The experience of the London Borough of Croydon is a likely pointer. Just before the local government elections of 1994, the then majority Conservative group pushed through the farming out of its finance functions to a private contractor, CSL. The council, now controlled by Labour, shows no sign of ending this arrangement, because of the savings achieved and the obvious improvements in the service.
Mike Stammers, of Croydon's procurement division, says: "The current administration has been concerned about the contract, but extended it to April 2004 because of the opportunity to realise financial benefits. Members would take it back in-house if there was any gain to be had, but the contract has worked well enough for them to see that ending it would mean losing many of the benefits."
Croydon's is the largest individual finance contract agreed in local government, worth an annual pounds 9.3m. The council calculates that it saves pounds 1m a year, while improving the authority's performance in collecting money and the speed in sending out bills.
David Bowles, a director of CSL, says that his company has invested pounds 3m in IT equipment in Croydon, which the authority was unlikely to have been able to afford. He believes that with the speed of change in IT, public bodies are unable to keep pace unless they attract private investment. Big savings can be achieved by partnerships with outside contractors.
"The major benefits revolve around off-loading the risk of change, particularly with new IT systems for council tax and housing benefit," Mr Bowles says. "With accounting services we can also provide strength in depth, so that accounts departments are not dependent on just a few individuals." He says that 20 per cent cost savings are common.
A rival contractor, EDS, boasts big productivity gains in the contracts it has won from councils in Wandsworth, Kingston and Brent, all in London.
"In Brent we have streamlined their operations, re-engineered the way revenue and benefits are handled, employing work-flow technology on a case management basis," David Courtley, head of EDS's public sector division, says. "When a case arrives at the front of the system it is entered on to a database, and is managed from start to finish electronically, providing a streamlined operation with much less paperwork."
Claim forms are scanned into the system to eliminate the need for manual data inputting. That increases productivity and saves money, and speeds up the handling of benefit claims.
EDS dismisses suggestions that central government contracts, notably that with the Inland Revenue, are causing problems. "EDS is entirely pleased with our record there," Mr Courtley says. "Our government business is going very well." He points out that EDS has also won contracts with the DSS, the Ministry of Defence and the Lord Chancellor's Department.
The Chartered Institute of Public Finance and Accountancy (Cipfa) says that contracting out has not only achieved savings and efficiency gains but has also helped councils to clarify priorities and set targets. However, Cipfa says, there has also been an unfortunate increase in bureaucracy. Private-sector contractors say they want to operate on a partnership basis, with councils committed to making contracts work, rather than seeking excuses to cancel them.
Sir Paul Beresford, the environment minister and a former leader of Wandsworth council, believes that the first white-collar compulsory competitive tendering regulations (CCT), covering legal services, have been widely avoided, allowing councils to keep too much work. The DoE has accordingly increased the amount of finance and other professional work that is subject to CCT. For finance activities, at least 50 per cent will have to be subject to outside tendering, except for county councils, where it will be 40 per cent.
But it is far from certain that the extension of CCT in professional services will go ahead. The new regulations are not due to come into effect until 1998, and the Labour party will not continue CCT.
Labour wants to see the compulsion element removed, and instead a duty imposed on local authorities to provide "best value" in implementing services. But there is a widespread view within local government that this concept is too vague to be easily put into legislation.
Labour says it would consult widely before bringing forward legislative proposals, and that it could be 18 months before CCT was replaced. The CCT regime is unlikely to be extended during this period.
As with much of Labour policy on public services, the key is achieving a public and private partnership. The private sector says that this is precisely what it wants. The problem, as the current government has found, is that persuading some local authorities is not so easy.