Across the UK, public services are increasingly delivered by private companies working behind the scenes. Critics say outsourcing has not only produced failures and scandals, but changed the relationship between citizen and state
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From school meals and hospital cleaning to asylum accommodation, welfare assessments, prison management, airport security, data systems, ferry services and care homes, many of the services through which people encounter the state are no longer delivered directly by the state at all. Over the past four decades, Britain has built one of the largest public-sector outsourcing markets in the world. It’s now possible for a child in care, a disabled person applying for benefits, a patient waiting for cataract surgery, a prisoner being moved between courts, a migrant seeking accommodation or a commuter using an urban bike scheme to find that the service they rely on is being delivered by a private company under contract.
The case for outsourcing has always been that the private sector can bring efficiency, expertise and innovation that government can’t easily provide itself. At its best, outsourcing can allow the state to buy specialist capacity quickly, tap into established commercial markets and avoid building expensive systems from scratch.
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But after a long list of scandals, collapsed contracting companies, failed programmes and costly renegotiations, the promise of outsourcing looks increasingly fragile. The argument is no longer simply about whether a private company can deliver a service more cheaply. It’s about what happens when public life is broken into contracts, performance indicators and supply chains — and when the people making decisions are far removed from the communities those decisions affect.
‘Taken at face value, competition in markets should create efficiencies in health services, care homes and children’s homes, but that hasn’t happened,’ says Dr Ben Goodair, a researcher at the London School of Economics and co-author of the 2024 report Evidencing the Outsourcing of Social Care. ‘You can’t outsource a smile, you can’t outsource love.’
A definitive list of outsourced government services doesn’t exist. Departments publish details of major contracts and top-line procurement spending, but the boundaries between outsourcing, procurement, privatisation and private finance are often blurred. In its broadest sense, outsourcing describes the transfer of work that might otherwise be performed by the public sector to private, voluntary or third-sector providers. More broadly still, it sits inside a vast public procurement market in which government and other public bodies buy goods and services from outside suppliers.
The scale is striking. By 2012, the UK government market in public-service contracts was estimated to be worth £93.5billion. Today, annual public-sector procurement is worth more than £350billion. According to the procurement data company Tussell, the government’s strategic suppliers — major companies that hold or can bid for public contracts worth more than £100million — received £24.8billion in public-sector revenue in 2024–25. Small and medium-sized enterprises received more overall, with £36.1billion of contracts, but this was spread across more than 143,000 SMEs.
The sums involved are so large that outsourcing is no longer a marginal feature of the British state. It’s one of the ways the state now operates.
The model has its roots in the privatisations and market reforms of the 1980s. Margaret Thatcher’s governments sold major public utilities, including energy and water, arguing that private ownership would bring investment and efficiency. The logic then spread into public services. Compulsory competitive tendering, introduced through local government legislation in 1988 and 1992, pushed councils to put services such as refuse collection, cleaning and catering out to tender. The focus was often narrow and financial: could a service be delivered for less?
Under John Major, and then the Blair and Brown governments, private finance initiatives took the logic further. Schools, hospitals, roads and other public assets were built and maintained through long-term contracts, often lasting 25–30 years. The state avoided large upfront borrowing, but locked itself into complex deals that could be inflexible and expensive. According to the King’s Fund, taxpayers are still tied to around 700 PFI contracts with a capital value of £57billion, with payments for their use and maintenance continuing into the 2040s.
With hindsight, some of the assumptions look optimistic. Private finance was supposed to transfer risk away from the state, but when essential services fail, the public sector can’t simply walk away. It remains politically and practically responsible. If a contractor collapses, prisoners still need to be guarded, patients still need feeding and schoolchildren still need lunch.
That vulnerability was exposed in 2018, when Carillion collapsed under £1.5billion of debt and a pension deficit of around £580million. The company was not just a construction firm. It built hospitals, maintained prisons, prepared meals for hospital patients and held major infrastructure contracts. Its failure revealed how dependent the state had become on a small group of large suppliers and how little room there was for failure when private companies were embedded in essential services.
Yet outsourcing has never been only a story of failure. In some areas, it has delivered genuine savings or allowed the government to move quickly. The Institute for Government argues that outsourcing can make sense when government needs capacity it doesn’t have, or when a competitive commercial market already exists. Catering, cleaning, maintenance and some IT services are often cited as areas where outside providers may be able to offer value.
