Mickeymouseonomics

Headlines everywhere today (see Guardian and BBC for starters) for a report written for the Confederation of British Industry (CBI) by an outfit called Oxford Economics on the great benefits to be gained from a comprehensive extension of the outsourcing of public services.  Huge figures are bandied about, including claimed savings of over £23 billion a year across the public sector.  And of course there are claims that this would also lead to major improvements in the quality of services as well.
My attention was drawn to the fact that social housing management was top of the list.  Their ‘research’ showed that:

• the ‘cost of managing the UK’s 5.3 million social housing units’ is £4.6 billion.
• 98% of social housing management by value is still managed by the public sector.
• there are £675m of ‘potential productivity savings’ from opening up social housing management to competition – getting on for 15%.

It really is hard to know where to start with the economic illiteracy of their report insofar as it applies to housing.
But let us start with the fact that to get to 5.3 million social housing units they would have to include the entire stock of housing owned by housing associations, which are already ‘private sector’ organisations.  The always dependable UK Housing Review puts the figure for the England Scotland and Wales at 4.7 million dwellings.  Of these, 2.6 million are owned by housing associations.  Quite how 98% of housing association stock is managed by ‘the public sector’ is unexplained.  And do they know why most housing associations, with an eye to the bottom line, still do not outsource their housing management?
The authors make big claims for the veracity of their data but the whole edifice is undermined by such a basic error.  We are in the era of apologies so they could start by apologising for bad research, ignorance of their subject, and totally misleading conclusions.
Secondly, they do not define housing management.  As they measure it by value, they should explain what is included – for example repairs, maintenance and contracted swervices such as security and rubbish clearance – services that are critical to the cost and quality of housing management budgets which are alredy mainly delivered by the private sector.
Thirdly, the authors appear to know nothing about history and in particular the complete failure of the 1990s policy of Housing Management Compulsory Competitive Tendering.  The experience then was that you cannot create a market out of nothing overnight.  There were virtually no firms capable of putting together a coherent bid let alone provide the service.  Today, there are a few competent firms but they have hardly set the market alight.  To make the kind of savings the CBI claims, virtually all housing management would have to be outsourced (including that which is already in the private sector!) within 3 years.  That would be an impossible task even if everyone was in favour of doing it.
Fourthly, they do not produce evidence to support their claims about the efficiency savings made by existing outsourcing arrangments (which they use as the basis for extrapolation to the whole sector).
Fifthly, they do not show how they deal with other factors that make cost comparisons unreliable.  The experience of HMCCT and other market testing of housing services shows that the process of writing specifications, in consultation with tenants, leads to the service being redefined and reframed, so that what is tendered is often markedly different from what was previously provided.  (Indeed, developing service specifications was the only significant achievement of the whole HM CCT debacle).  They do not make clear what assumptions have been made in relation to the calculation of overheads or the provision of support services (a significant part of local authority housing management is provided by other parts of the council under service agreements or contracts).  In short, I wouldn’t place any reliance at all on their cost calculations.
Finally, they don’t appear to have heard of tenants or that they might want an input into the decision as to who should manage their homes.
Dave Prentis, general secretary of Unison, the largest public sector workers’ union, is quoted as being ‘sceptical’ about the report.  He said its figures had been ‘plucked from thin air’ and are ‘fundamentally flawed’.  Quite.