The Treasury's cross-cutting review on charities and public service, unveiled last month by chief secretary Paul Boateng, names the sector as a key partner in government reforms of public services. This has been backed up by a three-year, £125 million futurebuilders fund to "increase the scope and scale of voluntary-sector service provision".
But a DTI consultation document on the General Agreement on Trade in Services (GATS) published earlier this month suggests that attempts by the Government to favour not-for-profit organisations in the delivery of public services could be deemed illegal by the World Trade Organisation (WTO).
In sectors which are committed for liberalisation, such as health and social services, GATS outlaws preferential treatment for domestic providers over foreign ones.
The futurebuilders fund is effectively a subsidy to the voluntary sector, which unless applied equally to foreign for-profit service providers, could be challenged at the WTO, according to Save the Children's trade policy adviser John Hilary.
"The EU has registered an exemption from GATS which allows member countries to grant exclusive rights to non-state operators delivering public utilities, but in other circumstances any subsidies restricted to particular service providers (such as the UK voluntary sector) could be open to challenge under GATS," he said.
Specifically designating that a service be provided by a not-for-profit organisation or establishing conditions, such as levels of user involvement, for deciding what organisations can carry out a service could fall foul of the agreement.
"Under GATS there are tight restrictions on the measures which governments can use to regulate the delivery of services. If a country were to stipulate that a particular service has to be provided by a voluntary organisation, then that could be challenged as a restriction on trade," said Hilary.
Inter-governmental negotiations are entering their most intensive phase at the WTO, with countries required to make initial liberalisation offers by March 2003.