7 Move towards a competitive neutrality model tha establishes a level playing field for all providers

Competitive neutrality policy means competition should be conducted in a way that is fair to all concerned. This is a key lesson that countries developing PPP models can learn from the UK experience. It relies on the government taking on the role of designing markets and establishing even-handed regulatory frameworks in a fair and transparent way.

Competitive neutrality is crucial to ensure providers' trust in the market. But it is only a feature of the most developed PPP markets and achieving competitive neutrality is likely to be an indication that a country has an almost fully developed PPP market. The UK is moving towards this model and this will give other countries a chance to learn from its experience - just as the UK will learn from countries such as Japan and The Netherlands which have made significant progress towards competitive neutrality. Ensuring public sector or incumbent contractors are not given an unfair advantage over other providers is key to ensuring the best provider is delivering services. Despite having a mixed market for public service delivery, the UK has faced challenges when including the private sector in delivering public services. A key concern for the UK public service market has been to establish a level playing field so providers compete fairly, regardless of which sector they represent.

Many countries seeking to engage the private and voluntary sectors more closely are recognising the importance of a level playing field. In order to gain the confidence of the private sector to enter the market, competition law needs to be updated. The European Union has also placed an obligation on member states to ensure public undertakings are treated neutrally.37

The Japanese government is taking on a role in establishing competition in public services and is developing its own policies and competitive neutrality frameworks. Japan is moving forward in market testing policy developments, aiming to open public services to competition and make them more transparent, while The Netherlands has introduced a competitive market for the delivery of a public task in welfare services.

Governments should address taxation and regulation inconsistencies and ensure that tax and regulation are applied even-handedly across sectors to encourage new providers. In India, the Advocates Act protects the legal services industry and restricts foreign law firms from operating in the country. However, there are signs that this is beginning to change. In May 2007, senior Indian ministers visiting the UK indicated they were looking to introduce a parliamentary bill allowing foreign firms to set up local operations. This is a positive step towards opening up the market and levelling the playing field.38

The CBI has already produced recommendations on competitive neutrality in the UK in its report A fair field and no favours: competitive neutrality in UK public service markets.39 If implemented at a national level, these would result in a highly advanced, competitively neutral PPP market. They include the need for government to:

■ Develop a comprehensive policy framework on competitive neutrality. This should include a clear commitment to the underlying principle of a level playing field between public, private and voluntary sectors

■ Spell out the detailed elements of a competitively neutral procurement policy, ensuring processes are fair, costing issues are addressed in an even-handed way and contract administration is non-discriminatory

■ Address the taxation and regulation of different providers. Because of its complexity, a separate review of VAT and its application to the public-private interface may be required

■ Review the rules governing the establishment and management of public sector trading activities in both central and local government

■ Investigate the application of competitive neutrality to quasi-public bodies enjoying the benefit of government patronage, tax concessions, implicit guarantees or other unfair competitive advantages

■ Introduce a less formal administrative complaints procedure to complement investigations should allow scope for policy recommendations to which this government should be obliged to respond.

Creating a framework of processes and safeguards which ensure the most innovative, efficient and reputable provider has the greatest chance of winning a contract to provide a public service is crucial. Without action, providers will be discouraged from entering or remaining in the market, thereby removing the benefits of competition and value for money.