Insourcing vs Outsourcing in Local Government: A Roundabout Worth Navigating with Strategy

The debate over whether to insource or outsource local government services is as old as the sector itself. From the wave of outsourcing in the 1980s driven by cost-cutting imperatives, to the more recent trend of insourcing in response to service failures and public accountability, councils have long grappled with this complex decision. Yet in 2025, with councils under intense financial pressure, rising demand for services, and growing scrutiny from both residents and regulators, the question is no longer just philosophical it’s strategic. This is not about ideology. It’s about what works.

The Strategic Imperative

Outsourcing is often associated with promises of efficiency, innovation, and cost savings. It can allow councils to tap into specialist expertise, scale operations quickly, and reduce overheads. For services that are transactional, commoditised, or require niche technical skills, outsourcing can be a pragmatic solution.

Insourcing, on the other hand, offers control, accountability, and flexibility. It enables councils to align services more closely with local priorities, respond rapidly to changing needs, and embed public service values into delivery. For services that are high-touch, politically sensitive, or deeply embedded in community outcomes, insourcing may be the better fit.

But neither model is inherently superior. The real question is:

What works best for your council, your community, and your long-term goals?

This means asking:

• What are the core outcomes we want to achieve?

• Do we have the internal capability to deliver them?

• What are the risks and dependencies of external provision?

• How do we ensure value for money over the life of the service?

• What does our workforce strategy look like in five years?

The answer will vary by service, by geography, and by political context. What matters is that the decision is intentional, evidence-based, and aligned to a clear business plan not reactive or driven by short-term pressures.

In an era where councils are expected to do more with less, the strategic imperative is not to choose a side, but to choose wisely.

The Numbers: A Sector in Transition

The shift toward insourcing in UK local government is no longer anecdotal it’s quantifiable, strategic, and increasingly mainstream. According to the Association for Public Service Excellence (APSE), a striking 73% of councils have either initiated or completed the process of bringing at least one service back in-house. Of these, 45% have already implemented insourcing, citing key drivers such as efficiency, service quality, and cost control. This is not a marginal trend it’s a sector-wide recalibration.

The move away from long-term outsourcing contracts reflects a growing awareness that while external provision can offer short-term gains, it often comes with hidden costs, rigid contractual frameworks, and reduced responsiveness to local needs. Councils are increasingly recognising that strategic insourcing can restore control, enhance accountability, and better align services with community priorities.

Why Are Councils Making the Switch?

The APSE data reveals a compelling rationale behind this shift:

• 64% of councils cited greater efficiency as their primary reason for insourcing.

• 60% pointed to the need to improve service quality, particularly in areas where outsourced provision had failed to meet expectations.

• 78% believe insourcing provides greater operational flexibility, allowing councils to adapt services more quickly in response to changing local demands.

• Two-thirds of councils reported that insourcing has led to measurable cost savings, especially when factoring in the elimination of contractor profit margins and reduced contract management overheads.

These figures suggest that insourcing is not simply a reaction to outsourcing failures it’s a proactive strategy to build resilience, value, and community trust.

Beyond the Numbers: A Strategic Reframing

This shift is not a wholesale rejection of outsourcing. Rather, it reflects a more mature and nuanced approach to service delivery. Councils are moving away from one-size-fits-all models, recognising that different services require different delivery mechanisms depending on:

• Complexity and risk

• Local political priorities

• Workforce capability

• Community expectations

• Financial sustainability

In a post-austerity landscape, where councils are expected to deliver more with less, the ability to tailor delivery models to strategic goals is paramount. Insourcing is increasingly seen as a way to future-proof services, retain institutional knowledge, and embed public service values into frontline delivery.

Case Studies: Councils Making the Switch

Real-world examples from across the UK show that the decision to insource or outsource is rarely black and white. Councils are making these choices based on service performance, financial sustainability, workforce impact, and community outcomes. Below are five illustrative case studies that highlight both sides of the debate.

Cumbria County Council – Insourcing for Quality and Morale

Cumbria County Council made the strategic decision to bring its cleaning and catering services back in-house after years of outsourcing. The tipping point was a consistent decline in service quality and growing dissatisfaction among staff and service users. By insourcing, the council aimed to restore standards and rebuild trust.

Outcomes:

• Improved service delivery, with more consistent standards across sites.

• Enhanced staff morale, as employees were reintegrated into the council workforce with better terms and conditions.

• Financial savings of up to £250,000 per annum, achieved by eliminating contractor margins and streamlining operations.

