UK: A Fine Romance: Forging New Relationships Between The Private And Public Sector

Last Updated: 11 February 2009
Article by Avril Smith

The debate concerning the role of private enterprise in the public sector is well documented and often divisive. The question is, how is the role of the private sector affected by the financial crisis? Will the opportunities reduce if the government endeavours to claw back some of its control as it has with the banks and what will happen to the projects already in the pipeline which may now suffer from lack of funding, insolvencies and risk averse investors? Will opportunities remain for forging new relationships between the public and private sectors?

Those who champion the role of the private sector claim that it delivers many benefits such as increased competition and innovation, lower costs, less red tape and a higher quality. However, critics argue that there is a core preserve of state functions, such as the NHS and the police, which should never be subject to private sector intervention or control, arguing that the most sensitive state services require more than just a profit orientated approach.

Wherever the balance lies, there is no debating the fact that the private sector has been and continues to play a significant role in discharging government functions.

A review of the public sector undertaken last year by DeAnne Julius for the Department for Business, Enterprise and Regulatory Reform found that the industry turnover for 2007/8 amounted to £79 billion. Together with the government's sustained spending power during a financial crisis and the use of investment in infrastructure as a stimulus for the economy, the outlook for private enterprise in relation to public procurement and outsourcing does not look as bleak as might perhaps be expected.

In such times, the level of certainty found in the public sector offers a safe house for risk averse private enterprises, and indeed, commentators are suggesting that this recession presents many opportunities for the private sector to go beyond a safe partner relationship with the public sector and instead to forge new and profitable relationships.

Existing contracts and those already in the pipeline are not likely to fall foul of the effects of the credit crunch due to the stability offered to the public sector by Gordon Brown's three year spending plan. The Government has taken the decision to advance £3 billion of capital spending from 2010/11 to 2008/9 and 2009/10 to support the domestic UK economy and to be applied towards those projects that are able to be brought forward to encourage spending in a sustainable way. The monies will be used for projects including the following:

  • A £700 million extension to motorways and 200 new carriages on the rail network;
  • £775 million investment in housing and regeneration including £200 million on the Decent Homes programme to increase energy efficiency measures in council homes. £150 million on social rented housing, £175 million for major repairs to council housing and £100 million to finance regeneration and housing projects;
  • £800 million in the schools capital programmes providing opportunities for small businesses locally and allowing schools and children to benefit early from important projects;
  • £442 million on capital projects to improve further education infrastructure and facilities at higher education institutions;
  • £150 million for energy efficiency and heating measures to assist people to heat their homes;
  • A £100 million upgrade to 600 GP surgeries to become training practices;
  • £20 million investment in flood defences and £5 million improvements to the waterways network; and
  • £20m to improve the estates of the Serious Organised Crime Agency and the National Police Improvement Agency developing and installing high technology systems and enhancing intelligence gathering against serious organised crime.

It is also predicted that the level of outsourcing will increase as the economic downturn urges the Government to cut costs and avert risk. Some commentators argue that the financial turmoil has presented an opportunity for minsters to revaluate the ways in which public finances are used, the inflexibility of public sector operations and the confused payment structure for staff, which could all be tackled via outsourcing or privatisation. The Government has arguably never been more open to persuasion by private companies on the merits of the role of private enterprise and it is for such companies to show that they can provide quality services at a reasonable cost.

On a local level, Essex County Council announced last November that it was looking to embark upon one of the government's largest outsourcing projects in a bid to reduce costs during the downturn. Up to £4.5 billion has been designated for the project which invites bidders to pitch for any or all of the Council's services including social care, education and corporate services over an eight year period. A number of businesses have already been short listed and Essex County Council expect to receive business proposals by February 2009.

In a similar fashion to Essex County Council, the London Borough of Barnet announced its plans in December 2008 to slim down its in-house provision of services. Precise details of the scheme have not yet been revealed but a £250,000 feasibility study has just been launched. Under the plans, the Council itself would be of strategic as opposed to practical and operational value. The joint venture between the Council and outsourcers would provide the delivery of services. Barnet Council leader Mike Freer has stated that the move is being considered due to financial reductions and pressure.

Furthermore, Government is seeking to use competition as a catalyst for improved efficiency and effectiveness in the National Offender Management Service whereby all new prisons built in the next three years will be built and managed by the private sector. High cost prisons or those deemed to be failing will, unless they improve, have their services contracted out without a public sector bid. Government plans to privatise the public sector status of the Met Office, Royal Mint and Ordnance Survey are also under review.

The public sector is demand led, and in times of recession greater demand is placed on services such as education, public sector housing and social services resulting in an increase in the level of investment by the Government, making the public sector more robust than the private sector in such economic circumstances. Such investment offers a wealth of opportunities for the private sector to take advantage of the public sector's willingness to entertain proposals from the private sector on how they can deliver, low risk, quality services at a recession rate cost in areas that historically have been the exclusive domain of the state

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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