29 October 2004
Government plans to slash £21.5bn from annual public sector costs by 2008 could be undermined by the private sector's inability to deliver outsourced services, a senior CBI official has warned.
John Williams, public services director at the CBI, which lobbies for wider use of the private sector, issued the surprising warning during a Public Finance round table debate on efficiency on October 21.
Williams claimed that private companies often share the same capacity constraints as public bodies when new public-private markets are established, which could threaten the ability to deliver procurement savings.
He described the £21.5bn efficiencies target as a 'significant challenge', because both sectors initially lack the specialist skills required across 'entirely artificial' government-created markets.
'Unless we see a real step change in procurement capability and capacity… then my view is we won't really achieve those [efficiency] aims over the next three years,' Williams said.
Describing 'tensions' within the Treasury-led efficiency programme, Williams said: 'There are real pinch points, but not where you would expect them.'
'For example, in the Building Schools for the Future programme… the capacity problem is not related to [physically] building the schools, but the project management, financiers and bidders in the private sector companies,' he explained.
Williams said Whitehall was partly to blame, because it had few ideas on how to maintain competitive markets for public services, which discouraged the private sector. Some companies 'carried the scars' of their public sector encounters, he said, calling for clearer incentives for long-term private involvement.
Dan Corry, director of the New Local Government Network think-tank, said capacity could become a 'big problem'. Later in the debate, which was run in association with RSM Robson Rhodes, he added: 'One reason ministers give us for using private partners is to increase capacity yet, the strange thing is, there isn't the capacity in the private sector.
'That could be because the government can't commit itself to the long term, so the private sector won't enter the market. But if we're not going to get extra capacity then we'll have to spend ages managing the market. You could then envisage ministers, impatient for efficiency gains, saying “let's try something else”,' Corry warned.
Discussion chair Tony Travers, director of the Greater London Group at the London School of Economics, said plans to aggregate public sector procurement at local or regional levels could stall as a consequence of the lack of expertise.
PFoct2004
