Small Business, Enterprise and Employment Bill

Debate between Lord Whitty and Lord McKenzie of Luton

Wednesday 14th January 2015 Grand Committee

[Lord McKenzie of Luton (Lab)]

My Lords, I shall speak also to Amendments 35K and 35S. These amend Clause 38, which currently provides for the Secretary of State or the Minister for the Cabinet Office to make regulations imposing duties on contracting authorities in relation to procurement functions. Ministers would have the power to issue guidance, to which contracting authorities must have regard. Contracting authorities for this purpose include Ministers, government departments, devolved Assemblies, fire and rescue authorities, and local authorities of all varieties but do not include an authority whose purpose is mainly devolved functions. Such definitions derive from the 2006 regulations, which implement the previous public sector procurement directive.

The power can be used in a variety of ways to impose obligations relating to supposedly efficient and timely procurement, duties relating to the process by which contracts are entered into, information flows and documentation, as well as the accepting of electronic invoices, the latter in advance of the anticipated e-invoicing standard to be adopted at EU level.

Concern about these provisions has been highlighted by the LGA in particular. The fear is that the powers might be used to centralise procurement and introduce a one-size-fits-all approach, impairing councils’ ability to procure strategically and according to local circumstances.

Local government can already claim to be the best-performing part of the public sector when it comes to procurement. It primes suppliers on time, places almost half its business with local SMEs and uses procurement to consider how it can improve the economic, social and environmental well-being of communities. Amendment 35D seeks to ensure that the exercise of the powers in Clause 38 do not undermine, and have due regard to, local authorities’ duty to promote economic growth and skills development in their areas, that advertising and procurement tender periods are appropriate, and that the potential for the harmful local impact of central procurement processes is avoided.

The Government’s approach, I understand, stems from the second report of the noble Lord, Lord Young of Graffham, who I am delighted is with us today. The report, entitled Growing Your Business, was expressed to be a report on growing micro-businesses in particular. It instanced the £230 billion spent on goods and services across the whole public sector and the potential transformational effect that could be had on SMEs and micro-businesses if they could win a share of the market.

The noble Lord recommended that all parts of the public sector agree a set of single-market principles. He seemed to have in his sights pre-qualification questionnaires and what he termed the gold-plating of training and health and safety policies. His common principles included the removal of all PQQ requirements for contracts below the EU threshold, with a single standard PQQ above the threshold, locating all contract opportunities in a single place and standardising all the payment terms. I understand that these changes are being implemented through the 2015 regulations, which are the UK’s transposition of new EU procurement directives and are seemingly not dependent on the provisions in this Bill. Can the Minister clarify whether the transposition regulations can be subject to an imposition under Clause 38?

The Government consulted beyond this in October 2014 and we are blessed with a Cabinet Office policy statement dated 12 January and draft illustrative regulations on similar policy measures, a pre-procurement engagement with suppliers and applying lean sourcing principles. The paper also sets out the government view on a range of other procurement issues to which Clause 38 might apply.

I draw the Minister’s attention to a briefing we had from the LGA about the use of pre-qualification questionnaires. It says that councils sometimes need to use pre-qualification questionnaires in lower-value procurements to deselect suppliers, particularly where a large supply chain exists; for example, in construction or ICT sectors, or where there may be issues of safe- guarding and tendering. A smaller number of suppliers reduces the potential risks for vulnerable people. How does the Minister respond to that concern?

We are wholly supportive of harnessing public sector procurement to create significant business growth opportunities through increase participation for small and medium-sized businesses, but local government already has an environment and a procurement framework in place and it is very important that Clause 38 and its potential use does not undermine this. The Local Government Act 1999 places a best value duty on local authorities. In addition, a duty to consider how the services they commission and procure might improve the economic, social and environmental well-being of an area is placed on a range of public bodies by the Public Services (Social Value) Act 2012. Moreover, the LGA has developed a national procurement strategy for local government in England which not only encourages the making of savings but supports local economies.

