Whitehall’s insourcing unit is a pricing test for mid-tier suppliers

On 27 September the Cabinet Office published Measures to rewire the state, a release issued in the name of Louise Haigh, first secretary of state, chancellor of the Duchy of Lancaster and minister for the Cabinet Office since 20 July. Most of it concerns shipyards and utility companies. The section that matters to technology suppliers is the last: a new Insourcing Unit, based in the Office for the Prime Minister and Cabinet, “to bring forward the biggest wave of insourcing in a generation”.

The release gives the unit a brief that reads like a supplier’s risk register. It will consider insourcing critical service contracts, complementing a Public Interest Test that the release says applies to most central government service contracts valued above £1m. The unit “will support the reduction of consultancy and professional services spending by building Civil Service talent and resources”, it says. The example the release gives is the Cabinet Office’s own building management, including cleaning and security, which it will look to bring back in-house when contracts end in 2028.

That is the third procurement lever the same department has pulled since June, when it announced the Public Interest Test. On 5 August it announced that the social value score in central government tenders would rise from 10% to 20% for contracts worth £5m or more from 1 January 2027, while the threshold for those rules moves to contracts above £1m so that they do not typically apply to the work smaller bidders chase.

Read together, the three measures change the arithmetic for every UK technology and services business selling software, managed services or consultancy into Whitehall, not only for Capita. From April 2027, most service contracts above £1m will have to answer a question the state rarely asked out loud: why not do this ourselves? The opening for mid-tier suppliers is real. The constraint is that they will be pricing against a buyer that has said, in writing, that it intends to become a competitor.

What the mid-tier gains

The stated target is consultancy and professional services spending. The 20% social value weighting rewards British jobs, local skills and apprenticeships, which a mid-sized British supplier – a software house, a consultancy or a managed service provider with a UK payroll – should find easier to evidence than a global firm delivering from offshore centers. And ministers have begun naming the contracts they would like back.

The clearest example is the Civil Service Pension Scheme. The Register reported on 28 September that Capita’s seven-year contract to run it, awarded in November 2023, is worth £239m and runs to December 2032, with an option for a further three years. In July Nick Thomas-Symonds, then minister for the Cabinet Office, said the deal “could be a prime candidate for insourcing in the future”, according to the same report. When a customer talks about an incumbent that way, its renewal is likely to get harder, and a supplier who can show a UK delivery team should be better placed at any rebid than a firm a minister has publicly marked for insourcing.

The buyer that wants to be a builder

Now the catch. The unit’s job is to build Civil Service capability, so a mid-tier bidder now faces more than a rival’s rate card: before a service is re-procured, the department will weigh doing it in-house, on service quality and public value as well as price. A supplier is unlikely to see that assessment and cannot negotiate with it. Firms whose government revenue is time and materials, bodies on a day rate, will find the in-house option hard to beat on cost, and should not try: chasing a margin down to undercut an in-house case is how public-sector books turn loss-making.

Pricing power stays with suppliers selling something the state cannot hire in a reasonable time: a platform already built, an accredited security operation, a service with a measurable outcome and a penalty attached. The Public Interest Test puts the case for buying under scrutiny; the winning bid answers that the alternative to the supplier is a three-year recruitment program.

What the record says

Then look at the record. On the day it covered the insourcing unit, The Register also published an analysis of HM Revenue and Customs (HMRC) spending with Capgemini, the prime contractor on the Aspire contract from 2004. By its count HMRC has paid Capgemini at least £4.2bn across 15,726 transactions since 2014, and in June 2026 awarded it a contact-center deal worth up to £600m over 10 years, which would carry the relationship to 2036. HMRC told the outlet that some large suppliers remain important to critical services, but that it now spreads its work across more of them.

Thomas-Symonds made a similar point about Capita in July: terminating a complex pension operation overnight would disrupt the payroll, so the contract runs. Neither department is being cynical, and neither suggests the state can take such services back quickly. The insourcing wave will therefore arrive on contract-expiry dates – 2028 for the Cabinet Office’s buildings, 2032 for the pension scheme – rather than on the date of the release.

The lesson for leaders and boards with a public-sector book comes in three actions. Map every government contract against the £1m and £5m thresholds and decide which ones a Public Interest Test would struggle with. Rebuild bids around social value that can be counted – apprentices, local hires, UK suppliers – rather than asserted. And price for the outcome the Civil Service cannot recruit, not for the seat it can. A government that promises to insource and then re-signs the incumbent is not contradicting itself. It is publishing a timetable, and the suppliers who prosper will be the ones who price to the timetable rather than to the speech.