Open access. CBI on public services. Delivering quality and value in our public services. Independent research by

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1 Open access Delivering quality and value in our public services Independent research by CBI on public services

2 2 Open access Delivering quality and value in our public services Original research conducted by Oxford Economics

3 Open access Delivering quality and value in our public services 3 Contents Foreword 04 Executive summary 05 Why the government must commit to open public services 06 There is a clear zone of opportunity to access untapped savings across public services 11 Local government services 13 Healthcare support services 16 Education support and development 19 Offender management services 23 Police support services 27 Government must manage markets more effectively to maximise the benefits 31 from open public services References 38

4 4 Open access Delivering quality and value in our public services Foreword The forces of change facing our public services are intense. The pressing need to find savings to rebuild the public finances is putting unprecedented pressure on all areas of public services. At the same time, social and demographic changes are driving a significant increase in demand for services. So, business as usual is not an option. To afford the level and quality of public services the public expect in a modern economy we need to do things differently. The CBI believes that open public service markets, with providers drawn from the public, private and third sectors, can square this circle and lead to an increase in quality, choice and value for money. The case for this agenda has been made more difficult by recent high-profile failings in the private sector. Business has to respond to these public concerns and rebuild trust through sustained behaviour change and consistent delivery of results. This report sets out a compelling case for the government to go further and faster in opening up public service markets. By applying a best-provider provides approach the government could realise average efficiency savings from productivity improvements of 11% or more across billions of pounds worth of expenditure on public services which the CBI believes could conceivably be opened up more to independent providers. Delivering savings will be tough and won t happen by default. It will require new skills on behalf of government to metamorphose from a direct provider into a market manager. It will need a clear vision from the government about the markets in which it is prepared to see an end to the state monopoly of provision. It will require more work to ensure continuity of service provision in every major public service, even when things go wrong. And a focus on outcomes will reassure the public that whoever provides their public services is delivering the best value for money for them. Above all, it will require strong political leadership to finish the job. The potential size of the prize makes a compelling case for action. This task is urgent the window of opportunity to act in this political cycle is closing fast. If the government misses this chance for decisive action, the negative economic consequences will be significant, and taxpayers and users of public services alike across the country will not thank them. John Cridland Director-General

5 Open access Delivering quality and value in our public services 5 Executive summary Balancing the budget by the end of will require significant reductions in public spending, savings which can then be used to support both deficit reduction targets and programmes to stimulate badly needed economic growth. The challenge of balancing the public finances and responding to the social and demographic changes means business as usual is not an option. Research commissioned by the CBI from Oxford Economics shows the government could achieve major savings when public services open up to a range of diverse providers. These come primarily through efficiencies and productivity improvements doing what is already done to the same or higher standard but at lower cost. They can be achieved while still maintaining the quality of the service offered and, in many cases, improving it. The research shows the average saving from productivity improvements generated by the competitive pressure on providers operating a sample of services worth 24.5bn was 11%, with a range of savings between 10-20%. If similar efficiency savings were achieved across the estimated 278bn of public services which the CBI believes could conceivably be fully opened up to independent providers assuming a similar proportion of services closed off to independent provision as found in the research (74%) then savings of 22.6bn or more could be achieved. 1 Independent providers already play an important role in managing public services, but the scale of openness is uneven across the public sector, with many services still largely monopolised by the public sector. While the Work Programme a new service is 100% delivered by independent prime contractors working with a supply chain of businesses, social enterprises and charities, just 2% of the market value of the UK s 5.3m social housing units is open to independent management. While the public is in favour of greater openness of public services, recent poor performance of a small number of private sector contracts has raised questions in the public s mind about the role of independent providers in delivering public services. The government must take steps to ensure the public retains confidence in open public services by becoming a more effective market manager and ensuring that the best providers from all sectors have the opportunity to manage our public services. Providers too must work with the government to address the public s concerns about value for money, accountability and service failure. This report recommends six ways in which the government can achieve the best results from its open public services programme: Express a clear vision for how public service markets will operate in future Create a transparent market place to allow commissioners to compare providers Establish mechanisms to address provider failure and maintain service continuity Promote contracts that are structured to focus on outcomes Ensure the public sector has the right mix of commercial skills to commission effectively Create effective government engagement with all types of provider

