SMEs (Public Sector Procurement)

Chi Onwurah Excerpts

Tuesday 11th June 2013 Westminster Hall

[Chi Onwurah (Newcastle upon Tyne Central) (Lab)]

It is a pleasure to serve under your chairmanship, Mr Hollobone. I congratulate my hon. Friend the Member for Ogmore (Huw Irranca-Davies) on securing this debate on an important issue that does not attract the attention it deserves. As my hon. Friend the Member for Islwyn (Chris Evans) said, hon. Members from all parties are aware of the importance of this issue and it would have been fitting if more had attended this debate. However, important points have been made by hon. Members from both sides of the House. My hon. Friend the Member for Islwyn said that there was a Celtic emphasis to the contributions. This is a cross-party, national issue.

Contributions, particularly from my hon. Friends the Members for Islwyn and for Inverclyde (Mr McKenzie), and the passionate opening remarks made by my hon. Friend the Member for Ogmore, emphasised the importance of procurement for small and medium-sized enterprises and their importance to our economy.

This has been a remarkably non-partisan debate and I hope that that will not change too much as I make some remarks on behalf of the official Opposition. If there is one thing that all hon. Members agree on, it is that small and medium-sized enterprises are the lifeblood of our economy and should be supported. They account for 99.9% of all private sector businesses in the UK, 59.1% of private sector employment and almost half of private sector turnover.

As has been said, given the economic challenges that we face, encouraging small and medium-sized enterprises must be a focal point for Government policy as we seek to find growth again. In short, they are critical to our economic recovery. Yet still the proportion of public spend on dynamic small and medium-sized enterprises is far too low. As the UK’s biggest single consumer, government must do more to support SMEs across the country.

In February 2011, the Prime Minister and the Minister for the Cabinet Office and Paymaster General, the right hon. Member for Horsham (Mr Maude), outlined Government procurement reforms at a conference for SME suppliers, where the famous pledge was made that

“25% of all government contracts”

should be

“awarded to small and medium-sized enterprises”.

Regrettably, that 25% target did not last long. It has been downgraded, rather like our credit rating, and is now merely an aspiration. Last month, the Prime Minister’s enterprise adviser, Lord Young, said that he was

“not convinced that the value of SMEs is being fully exploited across the whole public sector.”

I think that we can all agree with him.

I am sure that the Minister will tell us that procurement figures for SMEs are up. The Government do not have a particularly good record on statistics, but it is still depressing to hear the Minister for the Cabinet Office say that most Departments do not know their spend on SMEs and that therefore people “cannot trust the numbers”.

Mark Taylor, the former co-chair of a panel set up to advise the Minister for the Cabinet Office on SME procurement, has accused the Government of “recounting” their procurement SME figures. He said that Government contracts to SMEs were “drying up”, that things were “going backwards” and that SMEs were

“finding it more difficult to do business with Government.”

[Huw Irranca-Davies]

Perhaps a way forward is to replicate the Welsh Government’s approach. They are now asking all their local authorities, the NHS and any procurers to carry out regular procurement fitness checks, including monitoring how many contracts are going out to SMEs.

[Chi Onwurah]

My hon. Friend raises an excellent point that I hoped to make later. It is useful to see concrete examples of where that is being done successfully, but the measurement and understanding of procurement practices and, most importantly, what the outcomes are, particularly for SMEs, is a key way of improving the situation.

What is being done to measure SME procurement in Government? What is the Minister doing, specifically, to stop things going backwards? Will she confirm that only two Departments have increased SME procurement spend to any significant degree and that one of those—the Ministry of Justice—only achieved that by including providers of legal aid?

Will the Minister say what concrete action has been taken to increase the proportion of spending with SMEs? Fine words are all very well, but we want to know what is actually being done to address this issue, which everyone agrees is critical. Speeches and leaning on Departments can only go so far. We have all read reports of bloody battles going on between Departments and the Treasury over spending envelopes in the next Budget. There is a huge pressure on Departments to use their buying power to cut costs and, unfortunately, that tends to be through ever-larger contracts.

The Government have spoken many fine words of encouragement to social enterprises, without delivering. Most social enterprises are SMEs. The message that I get from social enterprises—I recently held workshops in Newcastle and London—is that often, how Government contracts are bundled makes it impossible for them to bid. That is, as we have heard, a general concern among SMEs. Will the Minister explain what specific actions have been taken, and what actions are planned, to unbundle as many contracts as possible, to level the playing field for smaller enterprises?

Support through direct procurement is not the only way to support SMEs. The previous Labour Government introduced the innovative small business research initiative programme to drive innovation through procurement. The SBRI allows small businesses to bid for contracts to provide innovative solutions to procurement problems, supporting innovation and small businesses at the same time.

We in the official Opposition had been calling for some time for the programme to be expanded, so we were glad when the expansion was agreed to by the Treasury. This is good news for innovative SMEs. However, a recent survey by the Federation of Small Businesses found that nearly 40% of small firms felt that they were being “sidelined” by the Government because of their persistent belief that bigger firms are better. What are the Government doing to address that?

I turn briefly to the Government’s Contracts Finder, which I am sure the Minister will address. The value of contracts published on the website each month is still very small compared with the £15 billion total value of Government procurement contracts that are outsourced each month. Does the Minister agree that more needs to be done to ensure that contracts are put on the Contracts Finder system? What is happening on that?

What are Ministers doing to ensure that local authorities are properly engaged with Contracts Finder? What work are they doing with councils to improve their procurement from SMEs? We have heard of a number of examples from local authorities across England and Wales that are being very innovative in that respect, and I would like the Minister to say whether she is studying what is happening in our local authorities.

There are a number of rivalries between cities in the north-east, particularly between Newcastle and Sunderland, but as we subsume them within a combined local authority, I am pleased to say that I can hold up Sunderland city council as an example of innovative and successful work in procurement.

Indeed, only last night, at the Federation of Small Businesses reception, Sunderland city council was praised for its intensive engagement with the FSB and local suppliers before implementing the Buy Sunderland First system for quotations below the tender threshold and the North East Procurement Organisation portal for all opportunities above the threshold. Consequently, spend with north-east businesses now accounts for more than 68% of all third-party spend by Sunderland city council. What other examples would the Minister like to hold up for us of ways in which local authorities are successfully engaging with small businesses?

I have asked a number of questions of the Minister. My hon. Friend the Member for Ogmore has raised a number of important points, and my hon. Friends the Members for Islwyn and for Inverclyde have made a number of suggestions. I draw my remarks to a close by saying to the Minister that, although we have seen some small steps forward, the Government’s approach lacks the required urgency. Whether on procurement or bank lending, Ministers across Government are failing SMEs.

Responding to a recent National Audit Office report on improving Government procurement, the head of the CBI said:

“Two and a half years after the Government committed to centralising public procurement, individual departments are still too often doing their own thing. We need to see strong leadership from the Cabinet Office to drive a culture shift across…Whitehall”.

Such complacency is all too common among Ministers. The CBI survey report recently stated:

“Across the board the rate of reform requires more urgency. The lack of progress on turning sound policy into actual change is not only damaging to government and costly to the taxpayer, but it also stunts growth.”

Will the Minister now take action to ensure that permanent secretaries prioritise and buy into that? Will they visibly start to split major contracts into smaller chunks? Will they take steps to record the success or failure of those policies?

Successfully changing the mindset on procurement so that we use and support our SMEs more effectively is an issue that unites the whole House, so will we see decisive Government action so that our ambitions can be realised?