Large savings might come at a high price

By Andrew Taylor | Published: January 23 2006 02:00 | Last updated: January 23 2006 02:00

During the 2004 presidential campaign, John Kerry, the Democratic candidate, referred to US companies that shifted white-collar jobs overseas as "Benedict Arnolds" in a reference to the traitor of the American Revolution.

Job losses as a result of offshoring were a "major issue in recent referendums of the European constitution as well as the 2004 US presidential campaign", according to McKinsey, the management consultants.

It should be no surprise therefore that UK government departments, normally strong supporters of choice through private sector involvement in public services, have been reluctant to champion the transfer of public sector work abroad in spite of the large potential savings.

The task of moving these jobs overseas has been left to private contractors that have taken over work previously carried out in the public sector.

The leaked Department for Work and Pensions document revealing that "proposals are being made by service providers to undertake work for on behalf of the department overseas" suggests an extension of this trend.

The potential savings are large. The annual pay for an IT professional with three to five years' programming experience is $26,000 in India, $96,000 in the UK and $75,000 in the US, according to the Indian National Association of Software and Service Companies.

The dash to India, the most favoured offshore location, has been led by financial institutions, notably US banks, which have achieved average savings of 38 per cent and in some cases up to 60 per cent, says consultants Deloitte Touche Tohmatsu.

But the Public and Commercial Services union, which obtained the leaked document, says moving work offshore raises serious security concerns. McKinsey says some companies are thinking twice about moving functions offshore after several high-profile breaches in security last year.

In April, three former employees of an Indian outsourcing company were accused of stealing $350,000 from CitiBank's US customers. Investigations by the Sun newspaper and by the Australian Broadcasting Corporation showed how personal data of foreign customers, including credit card information, could be bought from low-paid Indian staff for just a few dollars.