CBI calls for more waste services outsourcing

The CBI has published a report on open access to public services, which has been produced by Oxford Economics. This includes estimates of the potential savings which the public sector could make from outsourcing those services which are currently conducted in-house by the public sector.

The report highlights the fact that just over half of waste (collection) services remain in-house. It then estimates that there is a minimum of £192 million savings which the public sector could make from a fully open waste services market.

This estimate is based on assumed producitivity improvements of 15% which are then applied to all authorities which currently retain their services in-house. That 15% figure seems to come from primary research with private sector providers.

As one might expect, I am a big fan of outsourcing waste services to the private sector but these suggested savings seem high to me. I feel that a lot of the efficiencies in the waste services market have already been driven through. Margins on waste collections are very tight and further improvements may be more difficult to achieve. I also don't believe that such large savings would be realisable without half of authorities spotting them. It just doesn't seem credible, although I could of course be wrong.

Some local authorities are also apparently in the naughty habit of calling their services to tender before withdrawing once they have received private sector bids. This allows them to pinch private sector method statements and apply them to in-house services, thereby undermining some of the practical case for large savings' estimates.

I also note that the case study cited in the report is from poor old May Gurney who have run into some recent difficulties on their recycling contracts. They appear to have been quite aggressive in their revenue assumptions from recyclate sales. Now that commodity prices are falling their contracts are running into difficulty. Recyclate prices follow those of primary commodities but tend to be even more volatile on a proportionate basis and this is now hurting the industry.

Contrary to the CBI/Oxford Economics proposals, there has been an increasing recent trend for local authorities to bring waste services back in-house. This has been driven by high recyclate revenues on the back of the recent biggest boom in commodities' history. Authorities have seen these high revenues as a potential cash cow in straightened times.

Falling prices mean that this model may be undermined going forward and more authorities will realise that competition between private sector providers does deliver decent potential savings to public sector budgets. But I suspect not as high as 15% for waste services.