After 40 years of awarding contracts to the private sector, insourcing is now the way for local authorities to cut costs and improve quality

Chris Morgan got a job as an electrician repairing council houses in Stoke-on-Trent just over five years ago. Although he enjoyed his job, Morgan, 36, says he did not always feel he could raise issues with his line manager. “Our supervisors weren’t always in the trade we were in,” he says. The city council had outsourced its housing repairs service to Kier group in 2008. But since the council brought the work in-house last year, Morgan says he feels happier. “I know my supervisor knows what I’m on about. It makes me more confident,” he says. “We have had extra talks, health and safety training. They have put in a new canteen and showers, so the facilities are better too.” And with a £1,000 pay rise, plus an extra £500 for doing asbestos work, Morgan is also a bit better off.

Now all repairs, maintenance and home improvements to the council’s housing stock, as well as public building maintenance, are in-house.

A report by the Association for Public Service Excellence (APSE) published today, shows that Stoke is far from unusual, with 77% of UK councils planning to bring services back in-house this year. And the report calculates that between 2016 and 2018, at least 220 local government contracts have been brought back into council control.

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Outsourcing began under Margaret Thatcher with compulsory competitive tendering back in the 1980s and was embraced wholeheartely by New Labour. Now attitudes seem to be hardening against contracting out. “What we are seeing is a 40-year experiment in public service delivery being put under the microscope,” says Tom Sasse, a senior researcher at the Institute for Government.

The Labour party has pledged that under a Labour government all frontline services would be provided by the public sector, from railways to social care. Even the Conservative government has been forced to look again at outsourcing, renationalising probation services after outsourcing them disastrously failed. And in the NHS, the cervical cancer screening programme for England will be brought back into the health service later this year, after Capita failed to send more than 40,000 women screening invitations and reminder letters to have a smear test.

“A catalogue of failure has shown that private providers have struggled to generate profit and deliver services of the standards that the community expects,” says Paul Evans, director of NHS Support Federation.

“The rise in insourcing shows that commissioners are being forced to recognise this. Not all contracts display problems, but experience now shows that the risk is high.'

For many public sector bodies, bringing services back in-house is increasingly a pragmatic way to cut costs and improve quality. “On its own, it is not an absolute panacea, but there are significant advantages to bringing services back in-house,” says John Tizard, a former Capita executive and now a strategic adviser on public services.

According to today’s report, 78% of local authorities believe insourcing gives them more flexibility, two-thirds say it also saves money, and more than half say it has improved the quality of the service while simplifying how it is managed.

“Insourcing allows councils to regain control over local services,” says Mo Baines, head of communication and coordination at APSE and author of the APSE report. “Fragmented service delivery through outsourced contracts has failed to deliver on price and quality. It is no longer a viable option.”

Sasse adds: “In the 1980s, there were typically 20% cost savings by outsourcing services like waste collection, but those efficiencies have now been made.”

Steven Griggs, professor of public policy at the local governance research centre at De Montfort University, says: “In the context of austerity, insourcing offers reductions in management costs that can be used to fund frontline services. If you are locked into long-term contracts, then inevitably cuts will fall on remaining services.”

Some councils have opted to insource because the provider walked away from the contract. In Scotland, Highlands council brought cleaning public lavatories back in-house in 2017 after the provider said it wished to terminate the contract because it was no longer commercially viable without increasing the contract value by just under £450,000: a 31% increase.

Griggs says councils are also finding other benefits. “Insourcing builds in-house capacity, facilitates the joining up of services, shores up financial flexibility, keeps the public pound in the local economy and provides opportunities to work with small- and medium-sized businesses to strengthen local supply chains.”

And in some cases it can generate much needed revenue.

In Stoke, the council created a wholly owned trading company, Unitas, to allow the housing repair team to bid for other contracts and generate profits. As housing revenue grant is ringfenced, any surpluses or profits made by the council have to be spent within that budget. But by creating the trading company, any profits could go back to the council’s general fund.

“Last year we returned £4.6m to the council and provided an improved service,” says Steve Wilson, operations director of Unitas. The company has won contracts worth £2m to refurbish civic and other local buildings. It is also hoping to bid for maintenance work with other housing providers. “Rather than line shareholders’ pockets, this approach has generated income for the council, improved customer service and staff morale,” says Carl Brazier, director of housing and customer services at Stoke city council.

Facebook Twitter Pinterest Street sweepers in Islington, London. The borough has brought about £380m of services back in-house. Photograph: Islington Council

According to Wilson, insourcing Stoke’s housing repairs service has not only improved the terms and conditions of workers such as Morgan, but improved productivity, service quality and stimulated the local economy – just under 80% of goods and parts are bought from local suppliers.

All Unitas employees are on the same terms and conditions as council staff, including membership of the local government pension scheme. Sickness absence has halved from 6% to 3% in less than a year, saving £500,000, while productivity has gone up 15%, says Wilson. “Our staff are doing more work because they are happier.”

Industrial relations have also improved. Steve Blakemore, the staff representative for the Unite trade union at Unitas, says insourcing has improved working relations with management and that Unitas “invests in its employees and promotes wellness and wellbeing. The disciplinary process is used as a last resort.” Liverpool city council has also created a trading company, Liverpool Street Scene Ltd, to run its street cleansing, grounds maintenance and refuse and recycling services in order to save costs and improve quality, as well as trade commercially. Highways maintenance and parks and cemeteries services were transferred to LSSL last year. Insourcing these services will have saved the council £2.5m in the year to April 2020 alone.

Unlike Stoke, however, LSSL staff have retained their previous terms and conditions of employment when they moved to LSSL, so with the exception of death-in-service benefits, which are identical, they largely do not have the same benefits as their council counterparts or membership of the local government pension scheme (apart from some staff with long service who were originally employed by the council before being outsourced). It’s something the council and LSSL hope to tackle in future.

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“LSSL and Liverpool city council, with the support of the trade unions, continue to work together to further improve employment terms for LSSL staff wherever possible,” says Mike Brown, its chief operating officer. But some question the use of trading companies. “I do not think that is precisely insourcing, but is it is returning a service to a form of public ownership. Trading companies have a role but taking care about risk management is essential and commercial expertise is required. They can unfortunately be used to deny decent terms and conditions for staff,” says Tizard. Even for councils not looking to generate profits by insourcing, bringing services back in-house has led to significant savings.

In Cheshire, Halton borough council has saved £750,000 a year by bringing its three leisure centres back in-house, while Nottingham has saved £500,000 annually by insourcing maintenance of its civic buildings and cut the cost of staff catering by 17% by bringing it back in-house.

One of the biggest insourcing programmes has been in the London borough of Islington. Following its 2011 fairness commission, the council has brought back about £380m of services, helping to improve the pay and conditions of 1,200 frontline staff and generating net savings of about £14m for the council. Services brought back in-house include building cleaning; housing repairs and maintenance; waste and recycling; grounds maintenance; and temporary accommodation.

Today’s report argues that the economic case for insourcing means all councils should consider it. “In an age of austerity, councils can no longer afford outsourcing failures. Most can deliver quality services at a better price and without sacrificing the workforce on the altar of the lowest bidder.”