This case demonstrates how insourcing can be a lever for both cost control and cultural renewal, especially in services that rely heavily on frontline staff engagement.

Islington Council – Local Accountability in Action

Islington Council chose to insource its grounds maintenance and refuse collection services, driven by a desire for greater local accountability, environmental alignment, and operational flexibility. The council wanted services that could respond quickly to resident feedback and support its broader sustainability goals.

Outcomes:

• Faster response times to service issues and complaints.

• Better integration with Islington’s climate action plan, including the rollout of electric vehicles.

• Stronger alignment with local employment and social value objectives.

Islington’s experience highlights how insourcing can support place-based leadership, enabling councils to tailor services to local needs and policy ambitions.

Redcar and Cleveland Borough Council – Resilience Through Multi-Skilling

Redcar and Cleveland reversed outsourcing of school meals and building cleaning, following concerns about service fragmentation and workforce instability. The council invested in retraining staff to become multi-skilled operatives, capable of delivering a range of services across sites.

Outcomes:

• Efficiency savings through better use of staff time and resources.

• Improved service quality, with more consistent standards and fewer complaints.

• Operational resilience, as staff could be redeployed flexibly across services.

This case illustrates how insourcing can be a platform for workforce development and service integration, especially in environments where agility is key.

Bolton Council – Outsourcing for Modernisation and Scale

Bolton Council opted to outsource its IT services to Fujitsu, seeking to modernise its infrastructure and improve digital service delivery. The partnership was framed around cost savings, automation, and access to specialist expertise.

Outcomes:

• 10–15% reduction in costs, achieved through streamlined operations and economies of scale.

• 30% reduction in staff numbers, as automation replaced manual processes.

• Improved productivity and business continuity, with enhanced disaster recovery capabilities.

Bolton’s experience shows that outsourcing can be effective when the goal is technical transformation, provided there is strong contract management and clear performance metrics.

Rushmoor Borough Council – Outsourcing for Specialist Support

Rushmoor outsourced its database management to WellData, citing a lack of internal expertise and the need for more robust systems. The move was designed to reduce risk and improve service reliability.

Outcomes:

• Faster system upgrades and reduced downtime.

• Improved disaster recovery planning, giving internal teams peace of mind.

• Better service continuity, especially during periods of staff turnover.

Rushmoor’s case demonstrates that outsourcing can be a strategic enabler, particularly for niche or highly technical services where internal capacity is limited.

These case studies reinforce a central truth: delivery models must be chosen based on context, capability, and community outcomes not ideology. Whether insourcing or outsourcing, the goal is the same better services, better value, and better lives for residents.

Cost Implications: Not Always Clear-Cut

When it comes to deciding whether to insource or outsource a service, cost is often the headline consideration but it’s rarely the full story. The financial implications of each model are complex, context-dependent, and often evolve over time.

Insourcing: Control Comes with Cost Awareness

Insourcing can offer greater transparency over costs. Councils avoid paying supplier profit margins and can reduce the overhead associated with contract management, procurement cycles, and performance monitoring. By bringing services in-house, councils often gain direct control over budgets, enabling them to reallocate resources more flexibly and respond to emerging needs without renegotiating contracts.

However, insourcing is not without its own financial challenges. It typically requires:

• Upfront investment in staff, systems, and infrastructure.

• Capacity building, including recruitment, training, and internal governance.

• Risk management, especially in areas where councils lack technical expertise or operational resilience.

For example, Slough Borough Council found that insourcing certain services introduced operational risks, particularly due to skills gaps and a lack of contingency planning. Without the right internal capabilities, insourcing can lead to service disruption, inefficiencies, and reputational damage.

Outsourcing: Savings with Strings Attached

Outsourcing is often pursued for its potential to deliver short-term savings, particularly through economies of scale, access to specialist expertise, and streamlined delivery. It can also reduce the burden on internal teams, allowing councils to focus on strategic priorities.

Yet these savings can be illusory or short-lived. Hidden costs frequently emerge, including:

• Variation fees for changes outside the original contract scope.

• Rigid contractual terms that limit flexibility and responsiveness.

• Loss of institutional knowledge, especially when services are delivered at arm’s length.

• Exit costs if the council decides to terminate or renegotiate the contract.

Moreover, poorly managed outsourcing arrangements can result in service fragmentation, reduced accountability, and diminished public trust all of which carry indirect financial consequences.

