It’s less than two weeks before the chancellor delivers his Comprehensive Spending Review. The core message is very clear – the government must protect investment in areas that do most to foster growth, while making savings by re-engineering public service delivery, reforming public pensions and reducing spending in other areas.
There is no doubt that the books do need to be balanced and public service reform will make an important contribution to returning the public finances to health. Central to achieving this change will be expanding the use of competition in public services.
Competition plays an important role in improving our public services. Not only does it help eliminate inefficiency and waste but it also prioritises customer satisfaction and holds all providers to account, whether public, private or third sector.
But in most areas in the UK, public services are still provided directly by the public sector. In particular, health and education provision are run in near-monopolistic markets. The lack of competitive pressures means that public sector providers in a monopoly position are not the most efficient, tending to produce lower output at higher cost than competitive markets.
And international experience shows that competition is the way forward. For example, health outcomes, including five-year cancer survival rates, are higher in the Netherlands than in the UK. In the Dutch system, state-sector GPs act as gatekeepers and make the initial diagnosis and referral. Patients then take their tax-funded care allocations to one of a choice of private health funders, who compete for patients at the same price and succeed on their ability to commission quality healthcare effectively.
In this example, a competitive market has allowed integration and continuity of services through mergers and market exit for poor performers; what started as a market of more than 60 funds has consolidated to 13.
Fire-fighting and ambulance services, which are often assumed to be inappropriate candidates for private provision, are both effectively contracted out in Denmark, and have been since 1926. Today, half of the municipalities use private providers, with the rest of the municipalities using in-house provision or voluntary fire brigades. As a result of competition, Denmark has one of the lowest-cost fire-fighting services in the world.
Around 85% of the ambulance services in Denmark are provided through a similar contractual scheme with payment dependent on response time and activity, so if the provider fails to honour its part of the agreement it must pay a refund. In fact, Danish ambulance services have been found to be Europe’s most efficient and economically sound.
An analysis of public expenditure in the UK suggests that a futher £100-£150bn of annual spend on public services could be opened up to competition, which, if the conservative estimate found by DeAnne Julius of 20% cost savings as a result of competition are applied, would reduce annual spend by £20-£30bn.
To ensure these savings are achieved and that our public services can improve in a difficult economic period, we must open up the market to competition. We need:
- A level playing field for all providers, with issues of pensions and VAT being addressed
- Government to engage strategically with the independent sector to inform commissioning plans
- Better procurement that ensures the best provider is chosen to provide
- Increased transparency around public service contracts so all providers can be held to account and all contracts can be competed for fairly
Achieving these reforms is the only way to ensure we can continue to improve, or at least, maintain our public services in this difficult economic climate.
Emma Watkins is head of public service policy at the CBI
