Local Government Procurement

Wednesday 16th January 2013 Westminster Hall

11:00

[Andrew Gwynne (Denton and Reddish) (Lab)]

As ever, it is a pleasure to see you in the Chair, Mr Robertson. I am grateful to have been granted this debate.

Local government procurement is becoming increasingly important, particularly in places such as my constituency, and I will refer to some of the work that is being done to support local businesses in my constituency during these harsh economic times, especially with the help of Tameside metropolitan borough council in its Tameside Works First initiative. It is also important nationally because almost £62 billion a year is spent through local government procurement, and that amount looks set to increase rapidly as spending cuts force councils to outsource even more services. Clearly, the way in which that money is spent can have a huge impact on the local economy, jobs and training, so we must ensure that we get it right. We must also ensure that, as well as working to obtain best value for money, councils do not overlook important benefits that could be secured through better procurement, particularly added benefits to the local economy.

A study by the Federation of Small Businesses shows that of every £1 spent in the local economy, 83p goes back into that economy. Social Enterprise UK asks:

“If £1 is spent on delivery of services, can that same £1 be used to also produce a wider benefit to the community?”

That is an interesting point, because investing in our local communities must almost certainly have a wider social benefit and positive effect on the same local area.

[Jonathan Reynolds (Stalybridge and Hyde) (Lab/Co-op)]

As ever, it is a pleasure to share with my hon. Friend the responsibility of representing Tameside in Parliament. He is always pressing its case. We know from experience in Tameside what a difference local councils can make. Does he agree that the Government’s attitude to local government funding and to local councils borders on contempt? The way we are going, we will soon lose any lever we have in managing our local economies through local authorities and helping to improve our constituents’ lives.

[Andrew Gwynne]

My hon. Friend makes an important point, because the impact of the local government settlement on a council such as Tameside has been nothing short of devastating. Projections show that coming years will be very difficult for Tameside and other boroughs if things do not improve substantially. That will involve not just the council’s own budget, but the wider local economy. The amount of money being taken out of areas like Tameside will have a devastating impact on the communities we represent.

I want to highlight some of the good work being done in my constituency. The importance of local procurement to support small and medium-sized enterprises is well known. Research in 2005 by the New Economics Foundation with Northumberland county council suggested that for every £1 of direct spending in the local economy, the total value, including indirect spend, equates to £1.76. At the start of the economic downturn, Tameside metropolitan borough council, one of two councils covering my constituency, introduced the Tameside Works First initiative to give more support to local companies and to help to boost the local economy. It was spearheaded by Councillor Keiran Quinn, then the cabinet member for economic development and now the executive leader of the council, precisely to provide support to local companies. Under that programme, specific capital projects and programmes were designated to be supplied locally when possible. At the same time, partner organisations were encouraged to sign up to a local procurement charter, committing themselves also to support a local supply chain.

[Andrew Bingham (High Peak) (Con)]

I congratulate the hon. Gentleman on securing this debate. Ours are neighbouring seats and we share some cross-constituency issues. Does he agree that, to help small local businesses, it is important to remove many parts of the bureaucratic process, such as pre-qualification questionnaires? Small businesses tell me that they must complete these big questionnaires, often for small orders.

[Andrew Gwynne]

I agree that a lot of unnecessary bureaucracy is often tied up with some contracts. Tameside council has tried to enable small local businesses, no doubt including businesses in the High Peak area, to access council contracts.

[David Simpson (Upper Bann) (DUP)]

The hon. Gentleman will know that council structures in Northern Ireland are different from those on the mainland. Councils in my area have recently clustered together to help with the financial package for small businesses, procurement and bin collections and so on. Does he see any benefit in that?

[Andrew Gwynne]

I absolutely do see benefit in that type of clustering arrangement. We in Greater Manchester had the first statutory combined authority, covering all 10 metropolitan boroughs that make up the county of Greater Manchester. They are now working together on a statutory footing, including on some procurement issues, and providing huge savings for those local authorities. That sort of best practice could be rolled out across the United Kingdom.

