7 Treat all providers fairly

Many private, voluntary and social enterprise sector organisations are already helping improve a wide range of services for UK citizens. They bring new skills and approaches to providing first-class public services. This practice is growing as markets continue to develop, but a level playing field is required to make the most of this new wave of provision.

The CBI is committed to fair and open markets in all sectors. We support the principle of competitive neutrality: this is about creating a framework of processes and safeguards which ensure that the most innovative, efficient and reputable provider should have the greatest chance of winning a contract to provide a public service. Too often, this is not the case. Without action, providers will be discouraged from entering or remaining in the market, thereby removing the benefits of competition and reducing the likelihood of achieving better value for money.

The Department of Work and Pensions has already undertaken a review of how it manages markets with this in mind. We need to build on this initiative across all government departments. Developing a single competitive neutrality framework is imperative to sustain the new markets the public sector will increasingly rely on. The CBI believes:

Markets that are managed in a fair and transparent way build provider confidence. An example of how good market management made a difference in the prisons sector was the Home Office’s creation of the Office for Contracted Prisons, separating the commissioning and provision functions of the Prison Service. Prior to this initiative, private providers had publicly registered concern about a conflict between the role of the Prison Service as a purchaser and its role as a competitor. By creating the Office for Contracted Prisons as the independent market manager, the Home Office improved providers’ confidence in the market. This encouraged private, voluntary and social enterprise providers to invest more in developing custodial services, driving up standards.²¹

Removing market barriers encourages new providers to enter the market. It can also act as an incentive for providers to innovate and become more efficient than their competitors. Where barriers persist, innovation suffers. In the case of leisure services provision, tax rules are distorting the market. Leisure trusts - a form of social enterprise - are entitled to 80% relief on national non-domestic rates, with discretionary relief possible on the other 20%. For private sector providers, any relief on business rates is entirely discretionary. One study of a borough north of London found that VAT and business rate relief accounted for almost 90% of the savings offered to the local authority by the leisure trust in bidding for services.²² This does little to promote competition.

Anti-competitive practice damages citizen's interests. In Scotland, the Executive has signed a protocol that allows in-house teams to submit a late bid on PFI contracts once they have viewed the submissions from other providers. Guidance on this issue always stresses the importance of avoiding a conflict of interest, but has little to say on the inherent unfair ness of this kind of sequential competition. Where providers know that their best offer will be open to review and there is a possibility of the business model that they have invested in being copied, the impetus to include high levels of innovation in bids is much reduced. Citizens will not applaud politicians who fail to create the right conditions for changes in services to happen.