The government has no choice but to outsource services because, after decades of doing so, it no longer has the capacity to carry out work in-house, the head of the public spending watchdog told MPs.

“I think there are a lot of areas where the government does not have the capacity to do anything but outsource,” Sir Amyas Morse, head of the National Audit Office said.

He added that in many areas, the government didn't even have the resources to act as a prime contractor who runs a project while subcontracting work out.

“The government is not set up to deliver all of these contracts itself, and that's been the case for a number of years,” Sir Amyas told the Public Administration and Constitutional Affairs Committee on Tuesday.

He added that he was not saying that this was a fault, but it was “a choice that governments have made over time”.

The comments come after the high-profile collapse of government contractor Carillion in January which threw hundreds of public-sector contracts into turmoil. Many people lost their jobs as a result and the company left behind a £600m pension black hole.

The debacle has led to a widespread debate about the wholesale outsourcing of public services, a process which critics argue has been hastened by austerity measures.

Questioned by MPs about what could be learned from the Carillion debacle Sir Amyas said, "governments need a fuller understanding of what the consequences of outsourcing are going to be”, and that the Carillion case illustrated that there was a “considerable way to go” in that regard.

He argued that there had been some improvements over the last three decades during which contracting out services has become increasingly common.

For example, the government can now claw back money on private finance initiative (PFI) projects where contractors have made excessive projects because borrowing costs have changed over time.

“There definitely is a process of something that starts off in a somewhat simple model, criticism builds up over a loss of public value and then there is a reaction," Sir Amyas aid.