Public sector 'wasting £25 billion a year' - report

The public sector is wasting at least £25 billion of taxpayers' money a year because of a failure to reform outdated procurement and outsourcing practices, a report said today.

The report from the Institute of Directors comes as Chancellor Alistair Darling is looking for ways to halve Britain's record £178 billion deficit within the next four years.

At least £15 billion could be saved from the public sector's annual procurement spend and £10 billion from outsourcing if different tax-funded bodies worked together, said the IoD.

The UK's "staggering" annual £220 billion procurement spending total represents one-third of Government expenditure and costs every person in the country an average £3,500 a year - £14,000 for a family of four - said today's report.

But despite the massive spending, there is little attempt made to secure economies of scale, as most public bodies - including Whitehall departments, councils, NHS trusts and quangos - "do their own thing".

"Despite some areas of excellence and good collaborative initiatives, the majority of public procurement spending is so fragmented that huge potential savings are being missed every year," said the report.

Meanwhile, many public sector organisations use identical products and services in areas like legal services, IT and human resources. But there is little effort to buy these services centrally.

"Massive" duplication of effort forces costs up, as hundreds of public sector organisations each try to tackle contract terms and conditions, procurement law and processes for themselves.

If multi-national companies operated on a similar pattern "they would have gone out of business years ago", said the report.

It called for an integrated public sector procurement and outsourcing structure, with centralised buying organisations to handle all major contracts with suppliers for the whole public sector.

Regional "procurement hubs" could provide support where there are specific needs in a particular area.

All public sector bodies could be given a statutory requirement to make use of these structures to ensure that the maximum benefits are gained.

IoD director-general Miles Templeman said the restructuring could be completed within 12 months and deliver savings within three years.

"The economic situation demands immediate action to reduce public expenditure through implementing the proposals in this paper," said Mr Templeman.

"There is a lot of talk among politicians about the need to introduce efficiencies into the public sector, but very little detail on how this will be done. The report we publish today provides a vital needed blueprint."

The report's author, Colin Cram, a public procurement specialist, said: "There has been much improvement in procurement under the leadership of the Office of Government Commerce.

"However, public sector procurement remains a legacy of its past and a prisoner of its structures. A step-change is long overdue in the way public sector procurement is organised and managed.

"Its complexity does not excuse looking to the best private sector models, for example, companies like Tesco."

Shadow chief secretary to the Treasury Philip Hammond said: "Five more years of Gordon Brown will mean more waste and more debt.

"Billions of pounds are going to waste every year because the Government refuses to implement the savings their own efficiency advisers have identified.

"We can't go on with more of the same. A Conservative government will change the culture in government to deliver more for less, so that we can protect frontline public services."

A Government spokesman said: "The Government recognises the importance of delivering value for money from collaborative procurement and other operational areas, and has accepted the recommendations of leading industry experts to deliver £15 billion of savings from these areas by 2013-14 as part of the Operational Efficiency Programme.

"This challenging yet achievable target is only one part of Government's package of reducing spending in a credible way to halve the budget deficit in the next four years."