What are the post-election prospects for UK plc?

UK: London, 29 April 2010

Three of the UK's highest profile business commentators are predicting a large-scale transfer of public services to the private sector as post-election budget cuts within government departments start to bite.

Speaking to senior executives at the latest Fujitsu Executive Discussion Evening in London, Will Hutton, former editor-in-chief of The Observer, Dipesh Shah, whose boardroom experience spans BP, the UK Atomic Energy Authority and Lloyd's of London, and Michael Wilson, the face of Sky business news for many years, all argued that the massive shortfall in public sector funding will inevitably lead to a sharp rise in outsourcing and shared services.

Shah pointed to "huge holes" that exist in the public finances - "holes that we don't understand how to fill. The idea that you could just cut from the margins - central government department by department, quango by quango, local authority by local authority - is unlikely to actually deliver the goods."

The government, therefore, needs to have the political will to embrace new kinds of solutions, he said - particularly along the lines of major consolidation of service delivery across departments. "Delivery mechanisms," he added, "must also tend towards the private sector. And given the stresses on the public purse, it's highly likely that jobs will have to be routed back from the public sector to the private sector. The big question is, who's going to do the work and how is it going to be delivered?"

In the current environment, he continued, both public and private sector management boards will have to live with "a mountain of uncertainty". "Risk aversion will be key. Their biggest challenge is to have robust strategies that are capable of delivering against a range of possible outcomes."

But it's not all doom and gloom, he said, pointing to a possible solution to the country's economic crisis investment in the nation's infrastructure. He suggested, in particular, that the national power, water and supply infrastructure should be particular areas of focus.

"I actually think we're on the cusp of something very dramatic in the UK - we have the opportunity of a generation," he said. "But if we are to do this, we will need to ensure the right incentives for the private sector are provided."

Innovation for the nation

Will Hutton, who is now executive vice-chair of UK think-tank The Work Foundation, agreed that major change in how public sector services are delivered is essential. "We have a real crisis in that so many of the jobs produced in the last decade were in the public sector," he said, adding that there will have to be a large-scale transfer of jobs back to the private sector.

The way to get through the crisis, Hutton proposed, is through innovation in the UK's dynamic knowledge economy and the creation of a culture of productive entrepreneurship. "We have to think very hard about constructing an innovation eco-system to support a wealth-generating private sector," he urged.

The knowledge economy pulled the UK out of the last two recessions, he claimed, and it is likely to again. But in order to achieve this, he said, it's not enough just to foster the people who generate ideas - entrepreneurs are also key. He compared the UK unfavourably to the way knowledge creation and entrepreneurship interact in places like the US's Silicon Valley, South Korea and Finland, saying: "It's very, very hit-and-miss in Britain. We don't do it well at all."

The country therefore needs to adopt a different way of thinking about how it supports entrepreneurship and wealth creation, he said. However, to address this, Hutton expects to see the establishment of a network of "technology transfer institutes", that will "hook entrepreneurs into the world of idea and knowledge creation".

Continuing the comparison with the USA, he pointed out: "The Americans invest nearly 7% of GDP in knowledge assets, R&D, higher education and so on. We in Britain are at 3.5% of GDP and falling." He therefore predicted the continuing dominance of the US alongside Germany, Japan and South Korea in the creation of innovative technologies.

"But are we, the British, going to be sub-contracted to this, or are we going to do it ourselves?" he asked. "Because that's where the jobs, the opportunities and the wealth are. That's what's going to drive stock markets over the next 30 to 40 years."

But get it right, and the results could be impressive, he proposed. "We have got the elements of a big knowledge economy. We could do really, really well."

Efficiency winners

Picking up on the themes of a growing knowledge economy and a slimmed down public sector, Michael Wilson, the former business editor of Sky News, expressed a clear view regarding which sectors of British business could expect to see post-election growth.

"The real winners will be the companies that are connected with the new public service efficiencies," he said, "plus any company that is driving government departments into a shared information world, which will allow civil servants to share hardware as well as software as they try to slim back their office operations."

He also predicted strong growth in public sector outsourcing. "I think that's a key message," he said. "When the public sector starts to try to gain efficiencies, they will outsource more of the clerical, semi-managerial, number-crunching work to external companies."

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