Competition as Public Policy: a Review of Challenge Funding

Since their introduction in 1984 Challenge funds have been widely adopted by central government. They are now used by twelve government departments to distribute competitively more than £3,250 million of Exchequer funds. The introduction of Challenge funds appears to have been politically driven, usually focusing on the objectives of cost and efficiency rather than quality and equity. They represent a further manifestation of the introduction of competition and 'market style' structures. This paper examines the key features of 41 Challenge funds and their operational characteristics. Numerous benefits, such as cost savings and innovation, arising from the introduction of Challenge funds have been put forward. By reviewing other studies, which have investigated the impact of the introduction of competition in producer and consumer markets, and through comparison with previous schemes it is possible to examine the potential impact of Challenge funds. Administrative and monitoring mechanisms are found to be centralizing control, despite assertions to the contrary. There is a growing concern that the level of information collection required is too arduous and it is used to control and regulate schemes rather than as a method of investigating where operations could be improved. Leverage from Challenge funds has been no more successful than earlier non-competitive initiatives. Competitive bidding could stifle innovation and participatory democracy is not encouraged or facilitated by Challenge funds.