Public Procurement (British Goods and Services) Bill

Janet Daby Excerpts

2nd reading
Friday 15th March 2024 Commons Chamber

[Sarah Champion]

My right hon. Friend is absolutely right, and that chilling effect is having a negative impact on all our SMEs. The working group debated dividing bigger contracts so that local SMEs are more inclined to go for them but, unless SMEs know why they have failed and unless they know that the door is actually open to them, why would they waste their precious resources on bidding for something that they see as utterly futile? That is what we have to change.

There is clearly a cultural issue, which is demonstrated by the fact that 90% of contracts deemed suitable for SMEs are awarded to large corporations. Data from the British Chambers of Commerce found that, in 2016, 25% of public sector procurement spending was awarded directly to SMEs. As of 2021, this figure had dropped to 21%. Only just over £1 in every £5 spent by the UK Government on public services is going straight to SMEs, which is in stark contrast to their 2022 target of spending £1 in every £3 with SMEs.

The national chair of the Federation of Small Businesses said in August 2023:

“Meeting procurement targets isn’t just a bureaucratic milestone—it’s an affirmation of trust in our small business community.”

He is right. SMEs offer so much expertise and innovation, and they must be awarded more suitable public contracts. Frustratingly, when they get a bite of the cherry, it is usually as a subcontractor, with much lower remuneration than if they had been the lead, and of course without the public credit. An example of this led me to introduce this Bill.

A Rotherham business that leads not only the UK but the world with its innovation was grateful to deliver a £1 million Government contract. However, it was actually a £10 million contract that had been delivered to a multinational that then subcontracted it down to my business, having done nothing other than the packaging and the marketing around it. Had my business known that it could apply, even if it was paid £2 million, it would have meant that the business did not have to do it at cost for what it hoped would be a way in to Government procurement. The business could have done it, made a profit and kept going, but the business is currently facing a tough time.

By amending section 1(3) of the Public Services (Social Value) Act 2012, my Bill seeks to add an obligation for contracting authorities to consider how procuring from small and medium-sized enterprises might improve their area’s wellbeing. Clause 2 will require contracting authorities to report how they have complied with this obligation. It is hoped that these changes will increase the importance of SMEs within social value tenders and will encourage the public sector to award more contracts to them.

As I mentioned, billions of pounds of public contracts are awarded to foreign suppliers every year. The most recent data shows that a substantial number of contracts are awarded to foreign suppliers both directly and indirectly —indirectly being when a foreign supplier controls the successful applicant for a contract. