30 November 2007
Councils can drive down costs and improve the quality of their services by increasing their use of competition and market mechanisms, according to the Audit Commission.
A report by the spending watchdog says that more than £50bn – half of all local authority expenditure – is spent on areas that are subject to competitive pressure.
Councils face a target to achieve £4.9bn in cash-releasing efficiencies during the Comprehensive Spending Review 2008/11 period – much of it through enhanced competition and smarter procurement.
The report adds: 'Appropriate use of competition and contestability is associated with improved service outcomes and good performance.'
But it warns that most councils lack the cost and performance information, understanding of the market, procurement skills and pragmatic mindset to use competition effectively.
Councils face other difficulties, the report adds. 'Competition does not always work well even in private sector markets, and there are additional complexities for public services,' the report says.
It cites the political sensitivity of some services, lack of diversity on the supply side and the need to consider wider social and political objectives as potential problems.
The commission urged a pragmatic approach to using competition and contestability alongside other ways of improving services.
Commission chair Michael O'Higgins said: 'Competition is now a two-way street where services may sometimes be improved by councils being able to offer a competitive threat to commercial providers. It is a powerful tool in focusing the minds of existing providers of services, whether they are public or private sector suppliers.'
The Local Government Association acknowledged that competition had 'a part to play' in delivering value for money but warned that it was 'no elixir'.
A spokesman said: 'The detail of the report clearly demonstrates that issues such as the need for improved skills and investment are well understood, and being acted upon, by the vast majority of councils.'
The LGA also called on the government to 'unlock the powers and money' to allow councils to commission additional services, such as local buses.
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