One third of government's expenditure goes to external suppliers

The UK government spends around one third (£284bn) of its total budget with private companies and could risk being unable to abandon current procurement arrangements even if politicians so wished, a new report has found.

The report from the Institute for Government on Wednesday said that four departments - the Ministry of Justice, the Department for Transport, the Department for International Trade and the Department for Environment, Food and Rural Affairs spent more than half of their entire budgets with external suppliers last year.

The report also noted that largest suppliers are winning more and more of government business every year with roughly a fifth of spending going to “strategic suppliers” that receive over £100m in revenue a year up from around an eighth in 2013.

The Institute for Government warned that this practices were risky since the top three suppliers of the government have all experienced financial hardships in recent years. Suppliers which have struggled financially recently include Carillion (which went bust earlier this year), G4S and Serco.

Also, despite of the scale of spending on private companies and outsourcing, there is very little data available on these practices, this means the government is unable to make an informed decision regarding savings or choice of external supplier.

Emma Norris, IfG Director of Research, said: “Government is spending hundreds of billions of pounds every year with external suppliers – but there are signs that some players involved in outsourcing are struggling, most recently Interserve.

“Government does not have the data it needs on its own outsourcing and procurement. It needs to look hard at the experience of the past 30 years of outsourcing, develop a much stronger sense of what has worked well and what has not, and urgently review the health of its procurement markets.”