Open up public services to competition could save £22.6 billion, says CBI

Written by Andrew Holt

A new CBI report on public services reform identifies how to maintain high quality public services and achieve £22.6 billion or more of taxpayer savings by further opening up public service delivery to independent providers.

The Open Access report highlights the challenge of making significant reductions in public spending in order to balance the budget by the end of 2016/17. It also takes into account the increasing pressure that changing demographics will put on services.

Ploughing on regardless is not an option and urgent action is needed from the Government to deliver its Open Public Services strategy – finding new ways to deliver essential services at lower costs.

CBI commissioned research by Oxford Economics of 20 discrete service areas demonstrates average cost savings from productivity improvements of at least 11% (within a range of 10-20%), worth £2 billion, could be made by opening up these public services to competition from independent providers.

Applying the same principles and calculations across the estimated £278 billion of public services, which the CBI believes could feasibly be fully opened up, would deliver savings of £22.6 billion.

Most services looked at in the research are still largely monopolised by the public sector - 98% of the management of social housing, 86% of prison management and 73% of school catering.

With central government budgets likely to be at least 8% below their current levels in real terms in 2014/15, the report calls on the Coalition to urgently set out where it is prepared to end majority state provision.

Independent providers are already delivering many public services well, but in order to plan investment into new areas they need to know how markets will operate in the future. The report calls on the Government to:

Create a transparent market place to allow commissioners to compare performance and providers

Establish mechanisms to address provider failure and maintain service continuity

Promote contracts that are structured to focus on outcomes

Ensure the public sector has the right mix of commercial skills to commission effectively

Create effective government engagement will all types of provider.

John Cridland, CBI director-general, said: “Our public services are under pressure as never before, with increasing customer demand, including from an ageing population, and an urgent need to manage costs. Carrying on regardless would be a recipe for disaster. The Government needs to face this tough policy challenge head on.

“Most public services are still largely state monopolised and it’s time to open some of them to competition.

“That 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 take school dinners – is it really necessary for three quarters of all our schools to be worrying about catering?

“We need the Government to set out which services it is prepared to open up to independent competition, and when.

“Businesses recognise that there are justified concerns following recent high-profile failings and that they have to work hard to maintain public trust by consistently delivering high quality services.”

A recent ComRes poll for the CBI showed that there is broad public support for more open public services, with 75% of people agreeing that a variety of different providers would be more successful than just a single provider in coming up with new ways to run services.

Two thirds (65%) of those surveyed said a diversity of provision would help reduce costs to the taxpayer.

Opening up service markets to a range of diverse providers is the necessary first step to the wholesale rethinking of public services delivery that needs to be addressed in the medium to long-term.

It allows a diverse range of providers to be challenged to come up with service innovations that will bring about more significant transformations.

Delivering more healthcare closer to home, using payment by results contracts, as in the Work Programme, and increased pooling of budgets and integration of services, which local governments are already implementing, are examples of this type of change.

Adrian Ringrose, chair of the CBI Public Services Board and CEO of Interserve, said: “Business has a vital role to play in improving public services. This new research shows that having a diverse range of providers increases quality, stimulates new ways of working and encourages greater efficiency.

“Providers from all sectors need to understand the Government’s vision for public service markets so that they can invest in the new delivery models, technology innovations and supply chains, which will deliver the savings and transform the way the public access key services.

“Ensuring providers from the public, private and voluntary sectors can compete on a level playing-field, and their performance is judged on equal terms, means in the end the best provider will provide.”

A selection of results in services already partially open shows the potential scale of the opportunity:

£675 million productivity savings from opening up social housing management to competition

£190 million identified savings from improved productivity in waste management

£517 million average cost efficiencies found in outsourced hospital FM services

£93 million likely productivity savings from a fully open market in workforce development and education consultancy

£209 million estimated savings from opening up facilities management in schools

£240 million potential savings from fully opening up the prisons estate.

Commenting, Sir Stuart Etherington, chief executive of NCVO, said: “We are still concerned at the lack of genuine opportunities for charities in public service delivery.

"The CBI’s report rightly highlights that a clear vision and strong political leadership is needed to order deliver the quality of services we so desperately need and we back their call for a radical shift to measuring outcomes in public services.

“We would add a note of caution in terms of using the Work Programme as the model for public service delivery – while there is some good practice, the experience of our members is mixed and there are other models which may deliver wider benefits.

"The Work Programme continues to pose major issues for charities particularly around managing cash flow and taking on risk and very large contracts prevent smaller and more specialist organisations from playing their full part.

"More seriously it’s clear that the payment structures used continue to threaten the viability of contracts. While we agree that the shift to payment by result is broadly positive and can be part of the transformation of public services, much more work is need to help charities play their full role.”

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