‘When government needs to do something quickly that it hasn’t capacity to do, or doesn’t have the specialist expertise for, it makes sense to bring in a company to deliver that,’ says Ben Paxton, a senior researcher at the Institute for Government. ‘Where a competitive commercial market already exists, such as catering, it can also be good value to outsource school meals contracts.’
The early outsourcing of services such as waste collection, cleaning, catering and maintenance produced savings of up to 20 per cent of operating costs. Private-sector treatment centres also helped the NHS expand capacity for routine procedures such as hip, knee and cataract operations. The question isn’t whether outsourcing can ever work. It’s whether government has too often used it for the wrong services, for the wrong reasons and on the wrong terms.
‘The problems come when government is not buying from a competitive market and doesn’t have a strong negotiating hand,’ says Paxton. ‘Contracts can also be heavily prescriptive and run over long periods of time.’
Complex services create particular risks. Probation, social care, asylum accommodation and benefits assessments all require judgement, relationships and coordination between different parts of the state. They are hard to reduce to a simple transaction. The Institute for Government has argued that the outsourcing of probation failed on every measure, harming ex-offenders trying to rebuild their lives. Contracting out the management of probation, benefits assessments and asylum accommodation, it found, led to services that were unreliable and poor quality.
The problem is partly commercial. Public-sector officials can find themselves negotiating with highly paid, experienced private commercial teams. Departments may lack the data needed to know what a service should cost, how it should perform or whether a provider is making unreasonable margins. Once a contract is signed, government can find itself locked into arrangements that are hard to change, even when circumstances shift.
It’s also partly philosophical. A public service isn’t always a product that can be bought cleanly from a market. In relational services — care, health, welfare, rehabilitation — the quality of the service often depends on trust, continuity and local knowledge. These are difficult to specify in a contract and easy to damage through cost-cutting.
In adult social care and children’s homes, the consequences are stark. Over the past 30 years, social care in England has been increasingly outsourced to private for-profit providers. According to Goodair, 96 per cent of residential adult social care is now outsourced, primarily to for-profit providers, while more than 80 per cent of children’s homes are run by for-profit companies. ‘Things tend to go wrong when you fragment who buys and sells care,’ he says.
Children’s care illustrates the problem. The reasons children enter care have changed, says Goodair. Issues that were once more often framed around problems within the family unit now include mental health, self-harm, drugs and crime. But the market hasn’t adapted to those needs. ‘The financial market has not responded to those changes; the incentive is not there to do so,’ he says.
A for-profit approach can also distort geography. Companies may buy properties in cheaper rural areas to use as children’s homes, even if those locations are far from the child’s family, school, friends and social worker. ‘We don’t want kids to change school, move away from family and friends, yet the numbers doing that go up year after year,’ says Goodair. ‘Social workers often have to travel long distances and stay overnight in hotels to visit a child.’
The 2024 Oxford study found that 43 per cent of children in care were placed outside their local authority area, increasing the risk of losing touch with their home community. It also found that public and third-sector adult care homes and children’s homes consistently received higher inspection ratings, while for-profit operators experienced more frequent involuntary closures and cancellations by the Care Quality Commission and Ofsted.
In adult social care, Goodair says the geography is reversed. Private providers often prefer wealthier urban or suburban areas, where more residents are able to pay for their own care. ‘The model is to get as many rich people in your care homes as possible,’ he says. That can leave poorer communities with fewer good options. ‘The model is skewed and unequal,’ he says. ‘I would argue that healthcare and social care are fundamentally incompatible with outsourcing.’
Healthcare raises similar questions. Private providers can help clear backlogs in routine operations, but incentives matter. If a contract rewards volume, providers may focus on easier, more profitable cases. Goodair describes this as ‘cream-slicing’. Wealthier patients, who are less likely to have multiple conditions, may be treated more quickly, while more complex patients remain with the NHS. ‘You end up with a situation where a wealthier person’s experience of waiting lists is very different from that of a poorer person,’ he says.