[Mr Iain McKenzie (Inverclyde) (Lab)]

I congratulate my hon. Friend on securing this important debate. Is he aware that, for some time, Scotland has had joint procurement under the Scotland Excel initiative, which is delivering sizeable savings for councils throughout Scotland and allowing local businesses to piggy-back on contracts?

[Andrew Gwynne]

My hon. Friend reiterates the point that joint working and joint procurement models can bring huge savings to the public purse and immense benefits for the local economy, whether in Scotland, Greater Manchester, Derbyshire, Cumbria, or Northern Ireland.

[Rory Stewart (Penrith and The Border) (Con)]

I congratulate the hon. Gentleman on securing this debate. He kindly mentioned Cumbria, where the central challenge in local procurement is how to support small local charities against big national providers. The procurement rules seem to make it difficult for small local Cumbrian charities, and even Carers UK and Mencap, to retain contracts that they have performed well for 20 years. They are being swept aside by huge national giants. Does the hon. Gentleman have any lessons from Greater Manchester on how to deal with procurement for local charities?

[Andrew Gwynne]

The hon. Gentleman makes an important point. In his constituency and mine, excellent work is being done by not-for-profit organisations and charities to provide key public services. Given a level playing field, they can compete and often provide better services than the big players, but one problem with local government contracts has been that the big players can sweep up those contracts. Perhaps the Minister will respond to that point and ensure that local councils can prioritise local charities and organisations to provide those services. There is often an added benefit in keeping them within an organisation that operates in the locality, because it keeps skills and some spending local.

During the first year of the Tameside Works First initiative, a total of £12 million of capital funding was invested in the local economy. In the second year, more than £13 million was invested in local companies via the Building Schools for the Future programme alone; that was delivered through its investment partner, Carillion. In line with most of local government across the country, particularly in metropolitan areas, since the 2010 spending review, the council’s capital programme has been vastly reduced. Continued austerity measures and Government proposals to localise business rates make it even more important that local companies receive the support they need to survive and grow, if we are to increase personal and economic resilience in places such as Tameside.

Let me put that into context. A total of £151.9 million was spent by Tameside council with external contractors in 2011-12, of which £35.3 million, or 23%, was spent with Tameside-based companies, and a further £27.6 million was spent via Carillion, which also uses local companies in its supply chain as part of the Tameside Works First initiative. As a result, the council’s spend on Tameside contractors has increased hugely, by almost 50% over the past three years, from £20.1 million in 2009-10, when the Tameside Works First initiative started. In addition to sums spent with external contractors, £9.5 million was spent in the local economy via Tameside council’s own direct services. All those combined are considerable amounts of money to keep in the local economy to support local businesses and jobs.

According to 2011-12 billing data, in that year alone Tameside council processed transactions with 12,000 external contractors, of which 5,593—almost half—were based in Tameside. Some £35.3 million was spent with those companies across 55,713 individual transactions, equating to an average transaction value of £634; the largest individual transaction value was just over £1 million. A total of 3,100 local suppliers received payments of up to £60,000, which requires either three quotes of up to £20,000, or three tenders between £20,000 and £60,000 before the contracts can be let. Many of those were smaller contracts, directly let to local companies. I think, for example, of the new park railings at Granada park in Denton: not only does the park look very smart, but that fairly small contract was a lifeline for the Denton blacksmiths, Anvil Masters, a few years back, because it helped the company to keep its head above water. We must not lose sight of the importance of those small contracts. We would do well to look at the very good work being done by the Tameside metropolitan borough council to see how a local council can actively support its community through very tough economic times.

