With is forthcoming announcement of a new wave of privatisation, the Cabinet Office is envisaging a significant redesign of the public sector and the provision of public services in the UK.
In broad strokes, the Ministers are preparing to spin off a significant number of state-owned services into independent companies that will be owned by the Government, private investors (with a share of up to 50%) and workers (up to 25%), and to which the Government will then guarantee contracts for a number of years – with the businesses free to sell their services in the market.
Such a strategy will reshape the UK public sector, but it will also have a very significant impact on competition in services markets (since the Cabinet Office is focusing on IT, personnel and legal functions, which could be provided by existing private suppliers in the markets concerned).
This is a strategy that deserves close scrutiny by the competition watchdog--as anticipated by the OFT in its 2013-14 Annual Plan, where it stresses that it "may focus on IT and local government issues in particular and work with government partners on a range of issues relating to the public sector reform agenda to ensure that government interventions maintain competitive markets. In addition to advocacy and influencing, [the OFT] will consider using the full range of tools at our disposal to tackle any breaches of competition law identified in public service markets." Maintaining competitive neutrality will be a major issue, as indicated by the OECD recently.
Importantly, the public sector reform will need monitoring from the public procurement perspective. Depending on how the privatisation and contracting out strategy is carried out, the Cabinet Office will create a complex scenario by running auctions to acquire 'minority' stakes in the spin-off companies and (simultaneously?) running (open?) tenders or directly awarding the contracts to the newly created companies.
If these procedures are not structured and timed in the proper manner, the UK government could easily fall foul of the relevant rules and exceptions to the current EU public procurement Directives--including, to name the most relevant ones, the 'public-public' cooperation exception, the 'in-house' provision exception, and the direct award of contracts on the basis of exclusive rights (which abuse determines the ineffectiveness of the contracts).
Moreover, the rules on State aid to services of general economic interest will also be relevant, particularly once the spin-off companies start competing in the market and incumbents or new entrants raise claims that public participation and public contracts allow them to cross-subsidise activities and compete unfairly for public and private business.
Given the multiple competition, public procurement and State aid implications of the new wave of public sector reform in the UK, this sector deserves close monitoring and will provide a myriad of opportunities for legal and economic analysis and research. Moreover, given that this is not the only strategy for public sector reform (since, at local level, aggregation of demand and pure public-public cooperation schemes are being developed), this promises to be an interesting battlefield.