Labour’s Problem With Outsourcing

The Labour Party has in recent weeks been accused of being ‘anti-business’. This is something of an old trope attack line from the Conservative party but it certainly hasn’t helped that Labour has been unable to reel off a convincing list of key business supporters when asked and criticised for the Shadow Chancellor effectively telling small business that they are likely to avoid tax unless their customers demand receipts for work.

The party has also faced international opprobrium, with one of the world’s leading investment banks, Bank of America Merrill Lynch, arguing its proposed market regulations would “seriously interfere with the private sector”, bind businesses in red tape and discourage investment.

Most worryingly perhaps from a business perspective, the Labour Leader Ed Miliband has been termed by Simon Walker, Director-General of the Institute of Directors, as ‘abusiness’, someone who doesn’t relate to or understand its needs, values or concerns.

Following weeks of public criticism of the party from executives and donors, the latest business intervention this week from Labour’s policy chief, Jon Cruddas, will do nothing to dispel that view. Cruddas, who is responsible for cornerstone policies in the party’s General Election manifesto, suggests in a book due to be published next month, ‘Blue Labour: Forging a new politics’, that companies running the UK’s public services should be blocked from bidding for government contracts if they are “driven purely by corporate profit” rather than “achieving a social purpose”. He went on to call it “quite staggering that some £10bn of public contracts – of taxpayers’ money – are allocated to some 20 private companies”.

The idea that private companies motivated by profit should be stripped of billions of pounds’ worth of government contracts has naturally attracted criticism from a community already sceptical about Labour’s willingness to understand business. While Cruddas undoubtedly makes a fair point on competition, pointing to the fact that many contracts awarded by the Government go to a handful of corporations, many will question why, if these businesses are delivering value for money to the taxpayer, they should be looked at askance for also seeking profit.

If contracted companies go over-budget or deliver little result,  that is another matter and clearly makes outsourcing wasteful. Indeed, competence has rightly been considered the measure of whether corporations should be deemed capable of running public services. This should perhaps be taken a stage further to examine whether such contracted corporations do the minimum required to maximise profit and what more they should be doing to benefit the taxpayer

Cruddas’ comments however go beyond a desire merely to promote transparency, accountability and social value in contracts, and raise the prospect of some contracted corporations losing deals if Labour takes office. This could potentially affect hundreds of thousands of British workers. It is also unclear how bidders for government contracts are expected to demonstrate their social purpose credentials and whether this will result in another layer of bureaucracy to the myriad levels of complexity that already exist when bidding for contracts.

If this does become Labour policy, corporations such as Vodafone, with one of the biggest government contracts and which has previously been implicated in tax avoidance schemes, will very likely fall foul of the policy.

It is worth noting that Labour was quick to insist that Cruddas’ comments were not official party policy, saying they were instead “intellectual thinking to help guide future policy making”. Nonetheless, it is clear the party intends a radical re-examination of what type of private sector corporation should run public services and this will undoubtedly cause further concern to the business community and great uncertainty to outsourcing companies.

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