6 6 Open access Delivering quality and value in our public services 1 Why the government must commit to open public services The fiscal challenge makes public service reform essential The challenge of bringing public finances into balance, coupled with the impact of major demographic change over the next 20 years, means there is an urgent need to re-think how we approach public services. Business as usual is not an option. We simply cannot afford to continue to run them in the same way if we are to deliver the services needed and demanded by the public. Balancing the budget by the end of will require significant reductions in public spending, savings which can then be used to support both deficit reduction targets and programmes to stimulate badly needed economic growth. Central departmental budgets will be on average 8% below their current levels in real terms in The situation in local government is tough too: councils face a cut of 28% in the central government grant. Progress has been made, but there s much to do. At the end of , while two thirds of the fiscal consolidation to be achieved through tax were in place, 94% of the cuts to current public spending were still to come. 2 Lack of growth is making the achievement of deficit reduction that bit harder. Policymakers must pull all the economic and fiscal levers available to them in order to find cost savings while trying to maintain the quality of services as far as possible. This report looks at one such lever: opening up more services to a range of diverse providers. Opening up public services to independent providers will save money and promote quality Independent research commissioned by the CBI from Oxford Economics shows that the government can achieve major savings when public services open up to a range of diverse providers. These savings come primarily through efficiencies and productivity improvements and from doing what is already done to the same or higher standard but at lower cost. Just as mining a coal seam close to the surface delivers early rewards, so some gains will be relatively easy to realise. Greater riches like deep-lying coal need more work, which will come from fundamentally changing how our public services are run and re-tooling them to cope with rising demand. But achieving this transformation will be extremely difficult to achieve without moves to open up the provision of services to competition. Oxford Economics looked at a cross-section of public services and found that independent providers are already helping public services manage this vital trade-off between funding levels and the quality of the services. But there is much more that they could do to help, given the opportunity. It focused on some specific areas of public services which are to some degree open to provision by a range of independent providers businesses, social enterprises, mutual bodies, charities to identify the impact this approach had. They deep dived into a small part of public spending and used the data to understand to what extent, and how, independent providers were making a difference (Exhibit 1). In twenty discrete services they found the following results:

7 Open access Delivering quality and value in our public services 7 2bn Efficiency savings from full market openness 6.4bn Independently managed services The total spend on the services researched was 24.5bn Of this, 6.4bn of services are open (26%) and the average cost saving generated by the competitive pressure on providers operating these services in an open market was around 11%, with a range of savings between 10-20% 3 Where evidence is available, it shows independent providers are maintaining or improving the quality of services to the public, measured against what was previously delivered Services worth 18.1bn are still managed in-house (74% of services). The evidence therefore suggests that at least 2bn of potential savings are possible over the next five years if these in-house services were opened up to a range of diverse providers. The government cannot afford to ignore the potential for further opening up of public services, given the size of the potential prize if similar levels of savings were achieved across the areas of public services expenditure which could conceivably be opened up to further independent provision, which the CBI estimates could be up to 278bn. This change will not happen by default. The government must lead the agenda. 16.1bn In-house services Exhibit 1 Breakdown of the public spending examined in the research 4 Efficiency savings from full market openness In-house services Independently managed services

8 8 Open access Delivering quality and value in our public services Independent providers could do more to support public service reform Independent providers already play an increasingly important role in managing and improving public services, but as Exhibit 2 shows, openness to a range of diverse providers in public services is uneven, with many services still largely monopolised by the public sector. For instance: 98% of the management of social housing, by market value, is still delivered by the public sector or its appointed arm s length bodies 86% of prisons remain under the control of HM Prisons Service There are areas of the public service where independent providers could make a major difference. These are discussed in detail in the next chapter, but examples include: Just 2% by value of the market for the management of the UK s 5.3m social housing units is open to independent providers. Opening social housing management to more competition could potentially save 675m. The CBI would like to see investment boosted in affordable and social housing through existing schemes such as Decent Homes, empty properties, the Green Deal as well as other options available to both private and social housing. 73% of schools catering is still controlled by in-house caterers. Public expenditure % outsourced Work programme 100% Electronic tagging 100% Prisoner escorting 99% Hospital security 48% Local waste management 47% Police fleet management 40% Hospital catering 32% Hospital cleaning 32% School facilities management 32% Local government HR and payroll 30% Hospital facilities management 29% School catering 27% Local govt finance services 23% Police custody services 18% Police forensics 16% Prisons 14% School improvement 13% Teacher development 10% Probation 3% Social housing management 2% Exhibit 2 The openness of the public services reviewed by Oxford Economics Commissioned locally Commissioned centrally

