Government outsourcing set to boom

The UK public sector is set to outsource a further £20bn worth of services – representing a growth of 50 per cent over three years, according to research from the public sector research, publishing and events firm Kable.

The outsourcing market is to grow from just under £45bn this year to more than £67bn by 2006-07, says the forecast, UK Public Sector Outsourcing: the big picture to 2007-08.

One of the main factors influencing the expected outsourcing boom is the government's efficiency agenda to achieve £21.5bn in savings by 2008 and cut more than 80,000 civil service jobs. Whitehall outsourcing alone could reach £7bn a year "directly as a result" of the Gershon Efficiency Review, the December 2004 report says.

Paul Smith, Kable's research director, said: "The government has been using private companies to deliver public services for over 20 years, so this should not come as a big surprise. However, the breadth of the growth is quite impressive, and shows there will be considerable opportunities over the next three years."

Growth is fastest with the Ministry of Defence – starting from a relatively low base, it will rise from £1.1bn this year to £4.2bn in 2006-7. In the NHS, the market will grow by more than 150 per cent, reaching £16.4bn in three years' time. Outsourced NHS IT projects are worth a total of £6.9bn, with an annual expenditure of £725m.

Local government, which has an existing market of somewhere between £6bn and £7bn a year, is likely to have a lower growth rate at 16 per cent over four years, says the forecast.

Central government currently outsources £4.6bn of its work overall. With IT, Whitehall's outsourcing is set to increase to £1.2bn by 2005-6, and is then expected to grow by 6 per cent.

The report is based on an analysis of current public sector outsourcing contracts.

Further information on UK public sector outsourcing – the big picture, is available here.