Outsourcing can contribute to a two-tier society in less visible ways, too. The New Economics Foundation has warned that workers in privatised services are more likely than public-service employees to work longer hours, receive lower pay and be employed on insecure or temporary contracts. That matters not only for workers but for service users. In care, health, offender management and other labour-intensive services, poor pay and insecure work can undermine continuity, motivation and quality.
It can also narrow people’s chances of progression. A 2023 report by the Institute for Fiscal Studies, The Changing Geography of Jobs, found that cleaners, security guards and kitchen staff are increasingly subcontracted to specialist firms rather than employed in-house. This means low-paid and high-paid workers are increasingly separated into different organisations. The report warned that outsourcing low-paid workers to agencies depresses wages and may hinder career progression.
The result is a subtle but significant change in the texture of public life. A cleaner in a hospital may still clean the hospital. A carer may still care. A call-centre worker may still help someone navigate a benefits claim. But they may be employed by a company whose incentives, reporting lines and decision-making structures are separate from the public institution the service user thinks they are dealing with.
‘Carers still care, people working on the front line are typically doing the same work whether in the state or private sector,’ says Goodair. ‘But there’s a distance between the company and its decision-making and the user. The person making decisions may be a long way away physically but they may also have no personal experience of the issues patients are facing. The decision maker may be trained in procurement and have no experience of care homes, or they may be an investor in the Cayman Islands who decides to disinvest in care homes.’
This distance is now central to the politics of outsourcing. It raises questions not only about efficiency but about accountability. If a public service fails, who answers for it? The minister? The council? The commissioner? The contractor? The subcontractor? The private equity owner? The software supplier? For citizens, the lines of responsibility can become almost impossible to follow.
The Post Office Horizon scandal shows how devastating that distance can be. More than 900 sub-postmasters were wrongly prosecuted after faulty Horizon software, developed by Fujitsu, suggested money was missing from branch accounts. The scandal wasn’t simply a technology failure. It was a failure of accountability inside a system where institutional power, outsourced technology and weak challenge combined to ruin lives.
The Covid-19 pandemic exposed another set of weaknesses. England’s Test and Trace system, built with extensive use of private contractors, became one of the most expensive and controversial programmes of the pandemic. Emergency procurement of personal protective equipment generated its own scandals, with Transparency International later identifying 73 Covid contracts, worth £3.7billion, that carried one or more red flags for possible corruption. The use of a politically connected ‘VIP lane’ further damaged trust.
For critics, such episodes show what happens when urgency, poor transparency and private contracting collide. For defenders of outsourcing, they show the need for better procurement rather than an end to outsourcing itself. Either way, the political mood has shifted.
In 2018, the Cabinet Office admitted that government hadn’t always got decisions to outsource right, and that poor decisions had at times resulted in poor value for money. It has since published the Sourcing Playbook, setting out guidance on when and how services should be outsourced, with an emphasis on judgement, risk, complexity and value for money.
Local government has also begun to push back. Some councils have brought services such as waste collection, social care and transport back in-house, citing better pay and conditions, greater control and the desire to keep more public money circulating locally. In children’s care, almost half of local authorities have opened their own children’s homes in the past three years.
The market is shifting, too. Tussell found that in 2024–25 strategic suppliers’ share of total public-sector procurement spending fell to a five-year low of 10 per cent. UK-based strategic suppliers have also seen their share of strategic supplier revenue fall, while almost a quarter of major government contractors are headquartered in the USA.
Labour entered government in 2024 promising ‘the biggest wave of insourcing in a generation’. In 2026, the government announced a Public Interest Test for expiring contracts as part of what it called an ambition to end the era of ‘outsourcing by default’. Departments have been told to assess whether major outsourced services could be delivered more effectively in-house.
The promise is significant, but the practical challenge is immense. Outsourcing has become woven into the machinery of the state. Bringing services back in-house requires staff, expertise, management capacity, data, buildings, systems and political will. Some services may be relatively straightforward to insource. Others would be slow, expensive and disruptive to rebuild.
‘It’s simply unrealistic for the government to bring back in-house £400billion of services,’ says Paxton. ‘So it’s important that decisions on outsourcing are made carefully. You need strong contracts and transparency on performance, so that companies are held to account.’
