A mixed economy of service delivery: CSR 2010
What we know
Over the last 10 years, public expenditure has risen by over 10.7 per cent from 34.75 to 45.53 per cent of GDP (PDF). The Government views the entry of new providers into the welfare, education, social care, criminal justice and healthcare systems as essential to bring this growth rate down and improve services to the end user.
In parallel, public bodies expect to accelerate their corporate outsourcing programmes to produce savings of between 20 and 30 per cent. Outsourcing firms estimate that only 6 per cent of the £94 billion market for business process outsourcing has been accessed so far, with significant opportunity for growth in the public sector.
The top 33 local authorities spend 8 times more on goods and services then the largest central departments. Councils spend around £42 billion each year on external contracts – over 40 per cent of their total expenditure. Despite this, external spend is set to rise dramatically through the Spending Review and other initiatives such as localism. Our analysis suggests that Third-party suppliers will make up 44 per cent of total public sector spend by 2014/15.
In the past, delivery of large government projects has sometimes involved tensions between the intentions and expectations of government commissioners and suppliers seeking to maximise profitability. Contracts and contract management will now need to be updated to reflect the changing landscape of public services that switches emphasis from provider inputs to outputs, and places new expectations on the financial and operating integrity of partners.
Government’s retreat from direct delivery also invites uncertainty around how new public markets will operate. Properly functioning markets will be essential to the success of supply side reforms across public services.