A string of high-profile failures and corruption allegations (e.g, Test-and-Trace, Ayanda Capital) during the Covid-19 has increased scepticism surrounding the value of and processes surrounding the government’s use of outsourcing and procurement.

In the decades prior to the pandemic, the government had come to increasingly rely on private providers to deliver public services, leading to a fall in the public sector’s capacity to deliver services ‘in house’. In 2018, following the Carillion scandal, the auditor general claimed that “there are lots of areas where the government does not have the capacity to do anything else but outsource”.

The result is a “gravy train”, whereby an over-reliance on the private sector and flawed contracting models mean that consultants and private companies like Carillion can make huge sums of money from government contracts, even if they deliver poor quality services. This is especially true during a shock of the magnitude of Covid-19, when services need to be rolled out quickly. Many have called for wholesale reassessment of the Government’s handling of private services providers following the pandemic.

See also the section below on public sector pay and recruitment for relevant resources on rebuilding public capacity.

The United Kingdom - especially England - has a highly centralised political system and economic geography. Decision-making power is far more concentrated in central government than in comparable Western countries, and regional inequalities in income, wealth and health are almost uniquely pronounced.

The centralised management of public services has been a contentious topic during the pandemic. Many have argued the Government’s “over-centralised” response impeded effective provision of services, particularly with respect to public health and test-and-trace.

Covid-19 has also drawn attention to the financial fragility of many local authorities, which impedes their ability to provide public services. In 2020/21, English local authorities’ spending power was 26% lower than a decade prior. This period also saw population growth of 7%, rising demand and cost pressures, and new statutory duties for councils relating to public health, social care and homelessness.

For more relevant resources, please see our sections on health and social care, stronger local economies and regional inequality.

In the decade before the pandemic, public services saw "the longest sustained squeeze in public spending on record”. Analysis from the Institute for Government found that underfunding left “public services entered the crisis with ailing performance levels, severe staffing pressures and having underinvested in buildings and equipment”, undermining resilience in these services by the time the pandemic hit.

Rebuilding resilience in public services will require increases in their funding. Our ageing population is also likely to require higher spend per capita on health, care and other services to maintain service quality. There is also popular demand for spending more on public services.

Supporting a higher level of spending on public services will require tax reform, both to raise sufficient revenue and to ensure it is raised fairly. Others, including the Financial Times editorial board, have argued policymakers “must see public services as investments, rather than liabilities”, with implications for how spending on public services is treated within fiscal frameworks.

Please see our section on taxation for more relevant resources.

Over the past year, there has been an outpouring of appreciation for NHS staff, carers and other workers delivering key public services under extraordinary strain. At the same time, the pandemic has exposed a certain lack of resilience within these services, compromising our ability to respond to Covid-19 in an effective and fair way, even despite the best efforts of public servants.

The task beyond Covid-19 is to rebuild public services so they are better equipped to handle future challenges - both acute shocks, such as another pandemic, and chronic pressures such as our ageing population. Public services will also play a crucial role in achieving long-term shared national goals, such as decarbonisation or tackling regional inequality, and should be managed with these in mind. Other insights from our experience of Covid-19, including the centrality of digital access and data governance, should shape future public service provision.

The resources in this section bring together evidence on pre-Covid trends in public service provision - spending cuts, outsourcing, centralisation - and suggestions for how to rebuild these services in the wake of crisis.

Many argue that public services and social security must complement each other and be seen as part of the same system - please see our “Improving work and welfare” pages for further relevant resources.

The UK has a flourishing economy of cooperatives (companies owned by their workers or consumers) and other forms of social enterprise (non-profit-distributing businesses with social goals). Such businesses have a long history in the UK and around the world, their origins often in mutual self-help initiatives among working class and other marginalised communities. They are characterised by democratic ownership and governance, and often a social mission.

Mutual building societies – which borrowed money from members of a local community to lend to others for housebuilding and purchase – were once a pillar of the UK financial system, but most became commercial banks in the privatisations of the 1980s and 90s. Both in the UK and around the world credit unions have performed a similar role of mutual borrowing and lending within a local or occupational community. Today a new wave of mutual banks is emerging to fill a gap in finance for social good.

Worker-owned cooperatives continue to be the mainstay of the cooperative movement, with the Mondragon network in the Basque country of Spain the single largest group. In the UK John Lewis remains the most famous employee-owned business, though its governance structure is not fully democratic. The Cooperative Group and regional cooperative societies are consumer-owned mutuals. In recent decades  a vibrant movement of community enterprises has emerged: socially-owned businesses committed to advancing social and employment goals, often in low-income areas.

The ownership of UK firms is highly concentrated. Over the last fifty years there has been a dramatic decline in the proportion of shares held by ordinary individuals. Share ownership is dominated by institutional investors such as pension funds, asset managers (many now operating passive investment funds), and the wealthy, many based overseas. Since the 1980s successive governments have privatised previously public-owned industries such as rail, water and energy. Few workers hold shares in the firms in which they work and the UK cooperative sector is smaller than in many other countries.

