There will be a fundamental transformation in the way local authorities buy IT services in the aftermath of yesterday’s Spending Review.

That is according to analysts assessing the impact of the government handing back financial decision-making power to councils.

In the Spending Review, Chancellor George Osborne announced what he called a “massive devolution of financial control” to local authorities, removing the ring-fencing of all local government revenue grants next year. Additionally, councils will no longer have to report on 4,700 targets that had been set centrally.

But in a punishing move, the government slashed local authority budgets by 7.1 percent a year for four years.

Tola Sargeant, research director at analyst house TechMarketView, said the devolution of financial decisions to local authorities presented a major challenge to IT suppliers.

“Without ring-fenced budgets for ICT, schools and hospitals for example could simply stop investing in IT and divert resources to the front line,” she said.

The localisation would favour smaller suppliers over some existing large providers, because of a more “fragmented” market, she added. The news would be “to the benefit of mid-sized suppliers that are close to individual local organisations – the likes of Northgate, Steria, Civica and System C Healthcare, for example.”

Nevertheless, she said, localisation of decisions could allow councils to spend money on IT “were it is really needed”, with more outsourcing and shared services being used to deliver the change.

Jos Creese, president at Socitm, the association of local government IT managers, said in a statement yesterday that the devolution of control was an “opportunity for a paradigm shift in local services delivery powered by ICT to achieve better, properly co-ordinated outcomes for residents and service users at significantly reduced cost”.

The move to deliver more local and national services online was good for the public purse,said Surreyya Cansoy, public sector director at supplier’s association Intellect, but it presented challenges of “working across government silos, adopting new ways of doing things, and making sure new online services can suit almost anyone”.

The government and the industry had agreed on the cost cuts to be made, she said, adding that “now is the time to turn our attention to new investments” needed to deliver those services rather than focusing on cutting for good.

Procurement is likely to be a target for improvement, with official estimates suggesting £400 million could be saved annually. The government has recently signed memorandums of understanding with most of its large suppliers, under which it will buy across departments as a single customer. But the official estimates of potential savings this will deliver could be too much, as Intellect calculated that poor procurement instead costs the government around half of that figure.

The industry body also railed against the notion of suppliers having to fully reveal the details of their contracts, even if the concept of more transparency was essentially “welcome”.

“Publishing contracts in full without considering suppliers’ intellectual property or commercially sensitive information risks making it more difficult to do business with public sector bodies,” she said.

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