9 Open access Delivering quality and value in our public services 9 After successive rounds of outsourcing, just over half of waste management, recycling and street cleaning services remains in-house. 5 The research identifies a minimum 192m of savings from a fully open waste services market. At the other end of the spectrum, the Work Programme, a new programme within the spectrum of welfare-to-work services, is fully contracted to independent providers who are delivering new services to the long-term unemployed using a payment-by-results model. While it is too early to determine the success of the programme in getting the long-term unemployed back into work, a recent CBI report has identified the steps needed to ensure its long-term success. 6 If an average 11% of productivity improvements is achievable across just 18.15bn of the 666bn 7 annual public sector expenditure on services in the UK, then similar levels of savings must be possible: not just in the un-open proportion of the markets researched but in the unopened proportion of the estimated 278bn of public services spending which could practicably be more opened up to independent provision. Exhibit 3 shows this zone of opportunity, the proportion of the services looked at not currently open to independent providers which, if fully opened, could deliver significant productivity savings. Public expenditure % of total Work programme 100% Electronic tagging 100% Prisoner escorting 99% Hospital security 48% Local waste management 47% Police fleet management 40% Hospital catering 32% Hospital cleaning 32% School facilities management 32% Local government HR and payroll 30% Hospital facilities management 29% School catering 27% Local govt finance services 23% Police custody services 18% Police forensics 16% Prisons 14% School improvement 13% Teacher development 10% Probation 3% Social housing management 2% Exhibit 3 The zone of opportunity for open public services Closed public sector Open to competition by independent providers The zone of opportunity

10 10 Open access Delivering quality and value in our public services Over the long term, the real potential for savings lies in rethinking how public services operate. For example: 3.4bn savings each year would be available to the NHS through moving more long-term healthcare from the hospital into the home and community of savings are expected from every 1 of government spending going into the Work Programme, where providers are being paid on the results they achieve in helping the unemployed back into work 9 Making more use of shared services across the public sector will also achieve significant improvements in productivity, creating significant cost savings: the NHS Shared Business Services partnership with Steria, for example, is already on target to deliver around 224m of savings by Opening up a public service to a range of diverse providers is the first step to transforming how it runs. It prepares the ground for challenging this market of diverse providers to come up with the service innovations that will bring about the more significant transformations needed. Both are essential to meeting the objectives set out in the Open Public Services White Paper. In local government, the Whole Place approach to sharing resources and collaborating at a local level will enable councils to tackle complex social issues through more co-ordinated action which pools local spending on health, education, policing, probation services and welfare services and targets it more effectively at the people that need these services. 11 The zone of opportunity indeed extends far beyond the public services reviewed in the study and includes many more administrative services such as payment, collection and debt management services that need not be delivered exclusively by the state, where lower costs and improved levels of service can be achieved.

11 Open access Delivering quality and value in our public services 11 2 There is a clear zone of opportunity to access untapped savings across public services Oxford Economics examined the impact on spending and service quality of opening up public services to a range of providers and using the competitive tension created to stimulate innovation and strip out waste. 12 To do this, they looked at 20 discrete public services in order to take a snapshot of the degree to which public services are open and what savings and improvements were generated when they were. The data indicated that on average savings of at least 11% were possible when a service was opened up to new providers and there was a range of savings between 10-20%. There is as yet little published information on the scope and performance of services delivered by independent providers. To overcome this, Oxford Economics used previously unpublished data, official data sources and evidence from CBI member companies to focus on a number of services where there is some degree of involvement of outside providers. These are: Local government services Healthcare support services Education support and development Methodology for the Oxford Economics researchh More than 600 requests for data were sent to local authorities, primary care trusts and foundation trusts, probation trusts and police authorities. Oxford Economics asked for data both on the amount of expenditure placed with independent providers to deliver selected services as well as the proportion of the service that is outsourced. Along with a full survey of existing government analysis and academic research, Oxford Economics surveyed CBI members providing a range of public services, for evidence of performance improvements and maintenance of quality standards. Data on the potential productivity improvements that come from opening public services to competition was also requested. A full version of the original Oxford Economics report is available at: Offender management services Police support services

