AS MUCH as £70 billion is being wasted by the UK Government every year because of inefficiency in the public services, a new independent study suggests.

A report by economists at the European Central Bank (ECB) concludes that hundreds of billions of pounds could be saved in Europe each year if the EU public sector raised its game and became as efficient as that of the US or Japan.

In terms of value for money from the public services, the UK scores more highly than France or Germany, but falls far short of the US, Ireland, Japan and Australia, according to the study.

If the UK was as efficient as the US, Britain could spend 16 per cent less than it does at the moment and still achieve the same level of public sector performance. This implies that government spending could fall to £380 billion a year from its current £450 billion without any drop in service quality.

If France and Germany were to match US efficiency levels, they could slash public expenditure by 36 per cent and 28 per cent respectively and still maintain service levels, the working paper finds. The ECB report analyses data up to and including the year 2000.

In the European Union as a whole, state spending could drop by more than a quarter if efficiency in public services matched that of the US or Japan.

The three authors of the paper, who stressed that their opinions were personal and did not necessarily represent those of the ECB, said: “The 15 EU countries should be able to attain the same level of output using only 73 per cent of the inputs they are currently using.”

This would allow state spending in the EU to drop to around 35 per cent of gross domestic product (GDP) from its current level of 50 per cent, the authors calculated.

The large state sectors found in many EU countries are almost always more inefficient than the relatively small government sectors in America or Japan, the report concludes.

“We find that differences in efficiency are much more pronounced than in performance across countries, with ‘small’ governments clearly outranking the others. This illustrates that the size of government may be too large in many industrialised countries,” the three authors — António Afonso, Ludger Schuknecht and Vito Tanzi — said.

Aside from the US and Japan, three other industrialised countries score highly in the report — Australia, Ireland and Switzerland. Australia’s public sector is virtually as efficient as America’s, with those of Ireland and Switzerland close behind.

If Ireland’s public sector was as efficient as America’s, the Government would be able to reduce spending only by around 4 per cent, the study reports. Switzerland could see spending fall by 5 per cent if public sector efficiency was raised to US levels.

The authors looked at a wide range of indicators — including education, health, economic stability and income distribution — when assessing public sector performance.

They acknowledged that there were difficulties in comparing public spending across countries, but said that the figures presented in the paper were the “best possible approximation”, given the data they had.