What impact does outsourcing have on public services?

But surveys and opinion polls are pretty consistent in demonstrating public unease and scepticism about the role of private companies in the delivery of public services. A gap has opened up in perception between voters and the political mainstream, as analysis from We Own It shows.

These findings probably reflect a mixture of unease about the actions of specific organisations, particularly those involved in high profile scandals such as the electronic tagging fraud, a sense of loss of accountability and democratic control but also concern at the motives of profit-driven companies and the impact that those will have on service quality.

But what impact does outsourcing have on the nature and quality of public service provision?

A new report from the TUC – Outsourcing Public Services – based on research by the New Economics Foundation and Howard Reed of Landman Economics, tries to look in more detail at this.

First, we looked at outsourcing trends in five key public service areas: health, social care, local government, employment services and offender management.

Within each sector the historical developments which have led to services being outsourced are distinct. The character of the service provided, as well as the institutional structures, rules and regulations and market composition differ in each case.

However, despite unique differences within each area, there are nevertheless some consistent themes which arise across the different public service sectors. Our research identified 5 key issues that were common to all areas of public service outsourcing

• There is a tendency towards market concentration – in effective market areas, whether that is on a national or local level. Even in areas with low market entry costs and numerous providers, such as social care, there is a tendency toward concentration on a local level which, in the case of social care, is the effective market area.
• Private sector providers dominate the market – despite current government narrative around the diversity of provision and the role of charities, community organisations, social enterprises and mutuals playing a part in provision, it is the private sector that dominates both in terms of delivering services but also in capturing prime contractor position with subsequent control over supply chains.
• Accountability is compromised by a lack of transparency – this is particularly evident regarding ownership and corporate governance among private providers, exacerbated by commercial confidentiality and the lack of exposure to Freedom of Information and other transparency requirements applied to public providers.
• Quality outcomes are difficult to specify, measure and price – particularly in ‘relational’ services based on high-quality human relationships. Attempts to use pricing mechanisms to incentivise behaviour have largely failed to prevent ‘gaming’ by contractors.
• Margins have been increased through downward pressure on headcount, pay and conditions of public service workers – particularly within highly specified contracts where the workforce forms such a large proportion of provider costs.

This last point is of particular relevance. Understanding the impact on the workforce is important in two ways.

In the first place public services employ many thousands of workers and so have an impact on labour market trends with implications for individuals, the economy and wider society.  But in the second place, with an absence of direct service quality monitoring data, a useful proxy is to measure aspects of the treatment and quality of the workforce which is correlated with service quality. 

This is particularly true for ‘relational’ services, where human interaction is at the heart of the service provided. It is a safe assumption to make, that you would expect a higher quality of service for, say, a parent receiving social care in a domestic or residential setting from  well trained, motivated, well-remunerated workers who were familiar from one day to the next.

For this study we considered the possibility of analysing the workforce impacts from outsourcing public services sector by sector.  We found, however, that this approach yielded limited evidence that risked being somewhat patchy, inconsistent and anecdotal. 

Instead we chose to Labour Force Survey data to analyse working conditions as a proxy for service quality, comparing and contrasting ten occupations thought to provide meaningful comparison in terms of jobs performed across the public, private and voluntary sector and that have experienced significant outsourcing in recent years.

This is what we found:

Workers in the private sector during 2014 have been less respected, given more insecure working arrangements, and – for health and social care occupations – lower qualified than in the public sector, all while having to make do on less pay.

Excessive hours: The private sector has a larger proportion of full-time employees who regularly work excessive overtime – over 48 hours per week. Occupations that particularly stand out are security guards and related occupations, where 18.2 per cent of those working in the private sector record working long hours, compared with just 1.5 per cent in the public sector.

A comparison by sector and occupation of full-time employees shows that for nine out of the 10 occupations there are a greater proportion of private sector employees working long hours. In the 10^th occupation—youth and community workers, public and private are even on this measure.

However, as public sector budgets have come under increasing strain, many public sector employees have been increasingly overstretched as well. This is best demonstrated by unpaid overtime, which TUC analysis has previously shown to be a much larger problem in the public sector than the private sector.

Proportion of workers reporting regularly working long hours
	Sector
Occupation	Public	Private	Voluntary
Residential care workers	1.9%	3.2%	0.0%
Senior care workers	0.0%	4.3%	0.0%
Nurses	0.4%	2.5%	0.0%
Youth and community workers	0.0%	0.0%	0.0%
Nursery nurses and assistants	0.0%	1.2%	0.0%
Nursing auxiliaries and assistants	0.9%	4.7%	0.0%
Cleaners and domestics	0.6%	1.0%	0.0%
Prison officers	1.8%	4.8%	*
Security guards and related occupations	1.5%	18.2%	*
Kitchen and catering assistants	0.0%	1.3%	0.0%
*insufficient sample size for reliable estimate

Shorter job tenure: Private sector employees have shorter tenures measured by months, which suggests higher turnover, than the public sector.

For example, the median tenure for private youth and community workers is just 11 months—less than a year—while in the public sector it is nearly eight times longer at 87 months. Additionally, the median tenure for private sector residential care workers is 29 months, while in the public sector it is more than three times longer at 96 months.

