The new performance management system, called the Comprehensive Area Assessment (CAA), comes into effect next year with the first reports due out in November 2009.
For the first time all public sector organisations, including councils, police and health trusts, will be assessed on how they are collectively seeking to improve the lives of local people.
This will involve inspections by seven watchdogs, including the Audit Commission, the Commission for Social Care Inspection and Ofsted.
Whether failing services should be publicly shamed with a red flag label are among proposals under discussion.
Other ideas include gathering information about public sector performance from the voluntary and independent sectors, such as the Citizens Advice Bureaux and regional business forums.
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