Outsourcing could cut UK deficit, but will suppliers touch it with a barge pole?

It seems to make sense that outsourcing the IT work of government departments will cut costs and help reduce the budget deficit.

But outsourcing in the public sector is a very different challenge to doing it in the private sector. There are many stumbling blocks over staff pay and compensation for those seen as surplus to requirements.

Will any suppliers want to take it on?

Below is the view of Dell Services’ VP EMEA Ferenc Szelenyi on the benefits outsourcing IT would bring the public sector. But at the bottom I have some comment from a prominent outsourcing lawyer to describe why this is not as straight forward as you may think.

“The current UK government expenditure now stands at around £680 billion a year, of which only around £80 billion worth of activity is outsourced. Currently, much of that spending is at a local level, but it is my view that the new coalition should eventually spread this across national government sectors. With every sector currently looking to reduce their operating costs, it is apparent that IT outsourcing has crucial part to play.”
“This is because currently, organisations in the public sector are looking to maintain services as best they can while recognising that there will be less money. Therefore, outsourcing is an ideal fit. Personally speaking, the con/lib coalition should be more concerned with commissioning the right outsourcing services rather than taking tasks on themselves. Therefore, managers in the public sector should turn to IT outsourcing at a time when improving efficiency and cutting costs is imperative. A successful outsourcing strategy provides a medium to long-term solution, which can not only deliver the necessary cost savings to ease the burden of the current deficit, but also provide improved operational efficiency and access to specialist skills and technology. This allows any new or existing government to focus on core (in-house) activities.”

“If you take IT services as a prime example, an outsourcing service provider is better placed than a government body to transfer paper to electronic records, having already made the investment in the required technical equipment, training and skills.”

“Health care is a prime example of a sector that is always being asked to fulfil the escalating needs of the patient, not to mention having to comply with the ever-changing government rules and regulations. This coalition could potentially increase these headaches, as potential indecision in policy making is unlikely to make changes required to stamp authority early on.”

And Mark Lewis, partner and head of outsourcing at law firm Berwin Leighton Paisner, says:

“Outsourcing from the public to the private sector is not straight forward because there are a number of agreements with unions in the public about how members will be treated if transferred to a supplier.”

“These agreements will force private sector outsourcers not to sack staff for a period after transfer and will also require those outsourcers to make pension arrangements for ex public sector workers and enhance redundancy payments.

“All of that means the cost of outsourcing from the public sector is significantly higher than outsourcing from the private sector.”

See also outsourcing expected to increase in local government.

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Outsourcing is a one-way street. Large-scale outsourcing supplier deals are characterised by exploitative employment practices in developing countries and disproportionate management costs to protect service levels.

Suppliers are expert at delivering less at a higher true cost. They present an apparently easy option. If only the public sector could take a lead in reforming and building onshore IT capability. The continuing bad UK economic news and imminent deep public spending cuts are going to drive more outsourcing. UK IT practitioners will struggle to find employment and UK supplier companies won't find realistic business prospects while the outsource companies milk the system.

Spot on, Dizzley. I dunno, maybe I'm just getting too old for this game, but the more I see/hear/read about outsourcing/offshoring/onshoring, the less sense it makes.

Organisations that proudly declare "our people are our greatest asset" will cheerfully fire those people at the drop of a hat and outsource work to other companies who then ship the jobs offshore.

Organisations with responsibilities to safeguard our data cheerfully ship it off around the world, assuring us our data is safe wherever it is, but who wants to bet that within a year or two they'll be hiring staff in Indian prisons to process your passport application or medical tests?

Meanwhile, the same organisations are busy ignoring the thousands of experienced IT workers they have pushed onto the dole, many of whom would work for low salaries if they could actually get a sniff of a job, and insist on importing cheap inexperienced staff from abroad instead.

They shut down graduate recruitment, eliminate staff training, fire all their in-house experts, hire exclusively from Bangalore or Mumbai, then complain about a skills shortage and a lack of younger IT staff in the UK.

And all this has been going on for years now. So here's a few questions for the outsourcing and offshoring/onshoring brigade:

1. If you refuse to hire UK graduates, train your existing staff or recruit/train experienced but out-of-work UK IT staff, where else do you think you will find skilled IT workers in the UK?

2. If you fire your own skilled and experienced IT staff because it's marginally cheaper to hire graduate trainees in India and train them up in the UK at the customer's expense, why are you complaining about the "skills shortage" in the UK?

3. If there really is an IT skills shortage in the UK, why are thousands of skilled and experienced IT staff still out of work?

4. If there really has been a skills shortage in the UK, why hasn't this been resolved long since by the import of more than 80,000 foreign IT trainees in the last 3 years alone?

5. If these onshored/offshore staff really are more skilled and cheaper than their UK counterparts, why hasn't the success rate of UK IT projects improved massively in recent years, and why do government IT projects which employ thousands of these imported staff continue to run over-budget and fail miserably?

6. If the private sector consultancies are so good at reducing waste, why is the new government cancelling £15bn worth of over-budget IT projects that were supposed to be delivered by private sector consultancies years ago?

The major consultancies who are responsible for a large proportion of the outsourced/offshored/onshored jobs in the UK IT market have had everything their own way for years. They have bled the taxpayer dry while running government IT projects into the ground, aided and abetted by a government too incompetent or crooked to recognise the extent to which they were being fleeced. They have thrown thousands of skilled/experienced staff onto the scrapheap - at yet more cost to the taxpayer - while whining about the lack of skilled/experienced staff, then used their political leverage to import thousands of cheap trainees from abroad.

And now they can see their current bonanza coming to an end, they're already sniffing around hoping to tout the same old "private sector good, public sector bad" snake oil to a new government even more predisposed than the last one to believe their hype.

Does anybody seriously believe that the same companies that brought us all the grotesquely expensive IT failures of the last 10 years are suddenly going to deliver "efficiency savings" through outsourcing? These subsidy-bloated parasites are the very opposite of "efficient", unless you count efficiency as the ability to swallow vast sums of UK taxpayers' money while providing no benefit whatsoever to the UK taxpayer. Yet you can guarantee that they'll be taking the lion's share of any new government contracts, as usual.

At least New Labour was wasting money that the country could afford. The next wave of outsourced public-private "partnerships" are going to consume yet more money that this country can no longer afford to waste. But past experience tells us that it won't even create any jobs in the UK, as public sector work will simply be outsourced, then shipped offshore. Once again a dwindling body of UK taxpayers will be subsidising the expansion of India's IT industry, not ours. Meet the new crooks, same as the old crooks.


Thanks for your comments.

What do you think about the government's plans to sell of some of the department back offices and create shared services?

If you didn't see it, this is the story: https://bit.ly/6odKpy

Karl Flinders


Thanks again for you contributions to this blog.

Karl Flinders

Well said, Matt!

I agree 100% with Matt. His comment is the most accurate description of the UK industry I've seen in a long while. I fear that UK IT will be another long forgotten industry in a few years time.