Labour’s new insourcing policy is a capitulation to the public sector unions

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Putting support services such as cleaning, security, and building maintenance out to tender has been a significant success since the policy was first introduced in the 1980s. Starting in local government but extended to central government, such services have cost less and been delivered to a higher standard as a result of competition.

Yet Labour, in hock to the public sector unions, are now proceeding with a Corbyn-era policy to revert to monopoly public sector provision.

“Labour will end the current presumption in favour of outsourcing public services and introduce a presumption in favour of insourcing,” stated Corbyn’s losing 2019 manifesto, alongside related policies of nationalising rail, mail, water, and energy.

At the time, Corbyn’s approach was rightly attacked as costly and ideologically retrograde, threatening efficiency, innovation, and the public finances. I estimated that the application of insourcing to local government alone would cost some £12 billion. There were even critics from within the Labour Party. For example, Dan Corry, former Head of the Number 10 Policy Unit under Gordon Brown, admitted that contracting out “was not just a Thatcherite plot. There were cases where public sector monopoly provision was of poor quality and poor value for money and the forces to make it better seemed to be lacking. Throwing in ‘the public service ethos’ as something public sector provision automatically has as an answer to everything is a little naïve and ahistorical.”

It is thus most unfortunate that Labour have now resurrected Corbyn’s retrograde policy. This was heralded by Angela Rayner in 2023, who announced “When Labour gets into power, our procurement policy will see the biggest wave of insourcing back into our public services for a generation.”

After a sustained campaign by the PCS, Unite, Unison, GMB, RMT, UCU, NEU and NASUWT unions, Rachel Reeves announced Labour’s new insourcing policy on June 17. Every central government contract worth over £1 million will now trigger a mandatory so-called ‘public interest test’, requiring an assessment of whether the work can be done in-house before any procurement starts. PCS union general secretary Fran Heathcote said: “This is a huge victory for members & a clear vindication of our campaign for insourcing.”

Labour’s new policy basically blocks competition as the guidelines for the public interest test point clearly towards bringing services back in-house. Officials are instructed that value for money should look beyond price to “whole life costs”, “social value” and “wider economic and social impacts”. Amazingly, there is also a requirement to consult with trade unions:

‘Contracting authorities should also take a consultative approach and engage with
trade unions, the wider workforce and service end-users to inform their approach.
Trade unions are likely to support the test by providing frontline operational insights
and evidence regarding historical employment practices, workforce resilience and the
potential social value impacts of direct delivery.’

Rachel Reeves said: ‘I am determined to change the UK’s economic model so that public services are run in the public interest with more workers brought back in-house.’ It is difficult to understand why it is in the public interest for cleaning services to cost more. The economic model that she supports seems to involve ever-expanding public sector monopoly service provision. In reality the public interest can only be properly determined after a competition between in-house services and outsourced alternatives.

A 2019 Institute for Government report found that ‘Outsourcing has worked best in ‘support services’ that are relatively simple to contract for and deliver: waste collection, cleaning, catering and maintenance. When these services were first outsourced in the 1980s and 1990s, it delivered large savings, often around 20% of annual operating costs, mostly while maintaining levels of quality… It is doubtful that if provision were returned entirely to government hands it would deliver the levels of efficiency currently achieved while competitive pressures remain from private services. Bringing swathes of services back into government hands by default risks throwing away the significant benefits that outsourcing can deliver’.

The evidence of the beneficial impact of competition for the provision of such services is voluminous. A host of academic analyses have found savings in the 15% to 25% range. Back in 1987 the Audit Commission found that costs were significantly higher for services not subjected to competition and that savings of between 15% and 25% could be achieved if a competitive route was taken.

Their report is full of examples such as this one: “Costs of rewiring varied between £218 and £396 per dwelling for private contractors. The cost for work not subject to competition averaged about £600 per dwelling.” The 1991 “Competing for Quality” White Paper found that market testing had cut central-government service costs by about 25%. An important point highlighted in a report by Professor Gary Sturgess is that just the ‘threat of competition’ can have a positive effect on the quality of existing services in the public sector.

According to NAO analysis the value of government spending on outsourced services is of the order of £130 billion per annum. Assuming a modest increased cost of public sector monopoly provision of just 10%, Labour’s insourcing policy will cost taxpayers £13 billion. Obviously. inefficiencies will mount over time so that cost will only rise.

‘Insourcing’ is nothing less than a craven capitulation to the public sector unions, a narrow interest group. Labour should be ashamed.

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