Birmingham Council is outsourcing some of its jobs to India to save money, with up to 100 jobs being located there by the end of the year. With ever increasing amounts of taxpayer funded services going to tender, it is time to give publicly funded bodies an obligation to follow a tendering process which partly judges bids on their social costs, and not just the immediate price.
In the most basic application of this principle, any taxpayer funded commissioner should ask tendering organisations not just for their price, but also for their estimate (using nationally mandated and audited tools) of the likely contribution their tender proposal will make back to the UK taxpayer, through the taxes paid by employees who would deliver that service. This estimate could also include levels of corporation tax, VAT, NI and other taxes paid as a likely consequence of the tender.
This would dramatically change the balance of the playing field during such exercises and not encourage the ridiculous situation where we pay companies taxpayers money to take jobs overseas and this turn further reduces the tax revenues the UK government receives.
To see how this might work, imagine there are two bids (A & B) for the IT support service of a large UK council. Tendering processes generally work by scoring bids on quality versus price. Let’s assume for the moment that these two bids score equally on quality (that is a discussion for another day). On price, Bid A costs £270k and bid B £210k. Under current tendering regulations, the £210k bid would win as this delivers best value for the taxpayer.
However, if we asked for additional information about the breakdown of each bid’s costs, we’d find the following:
The apparent cost advantage of Bid B disappears because, having got more detailed information, we find their lower initial price is outweighed by the fact their method of providing the service would contribute nothing back in UK tax as they are basing their services in India. In contrast, whereas Bid A is on first glance more expensive, a large chunk of their cost comes immediately back to the state in tax revenues.
Once you start using ‘socially considered tendering’, you take into account the contribution respective tenders make back to the UK economy through the employee and other taxes. There are all sorts of other objections, ideological and other, to the practice of outsourcing. But this analysis shows that even without applying those other arguments, for the taxpayer funded services to judge tender bids on price is misleading. A method of socially considered tendering is still mindful of cost, but the overall and real net cost to the taxpayer, not just the headline price.
NOTE: I’m aware I have used a stark example here of UK provision versus Indian provision. But this model could be used to compare competing UK bids who incur different levels of staff costs – the example would not be as stark, but it would still diminish the size of advantage currently held by bidders who incur low staff costs.
My head is full of ideas about how this model could be developed further in the future to be much more sophisticated – should we consider the likely ‘trickle down’ tax spend of UK employees spending their money, raising further VAT for the government, for example?