SMEs (Public Sector Procurement)

Chris Evans Excerpts

Tuesday 11th June 2013 Westminster Hall

[Chris Evans (Islwyn) (Lab/Co-op)]

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 the debate. My only sadness is that a debate of such magnitude and gravitas does not have a much wider audience and that more Members could not be here. However, it is good to see that the Welsh are in a majority today, with four Members here, along with another Member from the Celtic fringe. We will look closely at what the Minister has to say.

[Miss Smith]

Four?

[Chris Evans]

There is the hon. Member for Pudsey (Stuart Andrew) behind the Minister. He is a sleeper; we sent him on reconnaissance to Pudsey. Come back to Wrexham!

When we talk about the role of businesses in the economy, we are often talking about small and medium-sized enterprises. Let us not forget that half of private sector turnover is accounted for by SMEs. In Wales, the public sector spends approximately £4.3 billion per annum through procurement, which accounts for more than a third of the overall Welsh public sector budget. That includes everything from stationery, paper clips and office furniture to medical equipment. In my constituency, up in Croespenmaen, we have Abingdon Flooring, which supplies furnishings for MOD properties.

What is more, the public sector is the largest user of services and goods from the private and voluntary sectors in Wales. The scale of public sector procurement in Wales and across Britain means that it is the biggest driver of economic growth and the biggest lever the Government can use. No one, on either side of the House, can fail to recognise the importance of public sector procurement.

I remember going to a seminar with Lord Sugar, when he talked about green industry. He said that is okay having wind farms, but they need steel: where are we procuring that? My frustration about procurement is that everyone knows its importance; but, for all the companies that come to me and tell me that they are trying to procure for something, there are hoops to jump through. It gets to the point where they are frustrated and give up on the process.

I read recently that the Prime Minister’s enterprise adviser David Young said he was not convinced that the value of SMEs was being fully exploited across the public sector. It worries me that it seems from a Cabinet Office report that the target of 25% of all government contracts has been quietly dropped. Indeed, from some statements from the civil service it seems that the 25% target is not a target but an aspiration. I agree with the Government that that target could be a catalyst to achieve change in the economy; but that must be driven from Whitehall, and be more than an aspiration. It must be measurable, constant and universally accepted. Also, which businesses does it apply to? Is it for larger businesses or for small and medium-sized business? Are micro-businesses included as well? I do not believe there is anyone who does not see SMEs as job creators. The SMEs of today will be the major companies of the future.

What the debate comes down to essentially is this: we will cut the welfare bill and bring down the deficit only through people in jobs paying taxes. The only way we shall achieve that is by encouraging SMEs and other businesses to have the confidence to create jobs.

[Huw Irranca-Davies]

My hon. Friend makes a valid point about the strategic importance to SMEs of procurement. Does he agree that there are practical things we can work through? Will he pay tribute to Bangor university, which is working with SMEs and the Welsh Government to, for example, reduce 50-page contract tendering documents to as few as 10 pages? We can see that those things can be done, and will create jobs through SMEs.

[Chris Evans]

I agree, and there was a discussion about that this morning in another place.

From my constituency experience of micro-businesses, such as painters and decorators, they make their money from painting council houses, school buildings and hospitals; but they must jump through rings of fire to get through the procurement process. I pay tribute to the work that Bangor university and the Welsh Government are doing to reduce the paperwork that SMEs must go through. That paperwork turns them away from a vital source of income, because of the complexity of the system.

I was interested when my hon. Friend the Member for Ogmore mentioned procurement examples in the food sector, and I want to touch on another example of best practice, which I am pleased to say comes from my constituency. It concerns the defence and security industry, which is a massive industry for us. We are lucky in Islwyn that we have General Dynamics UK, which moved there specifically because of a Ministry of Defence contract. It has access to markets and cutting-edge technology that can be used by small businesses. I am delighted that the EDGE UK facility is in Oakdale at the moment. It does an incredible amount of work with SMEs, helping them to get access to defence and security markets nationally and internationally. Not only that, but its modus operandi protects the intellectual property of the SME and ensures buy-in from all sides, offering clear benefits to both parties. If the Minister wants to see an example of innovation in the procurement process, she has an open invitation to come to Islwyn and to Oakdale. I shall be happy to show her round; I think she will find it is a beautiful constituency.