That leaves Britain searching for a middle ground. Few serious voices argue that the state should directly provide every service it uses. Equally, the idea that outsourcing is automatically cheaper, leaner or better has been badly damaged. The more difficult question is where the boundary should fall: which services can safely be bought from a market, and which are too relational, too risky or too democratically important to hand over.
For Goodair, the deeper concern is that outsourcing has changed not just public administration but the relationship between state and citizen. Once services are broken apart and sold back to government through contracts, the consequences can be hard to reverse. He added: ‘Change requires big, bold visions, taking responsibility and taking a risk. I don’t know that we have the political set-up that enables individuals to come into power with that kind of vision.’
The outsourcing of Britain began as a promise of efficiency. Four decades later, it has become a test of what kind of state Britain wants to be: one that buys services on behalf of citizens, or one that stands close enough to them to understand what those services mean.
The companies behind the outsourced state
Serco
Listed on the London Stock Exchange and led by chief executive Anthony Kirby, Serco is one of Britain’s best-known outsourcing groups. It operates across the UK, Europe, North America, Asia-Pacific and the Middle East, with a 2025 revenue of £4.9billion. In the UK, its public contracts span defence, justice, immigration, health, transport, leisure and facilities management. It runs prisons, prison escort services, asylum accommodation, defence support, naval maintenance, health assessments, hospital services, local authority waste contracts and leisure centres.
Capita
Capita, also London-listed, is led by chief executive Adolfo Hernandez and is trying to reinvent itself as an ‘AI-led business process outsourcer’. Its UK public-sector work includes pensions administration, local government revenue collection, education support, licence-fee collection for the BBC, congestion charging and enforcement work such as bus-lane and low-emission-zone penalties. It has also held major contracts in Army recruitment, primary care support and civil service pensions administration, areas that have repeatedly drawn scrutiny over performance.
G4S / Allied Universal
G4S is now part of Allied Universal, the US-owned security and facilities giant led globally by Steve Jones. The combined group operates in more than 100 countries and territories and employs more than 760,000 people. G4S’s UK work includes security, custody, electronic monitoring, airport security, access control, CCTV, alarm monitoring and justice services. It also works in hospitals, utilities, defence, rehabilitation and offender-management settings. Its UK government services division is led by Gordon Brockington, while Ashley Almanza chairs Allied Universal International.
Palantir
Palantir is a US-listed data-analytics and AI company led by co-founder Alex Karp. Its roots are in defence, intelligence and security work, but its reach now extends into healthcare, policing, finance and public administration. In the UK, Palantir holds a £330million NHS England contract for the Federated Data Platform, as well as Ministry of Defence work and contracts with regulators and police forces. Its role has become controversial because it places a US technology company close to sensitive public data and core state functions.
IBM
IBM is one of the world’s largest technology companies, chaired and led by Arvind Krishna. Publicly listed in the USA, it works globally across software, consulting, cloud, AI, cyber-security, mainframes and quantum computing. In the UK public sector, IBM provides digital and defence systems, including work for the Ministry of Defence. In 2025, IBM UK won a £320million contract for an AI-enabled defence equipment management platform, reinforcing the shift from old-style outsourcing towards outsourced data, logistics and decision-support.
Leidos
Leidos is a US-listed defence, intelligence, civil, health and technology contractor led by Tom Bell. It has around 45,000 employees worldwide and annual revenue of more than US$14billion. In Britain, its most significant role is in defence logistics. Under the Logistics Commodities and Services Transformation programme, Leidos leads a 13-year Ministry of Defence contract, worth around £6.7billion, to transform supply chains, warehousing, freight, procurement and inventory management for tens of thousands of military items.
Innisfree
Innisfree is less visible than Serco or Capita, but central to Britain’s PFI state. Founded in 1995 and led by chief executive David Metter, it’s a UK-based fund manager authorised by the Financial Conduct Authority. Its funds invest in long-term social infrastructure projects, especially hospitals and schools. Innisfree says it has current commitments of £1.6billion across 52 active projects with a combined capital value of more than £17billion, making it a major investor in NHS and education infrastructure.
Mears and Clearsprings
The outsourced asylum accommodation system is dominated by a small group of providers, including Mears, Clearsprings and Serco. Mears is a London-listed housing and social-care contractor led by chief executive Lucas Critchley. Clearsprings Ready Homes is privately owned by founder Graham King. Together with Serco, the companies hold Home Office asylum accommodation contracts whose projected cost has risen far beyond original forecasts. Their work includes sourcing housing, hotels and support services for asylum seekers, a highly sensitive area where cost, quality and accountability have come under sustained scrutiny.
