What's the issue?

UK outsourcing, or external procurement, is now huge in scale, and channels a significant proportion of national and local public budgets. In 2014/15 the UK spent almost one-third of total government expenditure on external suppliers. Past governments’ efforts to steer this spending towards non-profit ‘social’ providers, such as social enterprises and cooperatives, have not relieved the pressure to monetise and commercialise outsourced services, steering them towards profit generation and undermining their focus on social need.

Analysis

From 1997, the concept of ‘social enterprise’ was promoted by New Labour as a welfare reform initiative, because ‘the welfare state's capacity to meet modern social problems is limited’. Since then, a raft of New Labour and Conservative funding and policies have facilitated delivery of public services by the ‘third sector’ organisations with distinct forms of ownership, governance and motivation that operate alongside the public and private sectors. More than £1 billion has now been spent by government and the Big Lottery Fund to subsidise social investment, using private funds, in third sector delivery.

Third sector organisations include social enterprises (accountable to a community or charitable organisation), cooperatives (owned by their employees) and mutuals (owned by their customers as shareholders). Although they claim they are different through seeking to cover their costs while donating or reinvesting any surplus, depending on their structure, some do distribute profits to external investors. Although opposed by many in the cooperative movement, one of the motivations for community interest companies, introduced by New Labour in 2004, was to allow private investment and distribution to investors.

The claim made by this range of ‘social organisations’, often heightened by their being embedded in communities they serve, is their potential to combine the public sector's social purpose with a focus on efficient service delivery and satisfying customer demand. However, many in central and local government now view them simply as low-cost delivery structures, not least because of their exploitation of the voluntary labour and non-financial motivations of their workforce. For public sector workers, outsourcing to these third sector organisations for local government and NHS delivery now represents just as big a threat as outsourcing to the private sector.