Anthony Miller, an analyst at Ovum Holway, said, "Local authorities have enough on their plates looking after their residents, without having to run a commercial IT services business." It should leave that to the experts, he added.
The company, called NewCo, would see Liverpool council running call centres for other local authorities, as well as potentially offering consultancy services.
NewCo, which builds on the council's existing joint venture with BT, is believed to be unique in local government. The council will have a controlling 51% stake in the new company, while partners BT and Enterprise will each be offered a 10% stake in return for an investment of £250,000.
Council officials claim there will be no cost to taxpayers in creating NewCo and estimate that the company will generate millions of pounds of extra income for Liverpool council, while at the same time creating hundreds of jobs.
The council believes that its in-house expertise will be key to the success of NewCo. A spokesman said, "We can share the skills that we have acquired in setting up some of the most advanced IT systems in the UKpublic sector, so that other local authorities don't have to re-invent the wheel."
However, Miller said the council will face stiff competition in a market already packed with IT services companies. "It will put it in direct competition with other established IT services players.This is a completely different world and it is not one that local authorities were set up to do," he said.
"Offering services to other local authorities is well-intentioned, but from a pragmatic point of view it will be fraught with problems, both technical and, in particular, political."