Sodexo
Sodexo is a French-listed food and facilities-management group led by Thierry Delaporte, with Sophie Bellon as chair. It operates globally in catering, workplace services, defence, education, healthcare, justice and live events. In the UK public sector, Sodexo has provided catering and accommodation services to the armed forces for decades, and holds contracts across schools, universities, hospitals, benefits services, prisons and probation-related settings. It shows how outsourcing often sits in the everyday fabric of public institutions: meals, cleaning, estates, security and support services.
Carillion
Carillion no longer exists, but its collapse remains a warning. Before liquidation in 2018, the company built hospitals, maintained prisons, supplied school meals, ran operating theatres and held major infrastructure contracts. Its failure exposed the risk of relying on large private firms to deliver essential state functions: when a company collapses, the public service still has to continue.
A history of scandal
1993 — Group 4 prisoner escapes. Within a week of Group 4 taking over prisoner transport services between courts and prisons, four prisoners escaped. The episode became an early symbol of outsourcing failure: what had been sold as a more efficient private service quickly looked chaotic, underprepared and politically embarrassing.
2012 — Olympic security shortfall. Weeks before the London Olympics, G4S admitted it could not provide enough trained security guards for the Games. The armed forces had to step in to fill the gap, reinforcing concerns that companies could win major public contracts without the capacity to deliver them when it mattered most.
2013 — Serco electronic tagging. The Serious Fraud Office opened an investigation into Serco over electronic monitoring contracts after the company was accused of charging the government for tagging offenders who were dead, in prison or overseas. Serco later paid a £19.2million fine, although former executives were cleared of fraud.
2015–18 — Probation outsourcing falters. The outsourcing of probation services was heavily criticised after private providers failed to meet key targets. Between January 2015 and September 2018, recalls to prison for licence breaches rose by 47 per cent. In 2020, the Ministry of Justice brought offender management back in-house.
2018 — Carillion collapses. Carillion, one of the government’s largest contractors, collapsed under £1.5billion of debt and a pension deficit of around £580million. The company had built hospitals, maintained prisons, provided school meals and held major infrastructure contracts, exposing the state’s dependence on companies considered too big to fail.
2018 — Capita primary care support. The National Audit Office found that NHS England and Capita had misunderstood the risks of outsourcing primary care support services. The result was disruption to services used by 39,000 GPs, dentists, opticians and pharmacists, with performance described as a long way below an acceptable standard.
2019 — Army recruitment contract. The Public Accounts Committee criticised a £1.3billion partnership between the British Army and Capita to recruit soldiers. Since the contract began, Capita had missed annual targets for regular soldiers by an average of 30 per cent, compared with four per cent in the preceding two years.
2020 — Test and Trace. England’s outsourced Test and Trace system became one of the most expensive and controversial programmes of the pandemic. Staff were hired through private contractors including Serco, but MPs later criticised the system as ‘eye-wateringly expensive’ and said it had failed to meet key objectives.
2020 — PPE procurement. Emergency pandemic procurement produced a wave of controversy. Transparency International later identified 73 Covid contracts, worth £3.7billion, with one or more red flags for possible corruption. The use of a politically connected ‘VIP lane’ further damaged trust in the integrity of the response.
2022–23 — Children’s care market. The Competition and Markets Authority described England’s children’s residential care market as dysfunctional, with councils paying excessive fees for services that were often inadequate. The following year, safeguarding advisers called for major reform after ‘horrific and shocking’ abuse at homes run by a private operator.
2025 — PPE Medpro ruling. The government won a High Court case against PPE Medpro, a company linked to Michelle Mone, over a £122million contract to supply sterile surgical gowns during the pandemic. The gowns had been rejected by health officials and were found not to comply with contractual requirements.
2026 — Capita pensions backlog. Capita apologised for delays affecting thousands of civil service pension payments and bereavement-related cases. The company blamed a large inherited backlog, including tens of thousands of unresolved cases and unread emails, but the episode again raised questions about accountability when public administration is outsourced.