12 12 Open access Delivering quality and value in our public services Overview of the research findings In order to get an understanding of the existing and potential future use of mixed provision and competitive contracting mechanisms, Oxford Economics picked 20 discrete services across a range of sectors to understand the full picture of open public services. The headline findings are: Opening up to new providers the 18.1bn of services examined which are currently closed could achieve productivity savings of 2bn The 2bn of potential savings identified is an average cost saving of 11% compared to the in-house provision, if these services were fully open to new provision. The range of savings shown in this research of 10-20% is consistent with previous research on the performance of independent providers 13 Hospital facilities management (FM) and social housing management account for just over half of the savings identified in the research The savings predictions are conservative due to gaps in data. Anecdotal evidence suggests that in many cases the savings figure is higher than stated. There are significant opportunities to extract savings using independent providers Cost savings do not need to be achieved at the expense of quality Independent sector providers face strict performance assessments following a successful bid to run a service. The contracts stipulate an average of key performance indicators (KPIs), which are monitored regularly. These ensure the provider focuses on performance and identifies new ways of delivering the same outcomes at lower cost The evidence in areas such as police fleet management, education consultancy and local authority back-office services indicates that engaging specialist third-party providers can deliver maintain or improve the quality of public services. Three quarters of public services remain in-house there is significant potential to go further in opening up services Around three quarters of services analysed were provided by an in-house provider, in a market where there were alternative independent sector providers available to compete for the work There is a wide range of openness in service delivery. Many local authority services are still largely in-house, whereas the Department for Work and Pensions (DWP) has contracted independent providers to run all of the new Work Programme. There are areas where the government is delivering savings through opening up services to new providers. Official data and evidence from providers suggests potential efficiency savings from productivity improvements within a range of 10-20% are possible Where there is a range of providers able to bid for services, often the competitive pressure can also drive efficiencies and improve performance in public sector providers. National Audit Office research indicates that market testing has improved the competitiveness of in-house prison management. 14

13 Open access Delivering quality and value in our public services 13 Local government services Public expenditure % outsourced Waste management Local authorities spend around 2.4bn per year in the UK on regular domestic waste and recycling collection, disposal, and street cleaning services. The provision is currently split fairly evenly between in-house public providers (53%) and outsourced independent sector providers (47%). 17 Based on a conservative estimate of 15% savings arising from productivity improvements which independent providers are capable of delivering, 18 potential cost savings of 190m could be achieved if the whole market was open. Transactional finance, HR and payroll services Such back office services are a core running cost of any council. Local authorities in the UK spend approximately 500m every year on them, much of which is still delivered in-house. Waste management In-house HR and payroll services Independently managed Exhibit 4 Openness of local government services Total local government spending in England on services alone is estimated to be 92bn. 15 Under the government s deficit reduction plans outlined in the 2010 Spending Review, 16 the money local government receives from central government will be reduced by 28%. Council budgets are forecast to decrease by around 14% on average, but some face the challenge of reducing their budgets by 20% or more. Transactional finance services Management of social housing Specialist providers account for less than a third of these services, but evidence suggests that councils can reduce costs and improve performance in these areas. Potential cost savings of 70m are possible through more open competition to deliver these services. 19 Social housing management Local authorities and registered social landlords spend 4.6bn a year on managing the UK s social housing. Less than 2% of social housing by market value is managed by independent providers. The research identified savings of 15% where they are managed by independent providers. If all social housing management was open to competition, further potential savings of up to 675m could be achieved. Given the scale of the spending reductions, the progress made in opening up public service markets in local government services, although already considerable, must go further. It should be just the start of a wider change in how services are delivered that ensures funding is better focused towards achieving the outcomes required.

14 14 Open access Delivering quality and value in our public services Local government services 675m potential productivity savings from opening up social housing management to competition 190m identified potential savings from improved productivity in waste management 70m potential savings in the management of selected back-office functions 98.2% the proportion of social housing management managed by public sector providers or arms-length bodies 53% proportion of waste services still delivered by the public sector 77% transactional finance and HR services managed in-house by local government 4.6bn cost of managing the UK s 5.3m social housing units 2.4bn the annual cost of domestic waste collection and street cleaning 500m annual spend by councils on transactional, finance and HR services Savings Degree to which open/closed Size of the market Factoids Case study

