The real black hole in Britain’s finances
JOSEPH SALMON
When you think of the source of Britain’s waste, welfare probably comes to mind. But there’s another area we should be focusing on – the contracts no one bothers to bid for. Politicians tie themselves in knots over who can produce the most ‘fully costed’ manifesto. Yet there’s a black hole worth over £100 billion that no one seems willing to discuss. Given that it accounts for nearly a third of UK expenditure, why isn’t anyone talking about outsourcing?
As of 2024-25, the Government annually spends £434bn on ‘procurement’, everything from school meals to fighter jets. During this same period, UK expenditure reached £1.28 trillion. This shouldn’t be a problem, outsourcing ensures a competitive process with multiple bidders, providing the best value for money while maintaining a certain level of quality. If only this were the case.
Across the 2021-22 period, the Public Accounts Committee discovered that a third of contracts awarded by major government departments were awarded without competition; over £100bn spent with all the suspense of a one-horse race. This amount represents 7.5% of total UK government expenditure, equivalent to roughly half the annual NHS budget. Given away without competition or scrutiny, a shocking use of taxpayers’ money. Why has a process that’s meant to breed budget-efficient outcomes become a lame duck?
The current problems with the system can be attributed to a number of factors. Part of the issue is that many contracts have become sprawling, vast and messy bundles of work only a few conglomerates can reach. It’s less of a marketplace, and more a private members’ club for outsourcing firms. These procurement behaviours should be discouraged, a healthy procurement system should have multitudes of firms vying for contracts, whereas the convoluted bundled contract systems that we have kill competition. The Financial Times discussed this behaviour, where they found previous governments have become increasingly reliant on a pre-approved firms list for outsourcing. In 2019, this list constituted £10bn worth of contracts, up to £35bn in 2024. Such a concept is to ensure these bidding processes can be concluded as quickly as possible, but sacrifices billions in the process.
These pre-approved lists of firms to outsource to have dampened competition in the name of speed. When did this practice become commonplace? The Covid pandemic. The urgent need to supply the NHS and other bodies with emergency PPE and other necessities meant that the procurement bidding process was massively curbed.
Overnight ‘VIP’ procurement fast-lanes were established, a conveyor belt of contracts flying past due diligence. The National Audit Office estimated that by July 31st 2020, of the £17.3bn worth of Covid contracts, £10.5bn were awarded without competitive tender. Urgency dictates that some liberties may be granted in the case of emergencies. However, the fact that five years later similar pre-approved lists are still being utilised demonstrates a devil-may-care attitude towards public funds. Somewhere in-between non-competitive contracts and a ‘VIP fast-lane’, the process has grown rotten and wasteful.
At a theoretical level, the inefficiency of outsourcing in the public sector can be understood through public choice theory. Public choice reminds us that bureaucrats, politicians and private actors, pursue self-interest: maximising budgets, influence and re-election prospects, rather than long desired efficiencies. When private profits depend not on satisfaction, but on securing and maintaining contracts, incentives have shifted from productivity to political patronage. Firms have learned to thrive by mastering bureaucratic processes and cultivating legitimacy in the eyes of officials. What is worsening this rotten dynamic further is a Government complicit in a scheme to waste billions by continuing to operate under a broken outsourcing agreement killing all notions of efficiency or competition.
What was the Tory government’s answer? The Procurement Act, now the responsibility of Labour. Supposedly, a clean break from Brussels-era bureaucracy, passed in 2023, to come into effect February 2025. As ministers promised to ‘throw complicated and bureaucratic EU rules into the bin and strip back red tape’. Time will tell whether the Act will help fix our broken system, the basics of the law make good headway in tackling some of the key underlying issues. For example, there are new rules that contracts worth over £5 million are subject to much greater transparency and scrutiny, with provisions outlining that they are subject to at least three KPIs that can be publicly tracked. This seems strong in practice, but the Institute for Government estimates the median contract at £62,672-£78,438, well below the £5m threshold. So in reality, these are purposeless provisions. Given how much we’re all paying, we have a right to know how our taxes are spent.
Concerns with the Procurement Act are widespread within the procurement industry. The Commercial Services Group in 2025 commissioned work exploring how the new provision will impact the procurement sector, ‘a third of respondents question whether they have the resources to deliver. Another 32% cite a lack of internal expertise’. The Act, in its infancy, should be allowed time before a verdict is given, but industry confidence isn’t particularly high, and these preliminary markers suggest an uneasy transition. Somewhere between the Procurement Act’s lackadaisical provisions, and industry uncertainty, the future seems grim, but maybe a touch of optimism is required.
If we are to approach the issue of looming economic blackholes, in an age where political manifestos juggle Budget proposals where they are cautious to cut, willing to tax and happy to spend, tackling spending inefficiencies are a far more politically feasible way to save. If Britain’s finances are sinking under their own weight, the least we can do is stop drilling new holes in the hull. Before any party promises to spend more, we might first try spending what we have as if it actually mattered. Until the glare of scrutiny reaches those unbid billions, the real black hole in our public spending will remain unseen.
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This article (The real black hole in Britain’s finances) was created and published by CapX and is republished here under “Fair Use” with attribution to the author Joseph Salmon
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