outsourcing model doesn’t cut the mustard”.

The national media will focus on the big Whitehall contracts which go awry, but the real story is in the local authorities and hospitals up and down the land. Contract after contract is being cancelled, mutually concluded and quietly brought back in-house. The most recent example being Liverpool Direct.

So what has the government’s response been? How do you make this system work in the context of austerity economics?

The rational response might be to row-back on mass privatisations and learn from the numerous public bodies who are finding that they can run their services perfectly efficiently by taking them back in-house.

But in the mind of coalition ministers there is but one thing to do: make it easier for contractors to attack the terms and conditions of public service workers. The weakening of TUPE protections and the downgrading of existing collective agreements is a clear attempt to breathe new life into an outsourcing model which relies on low wages.

Which leaves an interesting question for a future Labour government. Do they continue with this failed system, built on a project to drive down workers wages?  Or do they take a new approach to public sector reform which is not automatically hostile to in-house delivery?

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3 Responses to “Outsourcing: the joke has always been on the workers”

  1. blarg1987

    The whole idea of privatisation and outsourcing has just been decieving the public.

    What has happened in most cases is costs have in reality gone up or we get poor contractors and instead of the state cancelling the contract and taking it back in house (which would be seen to loose face) they bite the bullet and chuck more money at it.

    What has not happened and in my view should is that the minister who was responsible for said outsourcing be it ormer or current should have to be held to account for the consequences of the political decisions they make.

    This may involve currption charges brought against some former MP’s as they may sit on the board of companies that they approved to be privatised / outsourced which could mean the contract is null and void and cancellation charges can’t be forced onto the state.

    LFF should do an investogation onto this and pass the evidence to the police and would be interestng to see what they do, if they sit on it, leak it to the mass media if they claim they will act on it keep chasing them up.

  2. Amelia Willson

    Very informative content !

    Going to read more of your articles

  3. Jayne

    I think that out sourcing has decimated the quality of residential care for the elderly and children alike. This service should definitely be returned ‘in house’ its he only way that councils can be truly accountable for the care of the most vulnerable in society.

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