15 Open access Delivering quality and value in our public services 15 Enterprise Manchester, a joint venture between Enterprise and Manchester City Council, is transforming waste management in the city. Since its establishment there has been a significant growth in recycling tonnages of 147%. Enterprise Manchester has developed the service delivery method for waste collection in the city, improving resource utilisation, minimising unproductive time and reducing duplication, resulting in 14% productivity gains. Capita s Service Birmingham runs Birmingham City Council s ICT function and helps drive forward its business transformation programme, which saved 244m between It also manages the council s contact centre (dealing with 2.5 million calls a year) and runs Birmingham s revenues department. The partnership has delivered new capabilities while improving systems. Oxfordshire County Council is saving 500m over ten years through combining all of its facilities management services into one contract with Carillion over the next ten years. Incredible recycling results: May Gurney and Bridgend Council Bridgend Council has described as incredible the increase in recycling over the last three years following the introduction of weekly kerbside recycling collections by contractor May Gurney. An increase in recycling from 31% in 2009/10 to 54% in 2011/12 among the council s 60,000 households puts it ahead of the average Welsh national recycling rate of 48%. As part of its contract for waste and recycling and operating waste management transfer stations and civic amenity sites, May Gurney provides a kerbside sort collection of dry recyclables. The improvements come from a result of simple but effective changes made to the waste and recycling services in the county by the company. The kerbside service now lets residents use a blue bag for the collections of plastics and cans; a black box for newspapers and magazines; a further black box for glass and card; and a caddy for food waste. Benefits for Bayswater residents: CityWest Homes and Pinnacle PSG Pinnacle PSG manages 800 homes in Bayswater, West London, on behalf of Westminster Council s management organisation CityWest Homes. It is responsible for all aspects of keeping the busy estate happy: complaints, grounds maintenance and cleaning and rent arrears. Pinnacle PSG has built relationships with the residents and listens to their views regularly, so its staff can focus their efforts on the people who will be affected by any changes. Pinnacle PSG s annual Community Compact with residents, agrees their priorities for improvement and sets specific targets. These are then linked to a percentage of Pinnacle PSG s fee. Strong resident satisfaction levels of 88% indicate this approach is working in the way they want.

16 16 Open access Delivering quality and value in our public services Healthcare support services Public expenditure % outsourced Hospital facilities management (FM) Hospitals in the UK spend over 7.3bn per year on the provision of both hard (estate and building management) and soft FM services (hotel services including catering, cleaning and security). Cleaning alone costs around 1.1bn per year, while catering costs 700m and security 120m. Nearly one third of these services is outsourced to independent sector providers and 5.2bn of spend is retained in-house. Many catering, cleaning and security contracts are part of wider private finance initiative facilities management contracts. As a result it is difficult to isolate savings from productivity improvements in particular services. Oxford Economics therefore calculated an aggregate cost saving across all FM contracts from the available data. With information from CBI members and other sources suggesting cost efficiencies of up to 10% on new contracts, opening up all of these services to new providers could potentially lead to savings of around 517m. Hospital security Hospital catering Hospital cleaning Hospital facilities management In-house Independently managed Exhibit 5 Openness of healthcare support services While delivering best value from the services which support the UK s primary and secondary health facilities is essential, transforming the way clinical services are delivered is key to improving performance and service quality over the coming period of static healthcare budgets. For example, a recent CBI report showed that delivering more healthcare closer to home through more staff remote working, increased homecare and wider use of telehealth technology to allow patients to manage long-term conditions at home or in the community, rather than in hospital could save the NHS 3.4bn a year. 20 The NHS is a vital public service accounting for 106bn of public expenditure a year and, like every other service, facing unprecedented spending constraints. It must deliver 20bn of savings by April 2014 and budgets are expected to be static over the next decade. Rising demand created by an ageing population and increasing long-term health problems like diabetes will also test the NHS severely.

17 Open access Delivering quality and value in our public services 17 Healthcare support services 517m potential savings if all remaining in-house FM services were opened up to competition 71% of FM services still operated by the NHS 10% average cost efficiencies found in outsourced hospital FM services 106bn annual expenditure on the NHS 7.3bn spent on hard and soft FM by the NHS each year 20bn savings to be found in the NHS by April 2014 Savings Degree to which open/closed Size of the market Factoids Case study

