If central government merged its back office functions – including HR and finance administration – it could save £560 million a year according to the CBI.

The calculation, which excludes the Ministry of Defence and the devolved administrations, is based on the government reducing the 2.5 per cent of its budget that it spends on HR and finance to the 0.75 per cent that ‘best-in-class’ organisations typically spend.

The report, Transformation through shared services: improving quality, increasing efficiency, outlines the business case for shared services, including economies of scale, better information sharing, aggregation of buying power and greater opportunities for staff to develop specialist skills.

But it says the implementation of shared services by the government has, to date, been ad hoc and incremental, achieving few savings or improvements to public service delivery.

CBI director-general Sir Digby Jones said: “Sharing administrative functions can deliver massive savings, freeing up resources to improve the quality of the services people use.

“Our research shows the savings can be made by bringing together similar back office functions of neighbouring government organisations. Whitehall departments, local authorities and other public bodies must collaborate much more effectively if they are to deliver the customer-focussed services people want.”

The report also raises issues of managerial capability within government, recommending that procurement and business planning skills be enhanced in order for the public sector to use new techniques and technologies to improve service delivery.