The growing reliance of town halls on private contractors is illustrated starkly by the problem of coping with more and more rubbish while trying to meet ambitious EU targets to cut landfill waste.

Waste disposal is one of the biggest council expenses. Local authorities in England alone manage about 30 million tonnes of waste every year, at a cost of £3 billion. The volume of waste has been increasing by about 3 per cent year on year.

The cost of cutting back on landfill waste is now a prime factor in council tax increases and will contribute to next year’s inflation-busting rise.

Under government targets, authorities have to increase the amount of waste recycled from 25 per cent in 2005 to 30 per cent in 2010 and 33 per cent by 2015. As a result the five waste companies that dominate the market have been inundated with tender invitations from hundreds of local authorities.

Although some councils still provide rubbish collection in-house the majority are now offering multimillion-pound contracts to specialist companies.

The average cost of a treatment and disposal contract is nearly £200 million, and collection contracts cost about £13 million.

The leading companies — Serco, Biffa, Cleanaway, Grundon and Sita — are almost being able to set their own terms. Local councils often lack the proper expertise to drive down tender prices and, with so few companies competing, cannot go elsewhere.

When companies win rubbish collection contracts they often take over the council vehicles but buy new ones when they need them. This means that when the contract is up for retendering, the local council is unable to take the service back in-house because the cost of new vehicles means there is a “capital barrier”. As a result the existing contractor can raise the tender price.

The companies, on the other hand, have their own grumbles that stop many entering the public sector market. Local authorities are notoriously difficult to deal with and, like central administrations, tend to change their mind when they change political control.

Paul Bettison, chairman of the Local Government Association’s environmental board, said that some councils were constrained by manifestos. “They may decide to offer rubbish collection on the three Bank Holidays over Christmas, for example. The private sector would argue it would be best to skip that week but, if the authority wants to maintain a service for residents, they have to pay the extra costs.”

Companies are also reluctant to enter into an expensive tendering process if they are not likely to win. Most councils depend on the well-known companies and do not want to take the risk of using others. “Our customers will quickly notice if standards fall,” Mr Bettison said. “So reliability is really important.”

Companies also claim that public sector contracts are very high risk because of health and safety and litigation issues. They also claim that the tendering process is time-consuming, partly because council workers do not know about commercial rules and because of the complexity of contracts for different groups of workers.

Mr Bettison agrees that authorities should consider taking back some services in-house, which could now prove more cost-effective. “There is no reason why we can’t do things now that we were unable to do a few years ago,” he said. He recommended shared deals between local authorities.

Mr Bettison, who is council leader of Bracknell Forest, said that he had struck a deal with his neighbouring authorities, Wokingham and Reading, over a £680 million contract for collecting, sorting and disposing of waste.

One company has been awarded a contract for collecting waste and another to recycle waste, but the service is co-ordinated in-house.

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