Four - Solutions in Ownership

Summary

Public ownership

Problems and associated costs of outsourcing (including its regulation) may lead the public sector to conclude that it would in fact be cheaper and better to bring a public service back under public control. Even just by threatening to take the service in-house, the state can exercise some leverage over existing private contractors. Public sector organizations, therefore, tend to increasingly see the option of bringing services back into public ownership as a strategic governance tool that might improve the delivery of public services and support the long-term development of public capabilities, notwithstanding the broader direction of travel, which has seen a significant rise in outsourcing. Indeed, insourcing happens for a variety of reasons, including in some cases where outsourcing has worked well, enabling the public sector, by temporarily handing the service over to the private sector, to improve its capabilities and to eventually reabsorb it into public management.

Evidence across the UK suggests, however, that re-internalization is currently much more common for services outsourced by local authorities than for centrally outsourced services and that it is often dependent on both sector and context. A relatively rare and therefore important recent example of insourcing in UK central government relates to the decision by the UK Ministry of Justice in 2020 to re-internalize probation services, which had been privatized no earlier than 2015. In announcing the move to insourcing, the Ministry cited the need for greater ‘flexibility, control and resilience’ as a result of the COVID-19 pandemic, in a sector that suffered from multiple outsourcing failures. On the other hand, growing calls for taking prison services directly back into public hands, for similar reasons, have so far been resisted by government.

By taking a service back in-house and under public governance, the state eliminates the risk of exploitation that results from being locked into a public contract that is badly designed, highly formalized and impossible to renegotiate. It can, as a result, also assume greater control over ongoing resource allocation, which it may find helpful – for example, where, in the context of economic austerity, public contract payments are effectively ring-fenced from public budget reductions. In some cases, insourcing may help local governments to generate additional income directly by commercializing certain service elements.