Contracting out has become the ‘new normal’, writes Professor Stephen Wilks, with around half of all UK government spending now ending up in the pockets of private sector companies. But while public servants must operate within a robust constitutional framework, the same safeguards do not apply to the Public Services Industry.

Which is the largest component of British Government? Is it local, central or perhaps the NHS?

In fact it is none of these. Measured by public sector spending on goods and services, the biggest component is the private sector, in the shape of the Public Services Industry (PSI).

This is the remarkable conclusion of two recently published NAO Memoranda on public service delivery which estimate that about 50% of the £187 billion that government spends every year is contracted out to private sector companies.

This is a silent revolution. Twenty five years ago the PSI barely existed. Sure, firms sold goods and services to government but the growth in contracting out has produced a different beast, almost an alternative civil service in which companies operate in partnership with government departments to deliver services under negotiated and often long term contracts.

The PSI is a distinct corporate sector which includes some very large companies. It specialises in winning government contracts and lives or dies on the basis of a close relationship with government which means that the companies develop what Stephen Greasley calls ‘public sector know-how’. It is encouraged by government (see the 2008 Julius Review), it is collectively represented by one of the CBI’s most effective campaigning bodies, the Public Services Strategy Board, and it employs around 1.2 million people.

The remorseless transfer of services from government bodies to the private sector has occasionally created waves (as with the current proposals for contracting out the entire probation service) but has generated relatively little systematic study, especially from academics.

This has begun to change, catalysed by the G4S Olympics debacle and a series of more recent scandals involving Serco and Atos. The NAO itemises ten current inquiries into problematic contracts and addresses the immediate issues in its two memoranda based on intensive case studies of four of the main contractors (Serco, G4S, Atos and Capita).

The NAO memoranda provide only a few pieces of a larger jigsaw, but at least they provide a tantalising glimpse of the bigger picture. Their approach is ‘managerial’, focused on the public services market, and considers factors such as the level of competition (limited), the procurement process (flawed), the profits of the contractors (opaque), ways of assessing their performance (partial), and value for money (assumed).

Contracting out and the rise of the PSI has become the ‘new normal’. It represents a major institutional transformation, it is not an adaptation of government but a new form of governance. It is, as my recent book argues, the face of the ‘New Corporate State’.

The New Corporate State has been nurtured in the ideological commitment to the market, but despite the rhetoric, it organises and structures markets in the interests of large companies. It operates through a close collaboration of political and corporate elites and thrives on a discourse of partnership. In relation to delivery of public services, it is simply revolutionary.

It has by-passed the quasi-constitutional provisions of the Whitehall model and delivers public services outside all the safeguards, expectations and due processes of British Government. Its prime mode of accountability is ‘the contract’.

The NAO addresses the problems of contractual delivery, observing ‘gaps in contract management’ and pointing out that ‘it is not possible to contract for ‘integrity’ or the ‘spirit of the law’. This is an accountability deficit of cosmic proportions which comes to life when we compare commercial contractual accountability with frameworks of democratic accountability.

Public servants in central and local government operate within a constitutional framework which constrains their imposition of the powers of the state which, argued Weber, includes a monopoly of the legitimate use of violence. They are government employees, energised by an ethic of public service which is enforced through a series of safeguards ranging from the civil service code to audit and inspection, freedom of information, the code of standards of public life and judicial review.

The PSI also deploys the powers of the state including depriving citizens of their liberty (privatised prisons) and even of their life (G4S alleged involvement in the death of deportees).

Yet they are not subject to comparable safeguards. If we thought that an elaborate quasi-constitutional framework was necessary for the civil service why should the PSI be exempt?

An even more profound concern applies to questions of political accountability. Although increasingly ineffectual, the Westminster system has a clear chain of accountability from civil servant to minister, to Parliament and ultimately, to the electorate.

For the PSI that chain is replaced by a contract, a commercial agreement. The PSI employees are not operating in the name of the minister and the minister has no responsibility for them to Parliament.

The NAO, parliamentary committees and Parliament itself have limited authority to call companies to account and the electorate’s democratic control is thereby neutered. Instead there is managerial control and accountability to the market, despite the inescapable reality that the ultimate responsibility continues to rest with elected representatives.

The Public Administration Select Committee has recently called for a Parliamentary Commission into the future of the civil service. On the agenda should be questions about the accountability of the massive, international and often foreign-owned public service companies.

There is a need to recognise the transformed institutional landscape of public service delivery; nested not in the traditional Whitehall model of a liberal-democratic state, but in the New Corporate State where corporate actors become as influential as the departments and agencies of government itself.