18 18 Open access Delivering quality and value in our public services Interserve s introduction of microfibre cleaning at University College London Hospital has resulted in an estimated saving of 30% per month on disposables and a productivity saving between 10-30%, by enabling cleaners to complete multiple tasks per shift. This cleaning process also reduces bacteria levels by up to 99%. Forth Valley Royal Hospital in Larbert has 860 patient spaces. Serco is part of the team behind this new hospital. The hospital s unique design separates the FM services from patients and visitors. Thirteen robot vehicles use segregated tunnels, lifts and hubs to collect patient meals, linen, waste, and medical supplies, meaning these can be managed without interrupting clinical care. The Hull & East Yorkshire NHS Trust uses MITIE to manage cleaning and environmental services at three large hospitals, treating tens of thousands of people. MITIE cleaning staff are members of the ward team and are all trained to NVQ level in cleaning and domestic services. They are using new technologies to get the best outcome in the wards, common areas and theatres. Rigorously high standards: Interserve and University College London Hospital NHS Foundation Trust Interserve has responsibility for 40 UCLH buildings across four main sites. It runs a range of services crucial to the smooth operation of the hospital: cleaning, portering, caretaking, waste management, window cleaning, courier services, building maintenance and engineering services. Interserve has pledged to reduce carbon usage by 10% a year. A dedicated energy manager works alongside the Trust s environmental team on the energy savings project. In just 12 months, the Trust achieved a 4,324 tonne reduction in CO2 emissions 14% of the trust s footprint. In addition, Interserve has delivered 5% savings in the cost of soft services through making efficiencies, investing in new equipment and changing its methods. Respecting the needs of patients: Balfour Beatty and the Birmingham and Solihull Mental Health NHS Foundation Trust Balfour Beatty provides a range of support services to the Barberry, Oleaster and Zinnia mental health centres, ensuring minimal disruption to their operations, which is crucial given the nature of the services provided. Systems have been developed to ensure the FM teams do not interfere with the running of the hospitals. The Trust operates a protected meals regime, which means work must be planned around this part of the day. The company proposes changes that go above and beyond what is required in its contract to ensure patient wellbeing is maintained. For example, some of the team is receiving training in sign language to help staff at the Barberry Centre, where there are a number of deaf service users. Regular meetings review all aspects of the contract, providing a platform to discuss everything from agreed targets to operational questions. Services to the Trust are built on an incentive share mechanism, which encourages both the provider and Trust to work towards a common goal of continuous improvement. To date the contract has not seen any service or deductions for failure to provide a quality service.

19 Open access Delivering quality and value in our public services 19 Education support and development Public expenditure % outsourced The effect these changes will have on the delivery of education support services in the future is uncertain, as schools develop chains and federations to procure services. This research found there are still significant cost savings to be achieved from opening up services more widely. A range of more diverse providers will stimulate providers and schools to develop solutions to the long-term transformation of UK schools, which will help schools manage their resources and ultimately support sustained educational improvement. Oxford Economics looked at three discrete education support services: workforce development, facilities management and school catering, which equate to 3.8bn of spending. 23 Though much is still managed by the public sector, a significant proportion is run by independent providers. The research identified potential savings of 302m if these services (excluding school catering, for which the right data were not available) were opened up to competition, based on the average savings achieved where services are open to new providers. 24 School facilities management In-house School catering Independently managed Eductation consultancy Workforce development Workforce development: school improvement services UK schools spend over 600m on education consultancy services and over 200m on workforce training and development every year; 88% of these services are provided by the public sector. 25 Based on numerous case studies and first-hand examples of improved outcomes and efficiencies arising from outsourced services of between 10 and 15%, savings of at least 93m would be likely through opening up this market fully to a range of diverse providers. Exhibit 6 The openness of education support and development services Total education spending in 2012 is 91.7bn. 21 Funding for schools is estimated to fall by 1% in real terms over the next four years and all schools will be under pressure to increase educational outcomes at lower cost. 22 School facilities management Managing the school estate costs 2bn a year across the UK. With just a third of services contracted out to independent sector providers (much of it through existing PFI contracts), there is significant scope for services in this sector to be further opened up to new providers. Identified savings of 15% would lead to savings of 209m if these services were subject to full competition from a range of diverse providers.

20 20 Open access Delivering quality and value in our public services School catering It costs schools in the UK 1bn a year to provide meals for pupils. The data suggest around 73% of schools in England use in-house provision to manage their catering services. 26 This is broadly in line with the figures reported by the National Audit Office (65%) and other industry sources (77%). 27 Identifying the potential cost savings from opening up all schools catering to public sector and independent providers is difficult due to the lack of research in the area, but evidence suggests savings of 5% per meal are common. The education market is also changing with the introduction of academies, free schools, studio schools and university technical colleges. Where previously services like HR, finance and legal support, special educational needs consultancy and facilities management were largely provided by the local authority under a block contract, all schools independent of local authority control now have a wider choice of providers from which to commission services. With school budgets constrained, it is crucial that schools target their resources effectively to support improved education delivery. Evidence suggests that poor financial management has an adverse effect on school performance by diverting resources away from improving the quality of teaching and learning. 28 Over half of all secondary schools are now academies, with direct control of their budgets and the freedom to purchase services from a range of providers other than their local authority. These freedoms present new opportunities for schools to partner with external providers to adopt new commercial approaches which drive efficiencies and cost reductions in non-core services. Value for money could be undermined unless schools actively invest in the commissioning and procurement expertise necessary to undertake effective purchasing decisions.

