The NHS subsidises Cabinet Office – GPS creams off £2 million a year from the health system

Yesterday we exposed the excessive profit margins being made by a major provider to government organisations, known as 'GPS' or the Government Procurement Service. OK, it was all a bit of a joke, which we couldn’t resist after all the fuss about 'excessive' profits supposedly made by some private providers. But there are a couple of serious underlying points.

Firstly, it does seem interesting that a very healthy level of “profit” is obviously seen as acceptable for a government body like GPS, whilst ‘real’ suppliers to government are being criticised for much lower margins.

And it also highlights an issue that may get interesting for the new Crown Commercial Service, the successor organisation to GPS. Of the £11 million GPS profit in 2012/13, some £3.3 million was used in the ‘procurement investment fund’, which was supposed to benefit government procurement generally (although departments I’ve spoken to aren’t clear where much of that went). The other £8 million has gone back into supporting Cabinet Office or to Treasury. (I believe a ‘return on capital employed’ payment is made to Treasury?)

So GPS customers are in effect transferring resources from their own budgets to the centre of government. Now maybe that doesn’t matter too much for central government organisations. But what about the wider public sector?

GPS publishes figures showing, for example, how much business it does with the health sector, and the margin it makes on that business, largely through supplier rebates. Here are the figures for last year relating to NHS clients of GPS – published on the GPS website (and well done to them for that openness).

 

NHS Revenue to GPS                     £ 2,193,613,314

 

Commission from suppliers        £ 7,006,140

So the NHS, through its purchases via GPS, in effect contributed £7 million to the GPS income line. Now obviously, much of that goes on GPS running costs. But if we apply the 30% margin we discussed yesterday, that gives us some £2.1 million ‘profit’ that the NHS is contributing to the Cabinet Office coffers.

Now that’s not a huge amount in the greater scheme of things. And it is worth pointing out that the GPS margin is probably no more than any private sector provider of procurement outsourcing services, or indeed another public sector collaborative body, would charge. But as money gets tighter and tighter in the health system, might that become a source of some frustration? Should the NHS be subsidising Cabinet Office departmental running costs, because the public health system appears to be directly contributing £2 million a year to subsidise Francis Maude (the Minister) and his activities.

We have already seen one recent example of the NHS moving away from GPS contracts. It will be interesting to see if there are more examples to come.

Voices (2)

  1. John Diffenthal:

    Is the £2 million transfer to the CO a problem? I don’t think so. Your article points out that the NHS is not a goose which is guaranteed to lay golden eggs in perpetuity unless the framework offers from GPS and its successors remain cost and quality competitive with alternative sources of supply.

  2. Bill Atthetill:

    Peter, like many of your readers (I’m sure), I’ve fallen off my chair twice in two days, laughing, of course, at the two related articles. Wonderful stuff. Taking aside the notion of this huge profit margin (described as ‘surplus’), surely this is a blatant example of OVERCHARGING.by a major supplier to government. I’ve put this word in caps because Bill Crothers, as he has done with the likes of Serco, G4S etc, will surely want to pursue a (public and transparent) case against GPS, including engaging the SFO, and recover all related fees over the life of their ‘contract’…….. We wouldn’t want him to be hoist by his petard, would we……

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