I refer the Minister to the executive summary of this document and, in particular, references to the importance of including economic, environmental and social value criteria in all contracts. On improving access for SMEs and voluntary, community and social enterprises it says:

“Councils should ensure a wide range of suppliers are encouraged to do business with them through use of portals to advertise tender opportunities. Barriers to doing business with the council removed without compromising due process. SME’s and VCSE’s are encouraged to identify potential ‘partners’ with whom to form consortia to bid for council contracts”.

To what extent is it considered that the existence and operation of Clause 38 will remain entirely consistent with the national framework that the LGA and local councils have developed?

We should be mindful of the current appetite, in different ways across the political parties, for devolution of powers and fiscal responsibility to local authorities. This is supported by provisions in the Localism Act 2011, but I caution that the term “localism” could not reasonably be applied to all its provisions. Some of the provisions in the so-called Localism Act are quite the reverse. This devolution is currently proceeding partly by way of city deals, which we support, and gives increased local control to enable more flexibility to respond to local priorities, particularly skill shortages. As a party, we have proposed more extensive devolution, at the level of £6 billion a year, to cover skills, housing, transport and business support.

Our Amendment 35S provides that nothing in Part 3 should affect the principle of localism and the duty of best value placed on local authorities. As the LGA points out, all the evidence shows—and there is compelling evidence across a wide range of issues—that taking decisions closer to the people affected achieves better results and saves money. The economic benefits of devolving powers to local areas are too big to ignore.

Our amendments seek to ensure that these benefits are not undermined by a centralised procurement policy. Figures supplied by the LGA point out that there is little evidence that measures undertaken by central government—for example, lean procurement processes—have significantly increased spend on SMEs, which is less than 14%, compared with council spend at 49%, unless the Minister can produce some evidence for us. As for reviewing the manner in which pre-procurement market engagement has taken place, can the Minister explain how this proposal is consistent with a localist agenda?

We would not seek to deny this clause, but we need to be assured that it will not impede the substantial progress that has been made in devolving powers and resources to local authorities and the benefits that flow from this. I beg to move.

[Lord Whitty (Lab)]

My Lords, I have two amendments in this group. I completely endorse what my noble friend has said and will not repeat it at length. However, I think that the Government need to rethink this area.

Clauses 38 and 39 give the Secretary of State substantial new powers to impose new, ill defined duties on how local authorities do their central business. In my view, and as my noble friend has said, this is contrary to the spirit of localism in which this Government came into office; to the successes, such as they are, that have been achieved under the better value regime; and to getting local authorities to take responsibility for their own procurement and ensure that their procurement practices benefit firms within or close to their local authority area, particularly small firms. On local authority procurement, local authorities are much better at ensuring that small companies have a share of the cake, compared with central government, its agencies or large private firms.

My Amendments 35E and 35T exempt authorities that are already under a better value regime from the effect of both clauses. In some ways, it might be tidier to delete these two clauses entirely. They certainly do not seem to enhance local government or play to the localism agenda. When the Government first came in, not only did they bring in the Localism Act, they took some of the more directional requirements out of the previous best value regime, which had been there under the previous Government—quite rightly, in most cases. We need to recognise that there is a demand for decisions to be taken much closer to where they will have an impact, for local authorities to have a wider responsibility for their local economies and, therefore, for the procurement practices and outcomes under local authorities to reflect the needs and the economic structure of their areas.

Some of the provisions in these clauses suggest a uniformity under the regulations, as in Clause 38(5), for example, which would lay down very precisely how local authorities went about their business. The alternative must be for central government, perhaps, to offer within the best value regime or equivalent more substantial guidance to local authorities. The LGA is already providing substantial guidance to local authorities. However, these new clauses suggest a degree of centralisation that local authorities will resent, which will increase the bureaucracy and red tape on local authorities in an already centralised England—the most centralised country in Europe. We are proposing to ensure that one of the main duties of local authorities would, in effect, be run on what, in the olden days, we might have called the Napoleonic method of laying down centrally the way that local and regional government operate.

This is unnecessary. It may well be that a little more guidance from the centre may be helpful, but to lay that down in law and then, in Clause 39, to provide for a new and draconian inspection of how local authorities are carrying out their duties, is well over the top. It is also contrary to the way in which the Government came in and to the localism agenda, to which we are all supposed to be committed.