21 Open access Delivering quality and value in our public services 21 Education support and development 209m estimated savings from opening up facilities management in schools 93m likely productivity savings from a fully open market in workforce development and education consultancy 10-15% average cost saving for schools using independent providers to boost school and workforce development 69% of school FM is undertaken by the public sector 88% of workforce development and school improvement services are not open to independent providers 73% of schools using public sector-delivered catering 2bn value of the market for school facilities management services 800m spend by UK schools on workforce development and education consultancy 1bn annual cost of school meals provision in UK state schools Savings Degree to which open/closed Size of the market Factoids Case study

22 22 Open access Delivering quality and value in our public services Amey serves over half a million meals in Northamptonshire schools. It uses a system using biometric cashless tills, removing the need for cash-handling and redirecting those resources back to the kitchen. The system is currently implemented in four schools throughout Northampton and they report an average 15% increase in customer numbers. 95% satisfaction the average monthly rating of Balfour Beatty s Transform Schools FM partnership with North Lanarkshire Council to create an effective learning environment in 24 schools. 2m the estimated potential savings resulting from a new BT Virtual Data Centre for Norfolk County Council Children s Services, which links up databases across all of its 450 schools. Transforming a school s curriculum From special measures to good : Edison Learning and St Mary Redcliffe, Bristol St Mary Redcliffe Primary School is one of the first in the country to come out of special measures straight to a good Ofsted rating. One of the key factors was the decision by the school to work with EdisonLearning in September 2011 and use its Primary Connected Curriculum programme. In 2010 the school was in special measures, with issues around teaching and learning, leadership and achievement. Progress was inadequate: the curriculum was uninspiring and failed to engage the children as learners. The leadership team needed significant support to turn around the school. They implemented the EdisonLearning Primary Connected Curriculum, working with senior staff from other Bristol primary schools who had experience of it. The school started to implement the Core Learning Skills aspect of the Primary Curriculum from October. An HMI monitoring visit recognised that the new curriculum had re-energised the pupils. Improving school standards Saving cash, boosting results: Babcock 4S and Surrey County Council Surrey has secured improved schools results and secured multi-million pound savings from its joint venture with Babcock 4S to deliver a wide range of classroom and workforce development services to all of the county s 396 maintained schools. Babcock 4S has created cashable savings of approximately 11.3m for the council so far and provided it with a further dividend payment in 2010 of 1.7m under a profit share agreement. These savings are achieved through its management of a range of services including HR, finance, leadership, governance and teaching and learning support, alongside significant investment in staff development. Since the joint venture started standards have improved considerably: at Key Stage 4, Surrey is ranked 19th in the country, a significant improvement from 47th in More than 70% of all schools inspected by Ofsted up to March 2011 were judged to be either good or outstanding.

23 Open access Delivering quality and value in our public services 23 Offender management services Public expenditure % outsourced 23% by 2015, 29 the whole offender management system will need to transform how it manages all parts of an ex-offender s journey to full rehabilitation. A reduction in reoffending of 20% could save the government at least 1bn a year. Offender management is one of the more progressive areas of public service in terms of its openness to independent provision. Private companies, charities and social enterprises operate across a range of services often in partnership or in a joint venture. Some services are completely open to independent provision, while others are opening up more slowly. Prisoner escort and custody services Electronic tagging In-house Prisoner escorting and custody Independently managed Exhibit 7 The openness of offender management services Prison management Probation and resettlement services Prisoner escort and custody services are almost entirely open to providers of all types (although in Northern Ireland the service is still largely in-house). The total market is worth approximately 150m per year in the UK. In 2011, the Ministry of Justice re-tendered the contracts in England and Wales. Following this process of competition, it expects gross cashable savings of around 260m, or 20%, over the minimum seven-year contract period. Applying the same rationale to the market in Northern Ireland, 20% savings could result in annual savings of around 500,000 through opening it to a diverse range of providers. Electronic tagging and monitoring services These services are also fully open. In the UK (excluding Northern Ireland) they cost 150m a year and are completely delivered by independent sector providers. At the last re-tender, the Home Office negotiated a 40% reduction in the value of the contract, equivalent to a saving of 100m per year based on the current value of contracts. There is a clear economic case for introducing new, more creative approaches to reducing reoffending that deliver the best outcomes at the best price. Reoffending costs the UK economy around 12.5bn a year. With the Ministry of Justice s budget set to fall by