In the short time left, I will focus on Stockport metropolitan borough council, which is the other council that I represent in my Denton and Reddish constituency, with Reddish North and Reddish South wards being in Stockport, of course. Sadly, the council has not been quite as proactive as Tameside in supporting the local economy. Stockport introduced an initiative called Stockport Boost. The frustrating thing for me is that the initiative seems gimmicky in nature, giving the appearance of helping local businesses and the local economy while actually doing very little. It speaks volumes that Stockport council won the local authority PR team of the year award in 2011 for the Stockport Boost campaign, which

“looked at ways to tackle the recession, providing businesses and residents with advice and support on how to cope during the year ahead.”

That is very laudable, and advice and support are fine, but on inspection it appears that Stockport council does not have a specific policy for prioritising local provision. In a recent response to a Labour party survey, the council said simply that it seeks to

“strive to look beyond the price of each tender at what the collective benefit to our economy and the environment would be.”

Warm words, but perhaps the council could learn a few lessons from the Tameside part of my constituency.

Of course, given the way in which the Stockport Liberal Democrats run the council, it is hardly a surprise that the council won the local authority PR team of the year, with little else to credit it with. It still has not identified £5.3 million of additional cuts that need to be included in the budget that will be set in the first week of March. Overall, from 2010-11 to 2015-16, the estimate is that nearly £80 million of budget reductions will need to be found in Stockport, but the council’s approach is entirely about keeping its head in the sand when it comes to local finance.

Clearly, taking £80 million out of a local economy will be hugely damaging, and I am almost certain that it will be my constituents in the Reddish area who will feel the swing of the axe the hardest, because the Liberal Democrat council has past form in choosing to focus many of its cuts on those areas of Stockport in which it has absolutely no political representation. It is worrying to me that by not supporting local communities, there is an inherent unfairness and a higher impact on more socially deprived areas such as Reddish and other communities, particularly in the north of Stockport.

[Mr McKenzie]

I thank my hon. Friend for giving way once more. Does he agree that it is essential to encourage local businesses to register with their councils’ procurement departments at the earliest possible opportunity, so that up-and-coming contracts can be flagged up to them, prior to other tenders being submitted?

[Andrew Gwynne]

I agree absolutely.

Returning to the national picture, I would like to ask the Minister a number of questions, particularly on the wider issues that we have discussed today. The Public Services (Social Value) Act 2012 was intended to support local areas, but the Government do not seem to be supporting it as much as we would expect them to. What steps is the Minister taking to ensure that councils are aware of that legislation and that they know how it could benefit them and their local economies?

European legislation has proven to be an issue, with many councils citing it as an obstacle preventing them from undertaking their preferred procurement policies. The Minister for the Cabinet Office and Paymaster General has repeatedly spoken of that problem since the Government came into office, but has not done much about it. What steps are being taken to ensure that EU procurement law does not prevent local authorities from procuring in the best way for their area and their local objectives?

Some of the most innovative councils, such as Birmingham and Newcastle, have written social clauses into the majority of contracts to ensure that suppliers contribute towards meeting objectives such as reducing youth unemployment, taking on apprentices, or providing jobs for the long-term unemployed. Sadly, however, the Government are not taking enough action to support that approach. In his document, “50 ways to save”, the Secretary of State for Communities and Local Government suggests that councils do more to bring down the price of goods and services, combine back-office procurement functions and cut down on procurement fraud. I know that those ideas have largely gone down like a damp squib in local government. Nowhere does it mention the savings that can be made by taking a strategic approach to procurement that supports the local economy and local jobs, thus necessitating less spending in the future.

I commend to the Minister the good work of Labour-controlled Tameside council, which is using its sadly diminishing spending power to support local businesses, local jobs and the local economy in these tough times. I urge him to give serious consideration to the points I have made. Local government, even in these cash-strapped times, has a key role to play in economic support. I also urge him to take action on the wider obstacles to local government pursuing a more directed procurement policy. I look forward to his response.

