Public sector costs could be cut by as much as £25bn within three years through a radical restructuring of procurement and greater use of shared services, and outsourcing of areas such as HR.
The report from a study by the Institute of Directors (IoD) has argued that, despite some areas of excellence and good collaborative initiatives, most public procurement spending is so fragmented that huge potential savings are missed every year.
With public sector procurement spend standing at £220bn a year – or £3,500 for each person in the UK – creating efficiencies could result in major savings, the IoD said.
Many public sector organisations use identical or similar products and services – such as HR, legal services and IT – but they are not being bought or sourced centrally, creating massive duplication, the report warned.
Using examples of savings achieved already on specific projects, the IoD conservatively estimates that at least £15bn can be saved in the procurement process and £10bn in the outsourcing process.
The report calls for:
Centralised buying organisations that handle all key supplier relationships and all national and major contracts on behalf of the whole public sector
Where there are regional and local requirements, regional procurement hubs to provide expert contracting support to all bodies in the region
A single leadership point (e.g. the Office of Government Commerce) for the above structure
Mandatory use of the above structures by all public sector bodies.
Miles Templeman, IoD director-general, said: “The economic situation demands immediate action to reduce public expenditure through implementing the proposals in this paper.
“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.”