24 24 Open access Delivering quality and value in our public services Prisons management There are currently 16 independently operated prisons in the UK 14 in England and Wales and two in Scotland. A further eight are in the process of being market tendered with a range of potential providers, including HM Prison Service itself, which runs most UK prisons. The fact that HM Prison Service is partnering with private and third sector partners in bidding for some of these services reinforces the value of a range of diverse providers, as it encourages the combination of different sources of expertise to improve performance. Total prisons expenditure in the UK in 2011 was 2.7bn, of which approximately 370m was spent on privately-run prisons, equating to a market share for independent providers of 14%. Based on a relatively conservative estimate of potential cost savings given the data available the government could realise savings of up to 240m through opening the whole prison estate to competition. It is likely this figure could be higher; for instance, HMP Oakwood the UK s newest prison: operated by G4S will provide places priced at 11,000 per prisoner a year, compared to the average of 27,400. Probation and prisoner resettlement services The government spends approximately 1bn on probation a year. Most services are provided by one of 35 probation trusts in England and Wales, by local authorities in Scotland and by the Probation Board for Northern Ireland (PBNI). Oxford Economics estimates that as little as 3% of probation services are currently outsourced to independent sector providers. The decision by the Secretary of State for Justice to open up much of this 1bn+ market to all types of provider and to encourage them to bid to transform and improve services will change this picture dramatically. This approach will support transformation by encouraging new models of partnership that better integrate all the elements of successful offender management including improving job skills, providing secure housing, improving mental health and countering drug dependency. As only a small part of the market is currently open to new providers, little comparable data on the cost efficiencies that can be realised through an open market are available. However, the first contract awarded in this new open probation market for community payback in London, won by Serco is scheduled to deliver savings of 37% against the existing operation. 30 Experience from the existing performance of private sector prisons reinforces the case for significant cost savings and service improvements.

25 Open access Delivering quality and value in our public services 25 Offender management services 240m potential savings from fully opening up the whole prison estate 100m annual savings from independent provision of electronic tagging achieved during the last contract renegotiation 260m over seven years savings expected from recent re-tendering the contract for prisoner escorting 60% the proportion of the 1bn probation services budget likely to be opened up to new providers 31 86% market share of prisons managed by the public sector 0% proportion of electronic tagging and monitoring services managed by the public sector 1% proportion of the market for prisoner escorting and custody services now managed by the public sector 97% proportion of probation services currently delivered by publicsector providers 2.7bn total spending each year on prisons estate 150m annual cost of the electronic tagging and monitoring of offenders 150m amount spent on prison escorting and custody services each year 1bn approximate annual spend on probation services Savings Degree to which open/closed Size of the market Factoids Case study

26 26 Open access Delivering quality and value in our public services Home Group a social enterprise works with government partners and communities to provide offender-focussed solution, balanced between support and compliance. It is this balance that has allowed Home Group to achieve the results it has in the last twelve months. Across four key measures it has got 71% of offenders in settled accommodation; 94% have maximised their income; 76% are managing their substance abuse and 71% take part in work-like activities. GeoAmey provides prisoner transport and custody suites across much of England and Wales. It is achieving better productivity through integration of inter-prison transfers within the prisoner escort and custody services contracts. Movement of their purpose-built vans is planned around the analysis of prisoner movement requirements in order to achieve optimum efficiency and use less fuel. A4e has since 2005 run offender learning and skills services in 20 prisons in South West England, Norfolk and Suffolk. These courses range from basic literacy to the arts, painting and decorating, welding, catering and construction and have contributed to a significant rise in the vocational relevance of provision and the quality of delivery. Judged on performance: HMP Prison Doncaster and Serco Independent provider Serco has managed this category B prison and young offenders institute since It focuses heavily on prisoner education and skills, working with charity partners like Catch 22 to address significant problems of high prisoner turnover and overcrowding (HMP Doncaster is at 155% capacity). Serco s approach puts reducing the rate of reoffending at the heart of its work with prisoners, both in prison and after release. It works in partnership with local charities and employers to create a positive prison environment complete with comprehensive education, skills and resettlement services. The Central School of Speech and Drama provides an applied theatre programme dealing with offending behaviour and Doncaster Rovers and Yorkshire Cricket Club run academies in jail to provide inmates with organised sport and fitness programmes. Improving prisoner conditions: G4S and HMP Birmingham In October 2011, HMP Birmingham became the first prison in Europe to transfer from the public to the private sector. G4S delivered the mobilisation on time and on budget. Over the lifetime of its contract the annual operating cost of the prison will reduce by around 35% and the annual cost per prisoner place has already been reduced by 27%. These changes have been achieved while introducing positive changes to the prison management. HMP Birmingham was inspected by Her Majesty s Inspectorate of Prisons in January 2012, just three months after the transfer. The Chief Inspector of Prisons noted that HMP Birmingham was a cleaner, safer and more decent place, the prison was clean and relationships between staff and prisoners were generally good and very much improved.