The Long-Term View

Ultimately, the cost implications of insourcing vs outsourcing must be assessed not just in terms of immediate savings, but in relation to:

• Whole-life service costs

• Strategic alignment with council objectives

• Impact on workforce and community outcomes

• Resilience and adaptability in a changing environment

A well-structured options appraisal and should-cost modelling exercise can help councils make informed decisions that go beyond the surface-level economics.

Advice for Councils: Making Informed, Strategic Decisions

Whether a council is considering insourcing or outsourcing, the decision must be grounded in evidence, engagement, and strategic foresight. The following steps are essential to ensure that service delivery models are chosen for the right reasons and implemented successfully.

1. Conduct a Robust Options Appraisal

Before making any decision, councils should undertake a thorough options appraisal that compares the benefits, risks, and costs of different delivery models. This should include:

• Service performance analysis: How is the current model performing against KPIs?

• Market assessment: Is there a viable external provider market?

• Internal capability review: Do we have the skills and infrastructure to deliver in-house?

• Risk analysis: What are the operational, financial, and reputational risks?

A well-structured appraisal helps avoid knee-jerk decisions and ensures that the chosen model aligns with long-term strategic goals.

2. Use Should Cost Modelling to Understand True Delivery Costs

Should Cost Modelling is a powerful tool that enables councils to estimate the realistic cost of delivering a service, whether internally or externally. It helps identify:

• Hidden costs in outsourcing (e.g. contract variations, monitoring overheads)

• Internal inefficiencies that could be addressed through investment

• Opportunities for innovation or integration across services

This modelling provides a baseline for negotiation with suppliers and a benchmark for internal delivery, ensuring value for money is properly assessed.

3. Apply a Public Interest Test for Contracts Over £5 Million

For high-value contracts, councils should apply a Public Interest Test to assess whether outsourcing is truly in the best interest of residents and the organisation. This test should consider:

• Control and accountability: Will the council retain sufficient oversight?

• Community impact: Will the model support local employment and social value?

• Resilience: Can the provider deliver consistently in times of crisis or change?

This test is increasingly recommended in central government guidance and helps ensure that large-scale outsourcing decisions are not just financially sound, but ethically and socially responsible.

4. Engage Staff and Unions Early in the Process

Whether insourcing or outsourcing, the workforce is central to success. Early and transparent engagement with staff and trade unions can:

• Surface operational insights that may not be visible to senior leadership

• Build trust and reduce resistance to change

• Ensure smoother transitions and better service continuity

Staff are often the best source of intelligence on what’s working and what’s not. Their involvement is not just good practice; it’s essential.

5. Ensure TUPE Compliance and Plan for Workforce Integration

When services are transferred between providers or brought in-house, councils must comply with TUPE (Transfer of Undertakings Protection of Employment) regulations. This includes:

• Protecting employee rights and terms of employment

• Managing pensions, liabilities, and continuity of service

• Planning for cultural integration and onboarding

Failure to manage TUPE properly can lead to legal challenges, reputational damage, and disruption to service delivery. A clear workforce transition plan is vital.

The Roundabout of Change

Local government is no stranger to change and few areas illustrate this better than the delivery model debate. Councils often find themselves switching between insourcing and outsourcing every few years, driven by a mix of political shifts, budget pressures, service performance issues, and changing leadership priorities.

This cyclical pattern can feel like a roundabout, with each turn representing a new attempt to find the right balance between cost, control, and quality. One administration may favour outsourcing for its perceived efficiency; the next may bring services back in-house to restore accountability or respond to public dissatisfaction. But this roundabout needn’t be wasteful or disorienting. In fact, it can be a valuable learning journey if councils treat each transition as an opportunity to refine their approach, build institutional knowledge, and strengthen their strategic capabilities.

The key is to avoid making decisions based on ideological swings or short-term optics. Instead, councils should be guided by:

• A clear business case rooted in evidence and outcomes

• A long-term strategy that transcends political cycles

• A commitment to community impact, staff wellbeing, and financial sustainability

Delivery models should be tools, not trophies. The goal is not to prove a point, but to deliver public services that are effective, equitable, and resilient.

Conclusion: Strategy Over Philosophy

Whether you're bringing services back in-house or partnering with external providers, the destination remains the same: better services, better value, and better outcomes for residents.

The choice of delivery model should never be reduced to a binary or ideological battle. Instead, it should be a strategic decision, informed by data, shaped by local context, and aligned with organisational values. Let your business plan, savings model, and strategic vision be your Northern Star not the prevailing political wind or the legacy of past decisions. By doing so, councils can move beyond the roundabout and onto a clearer, more purposeful path one that puts communities first and builds a stronger, smarter public sector.