The UK’s largest business group is urging ministers to open public services to competition more quickly despite the row over G4S’s performance at the Olympics, arguing that the taxpayer could save nearly £23bn a year.

With a public spending review looming next autumn, John Cridland, CBI director-general, said services faced being severely cut unless more efficiency savings were made.

But Unison, the largest public sector union, said the CBI’s claim that billions could be saved by privatising services was “fundamentally flawed”.

The CBI’s plea for greater private sector involvement comes at a critical time for outsourcing after G4S was blamed by MPs for the “11th hour fiasco” when it failed to provide thousands of security guards for the games.

Mr Cridland acknowledged “mistakes” by the private sector but insisted that huge savings could be made by opening up services to competition from private businesses, mutuals, charities and social enterprises.

He said there had been “some action in some parts of government” since a white paper 15 months ago – including a plan to open up the £820m-a-year market for probation services – but “the momentum is lacking”.

A report by Oxford Economics, the consultants, for the CBI calculated that independent providers achieved average cost savings from productivity improvements of 11 per cent in the 20 service areas that it studied, without diminishing quality.

The report said if the approach were applied across an estimated £278bn of public services that the CBI believes could feasibly be fully opened up – more than a third of the £666bn annual total – a saving of at least £22.6bn could be made.

Oxford Economics found that most areas were largely still monopolised by the public sector – 98 per cent of the management of social housing, 86 per cent of prison management, 73 per cent of school catering and 68 per cent of hospital cleaning was still done in-house.

Mr Cridland said with central government budgets likely to be at least 8 per cent below their current levels in real terms in 2014-15, “we need the government to set out which services it is prepared to open up to independent competition and when”.

Unison said the 11 per cent figure was “plucked out of the air” and failed to take into account knock-on costs including procurement, tendering and contract management – or the cost to the taxpayer when the private sector failed.

“Privatisation failures carry heavy human costs – just ask the elderly resident of an ex-Southern Cross home. And, as the G4S Olympic fiasco clearly shows, when the private sector fails, the public sector has to pick up the pieces, including the cost,” said Dave Prentis, general secretary.

Mr Cridland accepted that contracts were sometimes mismanaged and mechanisms were needed to maintain service continuity when there were failures.

But Ali Parsa, chief executive of Circle Healthcare, the Aim-listed healthcare company, said too much concern about the risks of competition could stifle innovation.

“The private sector fixed Southern Cross. Ownership changed, some people lost their money and the patients continued to be served,” he said.

Mr Parsa said the public sector had taken far longer to sort out problems at Mid-Staffordshire NHS Foundation Trust, where clinical and regulatory failings were blamed for hundreds of patient deaths.

Mr Cridland said while the government had got its strategy right on opening up public services, it was getting “lost in translation” at the level of officials, where there was too much caution.

He warned: “If people are not bold enough in looking for these opportunities, but budgets are cut, you are driven to go for a race to the bottom. There is no alternative then but simply to cut, cut, cut.”

The Cabinet Office said the coalition had made appointments which “will enable us to go even further with our crucial efficiency and reform agenda and build on the £5.5bn of efficiency savings achieved last year”.

Copyright The Financial Times Limited 2018. All rights reserved.