Outsourcing will allow the state to deliver more for less – at long last

If you thought 25pc savings from the Coalition’s fiscal consolidation are a stretch, try 50pc.

That’s what one government department has told Capita, the outsourcing business, it expects to see by the end of a contract it has awarded the company to deliver services previously administered by the state.

Paul Pindar, Capita’s chief executive, delivering interim results yesterday, said he was surprised by the pace and urgency being displayed by the Coalition in tackling the deficit.
On Tuesday Jim Marsh, the chief executive of Cable & Wireless Worldwide (C&WW), said he was surprised by the speed with which spending has already slowed. So similar sentiments from two chief executives doing business with government but Capita’s shares ended up yesterday 3.8pc while C&WW fell 17pc on Tuesday.

The difference? Capita’s business with central government is based on encouraging it to save, C&WW’s is based on encouraging it to spend. I know which business I’d want to be in as we try to cut a £153bn deficit.
In Darlington Capita is being paid to run the Teachers Pension Agency, for instance. The organisation, run by central government, employed 430 civil servants to administer teachers’ pensions with a service that would take up to two weeks to answer members’ queries.
It now takes fewer than 200 people to do the same jobs and answer queries in two minutes.
At the outset the contract offered the Treasury savings of 22pc.
It’s now receiving savings closer to 40pc. And the other 230 civil servants have been redeployed doing other, more interesting and productive work elsewhere.
Another area of improvement that the Coalition can deliver is in procurement. There’s no point deciding to save money and try and improve services by offering contracts to the private sector if the procurement process takes two years. It burns private sector cash in the prolonged bidding process and, most importantly, delays the delivery of savings. Contracts need to be awarded within six months.
Yesterday Pindar revealed that central government spending accounted for 9pc of group revenues. When Labour came to power in 1997 it accounted for 20pc. The reduction reflects how Labour spent more money and employed more civil servants to deliver the services bought.
That’s the trend that needs reversing urgently so that public services are delivered not by public servants necessarily, but by whoever can do the job best at the most competitive rates. It’s a permanent, structural shift in the way the state works and will be one of the few positives to come out of Labour’s disastrous tenure.

Damian Reece, The Telegraph 23-07-2010

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