In recent years there has been increasing interest in how ownership can be widened. One way is through public ownership, in which the state takes equity stakes in companies in major sectors, such as energy or rail. Another is by giving ownership stakes in companies to their workers. This can be done either through individual employee share ownership schemes, or through collective worker ownership funds which would both widen the distribution of profits and give workers a say in how businesses are run.  

Another route increasingly advocated would be through the creation of a national ‘citizen’s wealth fund’, which would build a portfolio of company shares and distribute a dividend to every citizen.

One of the most persistent criticisms of corporate behaviour has been of the high levels of pay and share options by which company executives are often remunerated. Since 2000 the average earnings of workers in the UK have increased by about 3% a year, but the pay of FTSE 100 executives has grown by around 10% a year. The average FTSE 100 CEO is now paid 126 times as much as the average UK worker, compared to 58 times in 1999.

In principle executive pay should be based on company performance, but the evidence is that there is little or no relationship between them. Indeed, the widespread use of share option incentive schemes, in which executives are rewarded for increases in the value of company shares, has been criticised as an incentive for directors to focus on short term returns rather than long term investment. Various reforms to pay structures to incentivise long-term performance, and benefits to employees and other stakeholders, have been proposed.

Listed companies in the UK with over 250 employees are now required to report on the ‘pay ratios’ between their highest pay rates and their lowest and median pay. There are now calls for this to be extended to privately-owned companies, for more information to be disclosed about higher earners, and for the information to be better disseminated to company employees. Some have proposed a ‘maximum wage’, an upper limit on allowable executive pay, with the money saved redistributed to lower income workers in the company.

As multinational corporations throughout the world have grown over recent decades, they have developed complex supply chains. Globally traded commodities and goods may go through many stages of production in different countries before being made into the final products we buy. In this process it is easy for companies to profit from exploitative wages and conditions, forced labour and environmental harm, particularly in the global South where workers and local communities may have little bargaining power and enforcement is difficult.

Most of the initiatives designed to prevent abuses of this kind have been voluntary, where companies commit to codes of ‘corporate social responsibility’. But there is strong evidence to suggest that these are often ineffective. Companies are insufficiently motivated or incentivised to audit their supply chains properly.

One response has been the development of ‘worker driven social responsibility’, where trade unions and workers’ organisations agree higher standards with companies, and are able to enforce them. Another has been the development of ‘due diligence’ laws, by which multinationals are obliged under the law of their home states to audit their supply chains and ensure high standards, in areas such as labour conditions, human rights, environmental impacts and anti-corruption. The evidence suggests that a requirement to report on their supply chains is not enough; companies need to be criminally liable to ensure compliance.

Over recent years there has been a huge increase in the number of companies and financial investors committing to ‘ESG’ principles, under which they aim to achieve not just profit and financial returns but better environmental and social impact and corporate governance. Globally, assets classed as ‘ESG’ were valued at over $30 trillion in 2018, an increase of a third on 2016.  ESG investment funds have consistently outperformed the average, and there is strong evidence that an attention to ESG can improve shareholder returns.

ESG principles commit companies and investors to assessing their performance through the ‘triple bottom line’ of ‘people, planet and profit’ (sometimes known as TBL or 3Ps). But there is no universal agreement on the specific standards of behaviour which define ESG, or the metrics which should be used to measure performance. With so many different criteria used by ESG investment funds, critics argue that too many allow for ‘greenwashing’ of companies with unsustainable and socially damaging impacts.

When the US Business Roundtable released a statement in 2019 arguing that US businesses should be committed to a broad range of stakeholders – including customers, employees, suppliers and communities as well as shareholders – this was widely interpreted as a significant shift in business philosophy. But others argued that ‘stakeholder capitalism’ in practice looked insufficiently different from shareholder capitalism. Activist investors, both corporate and individual, are increasingly seeking to hold businesses to account in order to raise ESG standards.

Corporate governance in the UK and US is based on the principle of shareholder primacy. This means that the interests of shareholders take priority over those of other stakeholders in a firm, such as workers, suppliers or consumers. There is good evidence that this can encourage an excessive focus on short-term profitability, at the expense of long-term investment.

It is widely argued therefore that the Anglo- American model of corporate governance should better reflect the interests of a company’s stakeholders, not just its shareholders. Proposed reforms include giving firms an explicit duty to pursue long-term purpose or value creation, and to tie executive pay to a range of performance metrics rather than just a firm's profitability or share price.

A particular focus for reform is the make-up of company boards. Advocates of worker representation on company boards – which is commonplace in many European countries – argue that it would tend to strengthen investment, because workers have a longer-term interest in their companies than short-term shareholders. By fostering a culture of cooperation between managers and workers, it is said, it would also boost productivity. There are also widespread calls for mandatory improvement in the gender and ethnic diversity of company boards.