11:19

[The Parliamentary Under-Secretary of State for Communities and Local Government (Brandon Lewis)]

I congratulate the hon. Member for Denton and Reddish (Andrew Gwynne) on securing the debate. He is right; local authorities can be market shapers and are uniquely placed to support local jobs and business growth in their areas. They understand their local economies. They have links to local businesses and can work with both public sector and private sector partners to create the conditions for growth. Councils with planning powers can shape their local market, driving regeneration and growth. That will be increasingly important and advantageous for them with the new business rates retention scheme.

I will explain where I have a difference of opinion. We must ensure that we procure efficiently and effectively, and councils can decide to use the money locally as part of driving growth, but procurement is not about engineering their areas. Procurement should be about good procurement. I will come to that specifically in a moment. We have to trust councils, as part of localism, to get on with it and not be tempted, as central Government, to fix it for them or to direct them too far on how they spend money locally.

Councils are almost always one of the largest spenders and employers in their local economies. Local government as a whole holds assets worth more than £230 billion and, as the hon. Gentleman rightly said, last year spent about £60 billion on directly procuring goods and services. That is a substantial amount of money. Many local residents will take the view in relation to that £60 billion spend—this would be the same for any business—that if we can save just a couple of per cent, councils will be able to spend more money on front-line services. They must ensure that they use that money efficiently and effectively for local residents.

By making life easier for small local businesses to bid for and win council contracts, which the hon. Gentleman touched on, and by being cleverer about how they use their spending power, local authorities throughout the country can do more to stimulate local growth. The Government have taken significant steps to support councils to embrace their role as supporters of the local economy. We have introduced a number of reforms to free town halls from Whitehall bureaucracy and give them the tools to help with the difficult challenge of driving growth. We have done that by providing strong positive financial incentives for local authorities and communities to support and encourage local housing and business growth—for example, by allowing them to keep a share of business rates.

We have supported local enterprise partnerships. We have allocated £730 million to them to support local development. There is substantial planning reform to ensure that planning policy supports growth. We are providing greater financial flexibility locally, so that there is greater scope to support local economic growth. We are providing £1.4 billion of direct support through the regional growth fund. We have agreed city deals and announced Portas pilots to revive local high streets.

We are also taking a number of steps to support local authorities directly in using their spending power to support and boost local economies. For example, we have established the contracts finder portal and created simplified pre-qualification questionnaires, which are free for use by local authorities. Those make it easier and cheaper for small and medium-sized firms and the voluntary and community sectors to bid for public sector opportunities.

We have also taken steps to deal with the recognised commissioning skills deficit in local government. The commissioning academy will provide development on commissioning skills for up to 2,000 public sector employees over the next three years. That will be supplemented by the establishment of an online home for public sector commissioning expertise and learning, so providing all local authority officers with access to free learning materials on commissioning.

Clearly, central Government cannot deliver better hands-on local procurement. What we can do is create the right conditions by eliminating unnecessary red tape, as my hon. Friend the Member for High Peak (Andrew Bingham) said, and by removing barriers to local innovation. It is for local authorities themselves to take the initiative in their local areas. The general power of competence in the Localism Act 2011 gives them far more power than they have ever had before to do just that. I look forward to more and more local authorities taking advantage of the opportunities that that general power gives them.

There are some very good examples out there. I want to touch on a few, including the local council of the hon. Member for Denton and Reddish. There are some very good examples specifically at Tameside metropolitan borough council, which has been particularly proactive in stimulating local procurement with Meet the Buyer events and initiatives such as the Tameside Business Family and Tameside Works First.

Hon. Members touched on Manchester more generally. The north-west procurement portal and supplier training events are also excellent examples of pooling procurement expertise and making it simpler for SMEs and local businesses to tender for public sector contracts. The result has been a widespread shift to more local procurement spending across the entire north-west. As hon. Members will know, Manchester city council has shifted 10% of its current spending from non-local suppliers to local suppliers, so generating many millions of pounds for the local economy.

