Public sector wasting £25bn a year

The public sector is wasting at least £25 billion of taxpayers' money a year because of a failure to reform outdated procurement and outsourcing practices, a report has claimed.

The report from the Institute of Directors (IoD) comes as Chancellor Alistair Darling is looking for ways to halve Britain's record £178 billion deficit within the next four years.

At least £15 billion could be saved from the public sector's annual procurement spend and £10 billion from outsourcing if different tax-funded bodies worked together, said the IoD.

The UK's "staggering" annual £220 billion procurement spending total represents one-third of Government expenditure and costs every person in the country an average £3,500 a year - £14,000 for a family of four - said today's report.

But despite the massive spending, there is little attempt made to secure economies of scale, as most public bodies - including Whitehall departments, councils, NHS trusts and quangos - "do their own thing".

"Despite some areas of excellence and good collaborative initiatives, the majority of public procurement spending is so fragmented that huge potential savings are being missed every year," said the report.

Meanwhile, many public sector organisations use identical products and services in areas like legal services, IT and human resources. But there is little effort to buy these services centrally.

"Massive" duplication of effort forces costs up, as hundreds of public sector organisations each try to tackle contract terms and conditions, procurement law and processes for themselves.

If multi-national companies operated on a similar pattern "they would have gone out of business years ago", said the report.

It called for an integrated public sector procurement and outsourcing structure, with centralised buying organisations to handle all major contracts with suppliers for the whole public sector.