Outsourcing public services could save £22 billion

24 September 2012

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24 September 2012 | Adam Leach

The CBI has called on the government to increase competition in public services by putting more contracts out to tender - a move it says will save billions.

Open access – delivering quality and value in our public services published today, calculated the average saving generated by going out to market on delivering services, compared with in-house delivery, was 11 per cent. It said if the approach was taken across the £278 billion a year spent on public services, a saving of at least £22.6 billion could be achieved.

According to the report, conducted on behalf of the CBI by Oxford Economics, the state of public finances make reforming service delivery essential, rather than an option. It highlighted the need for greater involvement from the private sector in delivering services such as bin collection to prison management, but admitted robust controls were required.

The report called for a clear vision of how public services markets will operate in the future, a transparent marketplace to enable public buyers to assess different providers strengths and weaknesses, and to establish mechanisms and policies to address provider failure. It also called for contracts to be more focused on outcomes.

In the basket of services it analysed, based on data collected from public bodies across the country, the report found 86 per cent of prisons, 98 per cent of social housing and 73 per cent of school catering was managed by public bodies’ in-house teams.

John Cridland, CBI director general, said: “Most public services are still largely state monopolised and it’s time to open some of them to competition. This is the way to maintain quality and achieve billions of pounds worth of savings. That isn’t to say the private sector should do everything, but taking school dinners as an example, is it really necessary for three quarters of all our schools to be worrying about catering?”

However, the Local Government Association (LGA), called the savings estimates “pie in the sky”.

Councillor Peter Fleming, who chairs the LGA innovation and improvement board, said a more nuanced approach was required when deciding who is best to deliver a service. “Local authorities routinely look at how services can be delivered better and more cheaply. In some cases, the private option is the best and in others councils find better value, a superior service and more control over standards by keeping services in house. A narrow ‘private good, public bad' approach just doesn't add up for local communities,” he said.

The report said even where public bodies continued to provide services, greater involvement from the private sector would motivate them to increase efficiency.

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