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Graham Davies
Graeme Davies writes for Investors Chronicle

02 December 2019 | Graeme Davies

The private sector must step up service value, says Graeme Davies.

While political debate in this nation continues to be dominated by Brexit, clear political divisions are being mirrored elsewhere – none more so than in the field of public service provision and outsourcing delivery of public services to private operators. In particular, the Labour Party’s desire to bring significant assets and services back under the auspices of the public sector is in sharp contrast with the increasingly free-market thinking of the Conservative frontbench. 

What is clear is that the focus on getting better value for money from the public sector, and in particular from private sector involvement in public services, is likely to get sharper still no matter which ideology wins out. And it has to. A recent report by independent think tank Reform suggests that as much as £14 billion of taxpayers’ money has been ‘wasted’ since 2016 on poorly executed and managed public sector contracts. Reform analysed 52 formal investigations of public sector contracts in the past three years to come up with this figure, highlighting the collapse of Carillion as well as contracts for army recruitment and in the education sector as major contributors. 

But bringing vast swathes of public services back in-house, as Labour advocates, is not a panacea. The cost of doing so is prohibitive; a third of the government’s annual budget, or close to £300 billion a year, is spent with private providers and the government does not have deep enough pockets to bring this back on to the books even with the cost of borrowing at historic lows. 

Reform is not advocating a wholesale renationalisation. Rather, it points to a lack of coherent regulation of outsourcing and a lack of teeth among those bodies that, in a rather ad hoc manner, oversee such contracts. Currently, a hodgepodge of the National Audit Office and various parliamentary committees fulfils this role, with mixed success. Reform calls for the creation of a regulator with intervention powers to oversee this vast amount of government spending throughout the entire procurement process. 

Even industry operators should welcome the idea of formal regulation, especially if they were given the opportunity to help shape the role and responsibilities of a regulator. 

Whether this proposal sees the light of day remains to be seen. But it is one way a Labour government could justify leaving some elements of public service provision in private hands and the idea might also appeal to a future Conservative government with an eye on expanding private sector involvement in the public sphere. Could we have stumbled upon something that both sides of the political divide might agree on?

Graeme Davies writes for Investors Chronicle