Stop looking for economies of scale in public services, report urges

Study published by Locality and the consultancy Vanguard says more locally minded services could save up to £16bn a year

The report
The report

Government must move away from seeking economies of scale in public services to give more contracting opportunities to the third sector, and thus avoid failing vulnerable users and creating extra work for voluntary organisations, according to a new report.

The report, Saving Money by Doing the Right Thing: why ‘local by default’ must replace ‘diseconomies of scale’, is published today by Locality, the membership body for community organisations, in partnership with Professor John Seddon of the consultancy Vanguard.

It says that creating more locally minded services across all sectors could save as much as £16bn a year in England, equivalent to a sixth of the NHS budget, based on the cost of avoidable intervention from public services.

The study, which was commissioned to challenge "the assumption that economies of scale should be sought in the running of public services", represents a "staggering opportunity for the UK to reorganise public sector resources", the report says.

The administrative burdens of services run on economies-of-scale principles are particularly troubling for third sector organisations, which are "the missing link between ‘local’ and ‘efficient’," the report says.

The report, which took evidence from 235 third sector organisations, explains how multiple "small-scale interventions can be cheaper and better value for money than scale provision".

It says the "tyranny of centralised scale thinking" also means vulnerable people "are provided with what has been commissioned rather than what they need".

The report says public services should become "local by default; helping people to help themselves; focusing on purpose, not outcomes; managing value, not cost".

It concludes with a two-fold call to action, saying service leaders can "simultaneously save money and improve the lives of their citizens" through such an approach, which does not create extra cost.

It also makes a longer-term call on government, researchers and funders to "support efforts to investigate further the fiscal efficiencies and service benefits of adopting a ‘local by default’ approach".

Steve Wyler, chief executive of Locality, said: "The drive towards standardisation and larger and larger contracts has generated billions of pounds worth of unnecessary demand on public services, and has fed the monster of corporate greed. We must stop feeding this monster."

Asked to respond to the report, a Cabinet Office spokeswoman said the government wanted commissioners to get maximum value for every pound of taxpayers' money they spent.

"That is why we passed the social value act and have done so much to build the capacity of social ventures to compete. The fact that public sector mutuals alone are now delivering more than £1bn of contract value is just one sign of the process being made in opening up opportunities for a wider range of organisations."

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