Audit Commission

Local councils should develop a more open-minded and creative approach to the market if they are to realise the £4.9 billion efficiency savings required following this year's Comprehensive Spending Review, according to the Audit Commission's report, Healthy Competition, published today.

Competition and contestability are used most effectively where councils have a pragmatic mindset; understand markets, costs and performance well; and have the skills and capacity to procure effectively.

However, the report finds that most councils lack the necessary information, skills and mindset to use the market effectively to drive down costs and improve services.

Michael O'Higgins, Chairman of the Audit Commission, said:
"Twenty years ago, many councils thought that competition meant outsourcing services to the private sector. Some believed it was the right thing to do; others resisted it. It was essentially an ideological debate. But the world has moved on. Councils should no longer let dogmatic views stand in the way of service improvement or offering value for money. 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. While competition is no panacea, more councils need to follow the example of those identified in this report and build their skills and capacity to achieve similar success."

The report includes positive examples of councils using market mechanisms to apply pressure on both private sector providers and in-house services to raise standards and deliver better value for money. For example, Norfolk County Council successfully developed two trading companies which generated over £5 million in benefit for the council last year.

To provide services that offer value for money without reducing standards or quality, the report shows that councils must:

• adopt a pragmatic approach to using market mechanisms, including competition and contestability, where appropriate alongside other ways of improving services;
• improve their commissioning and procurement skills; and
• collect and use better information about service performance and cost, and information about public service markets.

Notes to editors

1. The Audit Commission has provided a number of tools, and will publish more for councils to help them achieve better value for money for taxpayers without compromising quality of service for users. The Commission has already published a number of studies on how councils can innovate (Seeing the Light), how they can work with voluntary sector providers (Hearts and Minds), and reports are due to be published shortly on strategic service delivery partnerships and efficiency in back office services.
2. The Commission has already published a number of studies on how councils can innovate (Seeing the Light), how they can work with voluntary sector providers (Hearts and Minds), and reports are due to be published shortly on strategic service delivery partnerships and efficiency in back office services.
3. The Audit Commission is an independent body responsible for ensuring that public money is spent economically, efficiently and effectively, to achieve high-quality local services for the public. Our remit covers around 11,000 bodies in England, which between them spend more than £180 billion of public money each year. Our work covers local government, health, housing, community safety and fire and rescue services.
4. As an independent watchdog, we provide important information on the quality of public services. As a driving force for improvement in those services, we provide practical recommendations and spread best practice. As an independent auditor, we ensure that public services are good value for money and that public money is properly spent.
5. For further information about the Audit Commission, visit our website at www.audit-commission.gov.uk.