Eleven local authorities and 11 other Hertfordshire-based public sector organisations have grouped together using the collective brand Supply Hertfordshire. A web portal advertises all contract opportunities for member organisations. That includes regular e-mail notification for suppliers.

[Mr McKenzie]

Does the Minister agree that collaborative procurement offers not only savings, but greater opportunities to provide such information as contract monitoring?

[Brandon Lewis]

The hon. Gentleman makes a very good point. Working together produces an awful lot of benefits; he is right about that. They include spreading best practice and being able to buy in a larger critical mass and therefore get a better purchase price.

There are many good examples out there. I have mentioned what Hertfordshire is doing with small and medium-sized businesses. Waveney district council has simplified its tender documents to encourage third sector organisations, as well as small businesses, to tender for contract opportunities. Its objective is to reduce the maximum time for suppliers to complete a tender response to one hour. That kind of practice makes life much easier for businesses that do not have the capacity to take on some of the larger tender documents that we have seen in the past. We need to make contract opportunities more accessible in such ways.

I again thank the hon. Member for Denton and Reddish for initiating the debate to give us all a chance, through the record of Hansard, to highlight to local authorities that want to take notice of what they could be doing. Their members can look at what other authorities are doing and challenge their officers to go further and faster on this journey.

[Rory Stewart]

Will my hon. Friend the Minister touch on the question raised about Cumbria and, indeed, the local charity question more widely? What could local authorities do to help procurement in relation to local charities against national charities?

[Brandon Lewis]

My hon. Friend tempts me into allowing central Government to dictate to a local authority what it should be doing—we get criticised for that—but I will say to him that authorities have the general power of competence. They can look around at some of the very good work that I have just touched on, at Waveney, Hertfordshire and Tameside, and see how to simplify the process. That will ensure that a local charity does not have the problem that such charities have had in the past, when I was in local government, of having to say, “We can’t bid for this. We haven’t got the staffing levels, because it takes days to understand these forms, fill them in and negotiate.” The forms for these contracts should be simple and straightforward. Any of us should be able to read and understand them and take part in the process. Local authorities still have some way to go with that. That leads me on to my next point.

[Jonathan Reynolds]

I am listening to the Minister’s speech, and he seems genuinely to be an enthusiast for the role that local authorities can play in shaping their local economies. Is he in any way concerned that the financial situation that local government faces, which is a fact—this is not the time to debate whether it is right or wrong—is limiting their ability to do that and is to the detriment of getting this country back towards growth and jobs for everyone, which is what we all want?

[Brandon Lewis]

No, I do not agree with that. The hon. Gentleman mentioned cuts earlier. The Labour party has announced £52 billion of cuts in the Department for Community and Local Government budget and has not itemised any of them. We have to be realistic about that. Actually, the situation should drive local authorities to want to do better with procurement, to free up money to use on services rather than procurement.

Councils can now do many things to improve procurement, and many authorities need to go much further. They can consider abolishing requirements to complete a pre-qualification questionnaire for contracts below the EU threshold. They can publish all their tenders and contracts online, build up a supplier network and engage with suppliers in the way some already do. They can stop gold-plating on equalities. Equality impact assessments are not and never have been a legal requirement. Officers can use their judgment to pay due regard to equality without resorting to time-consuming, bureaucratic, tick-box exercises. Breaking up contracts into smaller bite-sized chunks or using subcontracting can open up procurement.

Local authorities have a key role in supporting their local economies through procurement. Councils can take steps to use their spending power to support economic growth, but procurement processes need not be complex. All councils can simplify them, as I have outlined, and make future contract opportunities easier for small businesses. Making those changes will also save councils money by reducing unnecessary red tape and bolstering business rate returns. There is an in-built incentive for local authorities to do that now. Some councils have grasped that and made great strides to help local businesses to bid effectively for contracts, but the majority have a long way yet to go. They owe it to local taxpayers to rise to that challenge.

11:29

Sitting suspended.