Breaking up the government's monopoly

Should all state-run services be opened up to competition from the private sector?

Courtesy of Hasbro
The board game Monopoly is shown. UK Prime Minister David Cameron recently announced that the state's monopoly on public services will be opened up for competition with the private sector.

Sorting out some books yesterday, I came across a copy of the 1980 ASI paper Re-Servicing Britain by Michael Forsyth. He argued that all local services should be opened up to competition. Now Prime Minister David Cameron has written in the Daily Telegraph to say that the traditional state monopoly over public services will indeed be opened up. Private and voluntary groups are being given the automatic right to compete to supply them. It remains an excellent idea.

Of course, local authorities have indeed contracted out things like refuse collection since that 1980 paper (and of course road works have been done by private companies pretty much for ever). Once Margaret Thatcher's beady eye was no longer on them, though, many local authorities (and government departments) reverted back to using in-house providers – using a couple of excuses that Mr Cameron needs to sort out if he is going to make his new policy stick.

One reason is that if they use in-house providers, VAT is not an issue. If they contract out to commercial firms, they have to pay 20% VAT. Often, for the same reason, if they do contract out, they often contract to charities, which don't pay VAT, but which are often not so cost-efficiently managed as private firms.

Another problem is the regulations on the 'transfer of undertakings'. This was a cunning ruse designed precisely to thwart contracting out in the 1980s. Basically, if you take over an 'undertaking' – like local government refuse collection – you have to pay the same wages, and provide the same pensions, perks and holidays. So it reduces any outsider's ability to re-jig the service, run it more flexibly, and make a profit too.

Those excuses of course cost taxpayers and ratepayers money, and deliver them a worse service. Let's hope that the promised White Paper addresses them.

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