27 January 2006
Public service reforms will fail unless the government addresses 'unfair tax rules' and 'muddled regulation' in the competition for contracts, business and charity leaders have warned.
The CBI and the Association of Chief Executives of Voluntary Organisations argue that the government's market-based reforms are being threatened by a series of distortions, which mean private contractors and voluntary bodies are disadvantaged when competing for business.
They claim that in some cases the lack of clarity is also disadvantaging public sector bodies competing to run services.
A CBI report published on January 23 gives examples of apparent market bias drawn from health, education, social housing and local authority services. It argues that the quality of services is being damaged and the taxpayer is not receiving value for money.
Entitled A fair field and no favours, it highlights the different VAT regimes that apply, depending on the sector of the service provider. It complains, too, about in-house bidders having access to data that external competitors do not.
The report also complains about the 'unfair competitive advantage' of public sector bidders being able to call upon cheaper borrowing, and their ability to cross-subsidise to fund a loss-making service. According to the report, this allows public bodies to compete for contracts without having to demonstrate a strong trading record or a healthy balance sheet.
John Cridland, deputy director general of the CBI, called on the government to set up a wide-ranging inquiry that would draw up a comprehensive framework to guarantee 'competitive neutrality' across the public services.
Cridland said: 'The system clearly isn't working as it should. This may prevent the government making the best possible use of all providers, hampering its ability to achieve effective reform. A mixed economy can't succeed if the rules are not fair for all providers.'
Stephen Bubb, chief executive of ACEVO, said: 'We need a clear separation in the public sector between purchasing services and providing them. Cost comparisons between the sectors must be fair and accurate.'
But Margie Jaffe, national policy officer for Unison, the largest public sector trade union, poured scorn on the study.
'To say a public service has an unfair advantage because they know more about a service is just baloney,' she said. 'They seem to think that public services are just a collection of market opportunities, rather than having a larger purpose.'
And she rejected the suggestion that competition would necessarily mean better value for money. 'If every little cost unit in a service had to bid for contracts, it would cost a fortune in bid costs, not to mention affecting the ability for larger strategic planning.'
PFjan2006
