30/10    19 March 2010

The OFT today published a new guide for policy makers considering using choice and competition in the delivery of public services.

The research, carried out for the OFT by Frontier Economics, provides a framework for assessing where and how the use of choice and competition can be most effective.

It draws on evidence from a range of different public services including health, schools, further education, social care and employment services in order to support future policy making.

Successive governments in the UK and further afield have explored the possibilities for using choice and competition across a range of different public service markets to increase user engagement and improve service delivery. Today's report shows that choice and competition, when it works well, can increase efficiency, improve the quality and range of service on offer and create a better allocation of resources.

However, the unique character of public service markets means that the benefits of choice and competition are by no means guaranteed, and in some cases will simply not be an appropriate mechanism.

The research argues that in order for choice and competition to work effectively policy makers need to be particularly aware of three key lessons:

• Consumer behaviour needs to be understood. Many public services have only recently been opened up to choice and some users are not aware that choice exists. Many public services are complex and users do not necessarily use or know how to interpret publicly available information. This can make the role of intermediaries in advising individuals very important.
  
• Implementing good exit mechanisms is vital. It can be very difficult, practically and politically, to close down public services such as individual schools and hospitals, even if they are performing badly. If competition is to work well, policy makers should seek ways to allow new entrants, or existing market participants with a strong track record, to take over the management of these services.
  
• Both user choice and competition between providers need to function effectively in order to secure overall benefits for users. Enabling choice on its own is not enough, while potential competition between providers will not be effective unless users can effectively exercise that choice.  
  John Fingleton, OFT Chief Executive, said:

'The role of choice and competition in the provision of public services is not a new subject, but it is likely to remain as relevant and important as ever in the next few years. This paper sets a general framework for policy makers to explore the best use of choice and competition to deliver greater efficiency and customer focus in public markets.'

NOTES

1. Download the full report (pdf 658kb) and case studies (pdf 1.34Mb) from our Advocacy reports page.

2. Today's report follows on from the OFT's 2009 'Government in Markets' paper (pdf 981kb).

3. Under Section 7 of the Enterprise Act 2002, the OFT has a role in providing information and advice to Government on competition and consumer issues.