Median Job tenure in months
	Sector
Occupation	Public	Private	Voluntary
Residential care workers	96	29	46
Senior care workers	132	60	132
Nurses	120	51	26
Youth and community workers	87	11	33
Nursery nurses and assistants	96	35	74
Nursing auxiliaries and assistants	81	43	45
Cleaners and domestics	80	38	70
Prison officers	132	120	*
Security guards and related occupations	108	48	*
Kitchen and catering assistants	75	19	16
*insufficient sample size for reliable estimate

More insecure working arrangements: The private sector has a larger proportion of employees who would like to work more hours than they currently are getting than in the public sector. The private sector has also a larger proportion of employees who are on short-term contracts, and a larger proportion who are agency workers or self-employed.

The proportion of employees by sector in each occupation who are on short-term contracts is defined as those on a contract that is not permanent in some way, whether it be an agency job, casual or seasonal job, fixed term contract or something else. In seven out of the 10 occupations studied, the proportion of employees on short-term contracts is higher in the private sector than in the public sector.  

In some cases the differences are quite large. For example, among youth and community workers in the private sector, 17.9 per cent are working on short-term contracts compared with just 8.5 per cent in the public sector. Similarly, for kitchen and catering assistants the rates are 12.3 per cent and 7.9 per cent.

The proportion of employees in the private sector who reported being employed by an agency is higher than for the public sector in eight of 10 occupations and the proportion of employees in the private sector who reported being self-employed is also higher than for the public sector in eight of 10 occupations.

 Lower qualified: Private sector employees in health and social care occupations are less likely to have a degree or other higher education qualification and in some cases more likely to have no qualifications at all.

For the health and social care related occupations analysed, including residential care workers, senior care workers, nurses, nursery nurses and assistants, and nursing auxiliary and assistants, employees in the private sector are less likely to have a degree. So for example, only 8.9 per cent of senior care workers in the private sector have degrees compared with 38.9 per cent in the public sector. For nursery nurses and assistants, just 9.2 per cent in the private sector hold degrees compared with 16.8 per cent in the public sector. Comparable rates for nurses are 41.5 per cent and 51.9 per cent.

Lower pay: The private sector has lower pay than the public sector measured by median hourly wages.

Higher public sector wages in the health and social care occupations make good sense because, as explained in the previous section, employees in these occupations tend to be better qualified. However, that makes the case for less, not more, privatisation if the government is genuinely concerned about improving service provision.

Furthermore, many of the occupations analysed here are fairly low paid to start with in comparison to most people in the UK, regardless of sector. The median hourly wage for all employees in the UK has been £11.11 over the first three quarters of 2014. Even in the public sector, the median hourly wage in five of the 10 occupations is lower than this. In the private and voluntary sectors, all the occupations analysed except nurses are below the national hourly median.

Median hourly wages by occupation across sectors
	Sector
Occupation	Public	Private	Voluntary
Residential care workers	£9.45	£7.23	£8.50
Senior care workers	£14.19	£7.30	£10.57
Nurses	£15.18	£13.74	£14.11
Youth and community workers	£12.49	£11.00	£10.50
Nursery nurses and assistants	£10.13	£6.25	£6.90
Nursing auxiliaries and assistants	£9.71	£7.91	£9.11
Cleaners and domestics	£7.20	£6.45	£7.25
Prison officers	£14.18	£9.98	*
Security guards and related occupations	£12.02	£8.65	*
Kitchen and catering assistants	£6.67	£6.25	£6.86
*insufficient sample size for reliable estimate

These findings suggest that workers who are employed to deliver public services by private sector contractors deliver under fewer protections and poorer working conditions than their public sector equivalents. This issue was recently explored by the New Economics Foundation in a report for UNISON.

Other workforce impacts which are not captured in the LFS data but which have been described elsewhere include fragmentation whereby a previously single workforce employed by the public sector becomes disaggregated across a number of different employers, particularly the case for local government workers. This has been linked with deterioration in the consistency of service provision.

TUPE provisions are intended to protect workers who are transferred from public sector to private sector employment on outsourcing of a service. But this did not prevent newly hired employees working under contracts with substantially worse pay and conditions.  To tackle the problem of a two-tier workforce a ‘Code of Practice on Workforce Matters in Local Authority Service Contracts’ was adopted in 2003 to ensure that workers in the same service were similarly contracted. Subsequently, however, this was retracted in 2010 by the Coalition Government, leaving public service workers at risk once again from benchmarking of pay and conditions to much lower standards.

While we believe that this analysis serves as a useful proxy for service quality, more work clearly needs to be done to ensure effective capture of the quality impacts of public service outsourcing.

Our overall conclusion from this work is that a robust framework for assessing quality and social value in public service design and delivery must be a priority. This becomes even more important where new models of outsourcing grow and change public services in fundamental ways. The social value implications are vital for making an objective assessment of changes in quality and cost.

It should start from a definition of what social value means in the context of public service provision and go on to propose a broad set of qualitative and quantitative indicators that can be applied and that can push thinking and accountability structures further than a narrow focus on cost savings and perceived efficiencies.

 At the very least such a framework would need to include measures to capture full costs, and indicators capable of shedding light on service quality experience, not just performance against pre-determined targets.

We contend that commissioning and contracting arrangements with providers could embed such a monitoring and evaluation system in order to build a clear evidence base to inform debate and decision-making in the future. 

Only then can theories around competitiveness, innovative potential and incentives really be opened up to examination.

Postscript: As if to bear out the point we make in opening, that the public are increasingly sceptical of the value of private sector delivery of public services, YouGov published new poll findings that again show overwhelming support for public ownership.