Bringing outsourced services in-house would cost local government £30bn, a think-tank has calculated.

The Ethical Commercialism report published by Localis today warns that councils would pick-up the bill in the event of a collapse of the outsourcing sector.

And private firms must reform their behaviour to stave off such a disaster, it concludes.

The report shows moving all local services in-house would cost the public purse at least £30bn – with costs potentially outstripping savings with the market worth at least £69bn annually.

Localis chief executive, Jonathan Werran, said: ‘A diverse, flexible and open market for local public services is one worth preserving for a very pragmatic reason – that being to keep going the countless thousands of vital services which millions of residents rely upon in their daily lives.

‘Local government and the wider public sector simply can’t afford the rapid collapse of a mature and complex market.’

Localis argues that the market is in a ‘precarious’ state in which ‘margins for failure have become perilously narrow’.

The report suggests greater levels of openness and transparency on the part of the council and standards of behaviour from private companies can preserve public trust in outsourcing.

This can be secured when drawing up contracts with social, environmental and economic conditions beyond value for money and suggests expected loosening of procurement restrictions outside the EU could help in this post-Brexit.

Co-branding of contracted services with the logos of service providers and the employment of ‘relationship managers’ by councils is also suggested.

Mr Werran added: ‘There needs to be a reform on all sides. Private sector firms need to walk the walk of acting with fairness and decency in delivering public services.

‘For their part local authorities must take responsibility for drawing up contracts that encourage good commercial behaviour and for presenting their commercial dealings to residents in an open and transparent way which can be readily understood.’

Managing director of CIPFA's consultancy service, C.Co, Richard Harrison said: ‘Local residents, rightly expect high quality services delivered with integrity and transparency.

‘We are seeing some excellent examples of new models emerging, which put ethical behaviour at the heart of service delivery. Wherever possible, we should be encouraging organisations which deliver social value, as they deliver greater benefits to our communities.’