Should all state-run services be opened up to competition from the private sector?
Courtesy of Hasbro
Sorting out some books yesterday, I came across a copy of the 1980 ASI paper Re-Servicing Britain by Michael Forsyth. He argued that all local services should be opened up to competition. Now Prime Minister David Cameron has written in the Daily Telegraph to say that the traditional state monopoly over public services will indeed be opened up. Private and voluntary groups are being given the automatic right to compete to supply them. It remains an excellent idea.
Of course, local authorities have indeed contracted out things like refuse collection since that 1980 paper (and of course road works have been done by private companies pretty much for ever). Once Margaret Thatcher's beady eye was no longer on them, though, many local authorities (and government departments) reverted back to using in-house providers – using a couple of excuses that Mr Cameron needs to sort out if he is going to make his new policy stick.
One reason is that if they use in-house providers, VAT is not an issue. If they contract out to commercial firms, they have to pay 20% VAT. Often, for the same reason, if they do contract out, they often contract to charities, which don't pay VAT, but which are often not so cost-efficiently managed as private firms.