Understanding the Public Services Industy

Public Services Industry Review
redeployment, retraining and relocation responsibilities that would otherwise have
fallen to the state’s unemployment benefit system or to redundancy pay-outs. In fact,
it is worth noting that during the decade of rapid PSI growth between 1995 and 2005
the unemployment rate for the working age population fell from 8.8 per cent to 5.0 per
cent, while the employment rate rose from 71.4 per cent to 74.7 per cent. 25
3.28 In terms of the breakdown between private and public sector employment, although
the latter declined as a share of total employment between 1995 and 2005, it grew by
9 per cent overall (compared to12 per cent growth in private sector employment). It
follows that if the growth in the PSI over this period contributed negatively to public
sector employment, it was more than offset by other factors such as the rise in private
sector employment and changes in government spending.
Does contracting out increase or decrease innovation?
3.29 Innovation in the services sector can be hard to define. The Innovation in Services
project, undertaken by BERR in partnership with NESTA and working closely with
DIUS, which is due to report shortly, will contribute to a better understanding of
service innovation. It is based strongly on business-led analysis in a number of service
sectors. It specifically identifies barriers to key service innovations in specific sectors
and provides a basis for practical action by Government to tackle these. The areas for
action include: the key roles for public reusable information in an information society,
which Government is considering in its assessment of the Trading Funds; the openness
and flexibility of markets driven by information and standards - BSI is reviewing its
strategy accordingly; and the need to do more to strengthen the ability to manage
change/innovation and to embed this in business processes and use of ICT,
particularly SMEs
3.30 Achieving as much innovation in public services as private services will require careful
structuring. The private sector may be more likely to be innovative than the public
sector but the private contractor may be constrained by detailed contract specifications
based on the existing service delivery process. In addition, where innovation brings
cost savings, it is likely to be more attractive than innovation that raises quality,
particularly if quality improvements are hard to measure and/or not incentivised by
the contract. The possibility for innovation often arises in an unpredictable way once a
process is ongoing. In a competitive market a firm can implement the innovation and,
if successful, reap its benefits. If there is a contract between the private supplier and
the public agency then implementation of an innovation may require renegotiation.
The benefits may be dispersed and the incentives to innovate dampened (for example,
Hart et al, 1997). On the other hand, the Serco Institute survey (2006) found that 86
per cent of the former public sector managers now working for the private contractor
agreed or strongly agreed that “I have more freedom to experiment and innovate than
I would have as a public sector employee.”
25 Labour Force Survey Seasonally Adjustd Employment and Unemployment rates for age group 16-59/64, ONS Labour
Market Statistics.
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