Understanding the Public Services Industy

Public Services Industry Review
How are Public Services Delivered?
1.8 Public services can be delivered through many vehicles, from the internet (e.g. tax
advice) to personal home visits (e.g. social care). This Review uses a classification
according to the type of organisation that delivers them – public sector, private sector,
third sector or some combination.
1.9 The theoretical literature (which is discussed in Section 3) has suggested that different
sectors may have different strengths in delivering different types of services. This
has led to various stereotypes being put forward. For example, the private sector is
sometimes highlighted as being best on innovation and cost reduction, the third sector
best on the delivery of personalised and local services and the public sector best on
quality because of its strong ‘public service’ ethos.
1.10 However, in the discussions and interviews for this Review, all three sectors disputed
the reputed advantages of the other two and, indeed, there is little empirical evidence
to supports such stereotypes. The variation within each sector is generally more
striking than the variation across sectors. This supports the view that having a range
of providers operating in a ‘mixed economy’ for public service provision is likely to be
optimal – a view endorsed across the political spectrum in the UK.
How is the PSI defined?
1.11 After discussion with the Advisory Panel it was agreed that the Public Services Industry
should be defined to include:
All private and third sector enterprises that provide services to the public on
behalf of government or to the government itself.
1.12 The enterprises covered by this definition of PSI depend in whole or in part on
revenues contracted through government and in turn derived from taxation. For
the PSI, more than any other industry, the government, as both policy-maker and
purchaser, plays a central role in shaping the market.
1.13 There are inevitably grey areas around the PSI definition used for this Review. For
example, regulated industries such as water utilities are excluded. These mostly
operate in the private sector without government subsidy, although their prices and
investment strategies are largely determined by the government’s regulatory policy.
Where there is a subsidy to franchised services, such as trains, this subsidy element is
included in the PSI. Transfer payments, such as state pensions, are excluded although
they are tax-financed and may be used by the recipient to purchase services which are
thus indirectly paid for by government.
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