Councils could make millions more in savings by exploiting markets and using more competition to drive down costs and improve productivity, says an Audit Commission report this week.

The report coincided with a speech by Gordon Brown at the CBI conference, saying the private sector would continue to have a growing role in public service delivery.

Identifying £50bn of services, half of all council spending, which is ‘potentially subject to competitive pressure', the commission's report says councils are still failing to fully use market-testing to achieve savings.

It says the ‘pre-conditions for using competition and contestability are not widely in place', due to a lack of procurement skills and information about public service markets. It adds: ‘The long-term evaluation of best value found that competition has been the least well used of the four Cs within the best value framework.'

Competition and contestability, it says, can be both from in-house operations as well as external, and need not involve a formal tendering exercise.

The report, Healthy competition, says councils should:

And it adds: ‘Councils will have to adopt a more sophisticated approach to the market to achieve further savings and improvements in services.'

The report singles out Norfolk CC for its external trading companies which grew out of in-house providers, and now provide profits back to the county, Croydon LBC's housing management services, and East Cambridgeshire's revenues and benefits.

A separate study from the Serco Institute this week estimates savings of at least 20%, if the public sector is opened up to more outside competition.