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Government's nudge unit spin-offs could prove costly Government's nudge unit spin-offs could prove costly
(5 months later)
The government announced last week that the Cabinet Office's Behavioural Insights Team is to be "spun off" from central government as a mutual. The team, better known as the "nudge unit", was set up in 2010, and applies lessons from psychology and behavioural economics to encourage citizens to make better choices. Its successes include nudging people to pay tax more promptly by changing the wording of letters from HM Revenue and Customs, and encouraging greater uptake of loft insulation by offering a subsidised loft clearance service.The government announced last week that the Cabinet Office's Behavioural Insights Team is to be "spun off" from central government as a mutual. The team, better known as the "nudge unit", was set up in 2010, and applies lessons from psychology and behavioural economics to encourage citizens to make better choices. Its successes include nudging people to pay tax more promptly by changing the wording of letters from HM Revenue and Customs, and encouraging greater uptake of loft insulation by offering a subsidised loft clearance service.
Like myCSP, the pension fund management spin-off that became operational in 2012, the nudge unit is to become a mutual joint venture, owned partly by the government, partly by a private sector company and partly by its employees. Cabinet Office minister Francis Maude announced the move as accelerating the "drive to make public assets pay their way" and as being the first of "dozens more new spin-outs over the next few years".Like myCSP, the pension fund management spin-off that became operational in 2012, the nudge unit is to become a mutual joint venture, owned partly by the government, partly by a private sector company and partly by its employees. Cabinet Office minister Francis Maude announced the move as accelerating the "drive to make public assets pay their way" and as being the first of "dozens more new spin-outs over the next few years".
Several NHS spin-offs have prospered in the open market and staff will probably enjoy freedom from some of the restrictions imposed by a civil service environment – for example, on headcount and salary. But it is hard to see why this is a priority for the government and the taxpayer. There is a prospect of commercial gain. But, as with any commercial venture, profit is far from guaranteed. The spin-off carries wider risks too. The government may, after all, discover that the nudge unit prefers to provide services overseas, depriving the government of its services, or becomes so popular that it can raise its prices significantly. It may find, too, that having to write a contract each time the spin-off does a piece of new work is not the most efficient way of doing business.Several NHS spin-offs have prospered in the open market and staff will probably enjoy freedom from some of the restrictions imposed by a civil service environment – for example, on headcount and salary. But it is hard to see why this is a priority for the government and the taxpayer. There is a prospect of commercial gain. But, as with any commercial venture, profit is far from guaranteed. The spin-off carries wider risks too. The government may, after all, discover that the nudge unit prefers to provide services overseas, depriving the government of its services, or becomes so popular that it can raise its prices significantly. It may find, too, that having to write a contract each time the spin-off does a piece of new work is not the most efficient way of doing business.
The joint-venture-mutual approach is complex. There are much simpler ways of releasing staff from civil service rules and procedures – for example, by turning successful units into government-owned trading funds. Finding a deal that will please a private investor may be difficult. If what is being bought is basically human capital, wouldn't it be easier just to poach the staff? Or if companies are buying a pipeline to government work, how can they be reassured that future contracts will materialise and awards won't be challenged under competition law?The joint-venture-mutual approach is complex. There are much simpler ways of releasing staff from civil service rules and procedures – for example, by turning successful units into government-owned trading funds. Finding a deal that will please a private investor may be difficult. If what is being bought is basically human capital, wouldn't it be easier just to poach the staff? Or if companies are buying a pipeline to government work, how can they be reassured that future contracts will materialise and awards won't be challenged under competition law?
Spin-offs are only a step en route to outsourcing. As Maude has argued, the civil service got into trouble when it outsourced too much IT expertise in the 2000s, and undermined its ability to understand how much it should be paying contractors for services.Spin-offs are only a step en route to outsourcing. As Maude has argued, the civil service got into trouble when it outsourced too much IT expertise in the 2000s, and undermined its ability to understand how much it should be paying contractors for services.
Staff in less successful units will need a lot more persuading before moving into a hostile environment where failure and loss of employment are clear risks. Private-sector investors will also be less keen. Who would want to tie their brand to civil service IT, for example, or take on pension liabilities for underskilled staff?Staff in less successful units will need a lot more persuading before moving into a hostile environment where failure and loss of employment are clear risks. Private-sector investors will also be less keen. Who would want to tie their brand to civil service IT, for example, or take on pension liabilities for underskilled staff?
Behind the label, spin-offs are just one way of outsourcing services. And whether that works depends largely on the government's ability to set up and manage new contractual arrangements. After the West Coast rail franchising disaster, it is hard to be entirely optimistic.Behind the label, spin-offs are just one way of outsourcing services. And whether that works depends largely on the government's ability to set up and manage new contractual arrangements. After the West Coast rail franchising disaster, it is hard to be entirely optimistic.
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