Anyone who has dealt with SMEs will say how important it is for them to work with larger companies, retain their intellectual property and win new business in the market. EDGE UK is appreciated by the customers of General Dynamics UK, including the Ministry of Defence, as it helps those with a niche capability from SMEs who usually cannot get access to the customer. Through EDGE UK General Dynamics works with an average of 50 SMEs a year, constantly seeking out and reviewing innovative developments. I know from speaking with people from General Dynamics that it is always keen to attend business events, to expand awareness of EDGE UK through the SME community, and to invite new SMEs to talk about ways they can engage with a company through EDGE UK. I remind all those with small businesses, if any of them are watching the debate—hopefully on television on a Sunday morning—that they have an open invitation to get involved with EDGE UK, and to get access to its innovation and capability. It is fantastic.

Not every SME can work with General Dynamics, of course. Products may need maturing. EDGE UK provides support to such SMEs, to help them identify avenues for funding that will help them develop their technologies. Those include, for example, the Centre for Defence Enterprise, the Technology Strategy Board, and the various business funding streams available from the Welsh Government. We cannot talk about SMEs and procurement in the public sector without looking at examples such as EDGE UK and seeing what we can learn and apply. For every General Dynamics success story and every EDGE UK there is someone in Wales, or somewhere in Britain—perhaps a micro-business employing five people, such as a painter and decorator—who is desperate to get hold of a contract: to paint a council house or school building. That is because those are what I like to term Bank of England contracts—they will not fall apart under someone’s feet, and they will not walk away: the business owner knows they will get the money at the end of the day. When there are businesses that pay their bills late, access to contracts of that kind is vital.

I find it frustrating that, as my hon. Friend the Member for Ogmore mentioned in an intervention, people have to wade through 50 pages of tendering documents. The time and money that goes into public contracts makes it harder and harder for small and micro-businesses to tender for them. The process costs money that is precious to them, and they become caught in a vicious cycle. They have no money for the tender, but they need to tender to make money. The fact that the Government are willing to promote the tendering process, but allow companies to get stuck in a system where they cannot get hold of contracts, is a bit of a hare-brained scheme. On a recent visit to Axiom Manufacturing Services, a successful manufacturer in my constituency, the frustration of the situation was pointed out to me. First, no help is provided with filling in the contracts: the business does not know what is being looked for in the tender. Secondly, feedback is rarely given to those who are unsuccessful, so it is not possible to move on and improve processes the next time.

To return to the 25% aspiration, let me say that now is the time for a coherent Government plan. Since I entered the House I have often heard the accusation that all the Opposition do is oppose everything, but I want to set out concrete plans, and I hope the Minister will listen to five points. First, there should be agreement by Government that procurement will be used as an engine of economic growth. I do not mean central Government but all levels of government, including councils and the NHS. Secondly, a border line should be established and we need to set a target in stone. If 25% is too high, and is just an aspiration, we need to bring the target down; but we need to begin achieving targets, and they need to be measurable.

Thirdly—and I must return to the example of General Dynamics UK and EDGE UK for this—every company with more than a certain number of employees, in receipt of a Government contract, needs to produce a training plan and an apprenticeship scheme, to enable young people to get on the ladder, so that skills and training will improve. That cannot be put in place at zero cost.

Fourthly, we should take a leaf from the book of General Dynamics UK and use procurement to encourage innovation, allowing bidders to come up with new, fresh ideas. That should be in the tendering process. My fifth point relates to what I said before about Axiom. There is a need for help from public bodies, for contracts to be designed in a way that allows SMEs to compete. We need standard contracts across the board. We also need a helpline or someone in Government, in the Department for Business, Innovation and Skills; at Axiom I discussed bringing troubleshooters in. There is a need for a crack team that can be called free and told, “I need help to fill this contract in.” The Government could send it on.

Those would be innovative processes. However, we must remember that, without Government will, a limited number of suppliers will still reinforce their market share, stifle competition and keep prices high. Government will and action are needed, and I hope that we see that today.