The Challenge of Competitive Neutrality in Public Procurement and Competition Policy: The U.K. Health Sector as Case Study

Simon Taylor, Jul 14, 2011

Competitive neutrality describes the aim of a level playing field in mixed public/private markets, where state-owned or quasi-public bodies line up to compete with private sector companies. These markets tend to be distorted as a result of structural advantages enjoyed by public providers and a failure by public buyers to ensure fair process. A range of policy tools can be employed to achieve competitive neutrality.

The OECD paper, Competitive Neutrality and State-Owned Enterprises: Challenges and Policy Options, of May 2011 looks at this problem. It advocates full implementation of the 2005 OECD Guidelines on Corporate Governance of State-owned Enterprises. This recommends measures designed to mitigate the conflict of interest in the state being both regulator and provider.

In the United Kingdom, the Office of Fair Trading (“OFT”) published a working paper in July 2010, Competition in Mixed Markets: Ensuring Competitive Neutrality, which suggests a more uniform approach by government bodies, fairer procurement, and the full application of competition law to state-owned enterprises.

The European Commission published a Discussion on corporate governance and the principles of competitive neutrality for state owned enterprises” in September 2009. The Commission’s paper focuses on the European Union (“EU”) state aid rules and the exemption under Article 86(2) (now 106(2)) of the Treaty on the Functioning of the European Union (“TFEU”)) to the application of competition and state aid rules to undertakings entrusted with the operation of services of general economic interest. It concludes that state aid rules enshrine competitive neutrality and give the European Commission the tools to ensure that this is achieved.

However, perhaps the most developed paper on the subject was the CBI paper from January 2006, A Fair Field and No Favours, Competitive Neutrality in UK Public Service Markets.

This article takes stock of the challenges presented by mixed markets and the competitive neutrality challenge with particular reference to the U.K. National Health Service (“NHS”) and the Health and Social Care Bill (“Health Bill”). The Health Bill proposes to give Monitor, the regulator of NHS foundation trusts, certain economic regulatory powers and concurrent powers to enforce the Competition Act 1998 in relation to the U.K. health sector.


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