Under-performing outsourcing companies should be subject to fines and bans from future contracts, NAO says
Public sector paid big four outsourcing firms £4bn last year, NAO reveals.
Scale of outsourcing to Serco, Capita, Atos and G4S prompts fears that firms are becoming too big to fail.
More than £4bn of taxpayer funds was paid out last year to four of Britain's largest outsourcing contractors – Serco, Capita, Atos and G4S – prompting concerns that controversial firms have become too big to fail, according to the National Audit Office.
Increasingly powerful outsourcing companies should be forced to open their books on taxpayer-funded contracts, and be subject to fines and bans from future contracts in the event that they are found to have fallen short, the NAO finds.
The report estimates that the four groups together made worldwide profits of £1.05bn, but paid between £75m and £81m in UK corporation tax. Atos and G4S are thought to have paid no tax at all.
"[This report] raises some big concerns: the quasi-monopolies that have sprung up in some parts of the public sector; the lack of transparency over profits, performance and tax paid; the inhibiting of whistleblowers; the length of contracts that taxpayers are being tied into; and the number of contracts that are not subject to proper competition," said Margaret Hodge, chair of the public accounts committee, who commissioned the NAO to carry out the study.
"It is the government's policy to outsource delivery of public services, but what it cannot do is outsource responsibility. Departments have a duty to ensure that the taxpayer is not being ripped off and that people, not profit, remain at the heart of our public services."
Amyas Morse, head of the NAO, said the rapid pace of outsourcing, combined with a string of alleged service failures, had painted a picture of "contractors not appearing to treat the public sector fairly and departments themselves not being on top of things".
The 72-page NAO study of the four contractors comes after it emerged that neither the Cabinet Office, nor any other department, knew how much public money was being spent with these fast-growing outsourcing firms, some of which have been linked to a growing number of alleged scandals.
Hodge said: "I asked the NAO to carry out this work after looking at case after case of contract failure – G4S and the Olympic security, Capita and court translation services, Atos and work capability assessments, Serco and out-of-hours GP services – to name a few."
All four firms have seen their respective share prices outperform the wider stock market in the last seven years as investors have grown increasingly confident the UK and other austerity-constrained governments will continue to prove increasingly lucrative. G4S and Serco shares have almost doubled in price, while Capita stock has climbed 140%.
In recent weeks new management at Serco announced the resignation of its chief executive, Chris Hyman, and promised a programme of "corporate renewal". Meanwhile, last week new management at G4S blamed former leaders for undermining the group's service values.
The NAO estimated that contracting out accounts for about half of the £187bn the public sector spends each year, with £40bn of that sum spent by central government with third parties.
Of the £4bn of public sector spending with the big four, £3bn was from central government departments. The Ministry of Defence spent £611m with Serco alone. Meanwhile, the Ministry of Justice emerged as the most outsourced department, contracting-out for 23% of its expenditure.
"[There is a] concern that the government is, to a certain degree, dependent on its major providers. There is a sense that some may be 'too big to fail' – and difficult to live with or without," the NAO said.
"The Cabinet Office is currently focused on short-term savings …. However, this approach will become harder over time, and risks missing out on achieving longer-term value for money through innovation and investment," the report said.
"There is a risk that the Cabinet Office's ambitions are not matched by the right resources, capability and information."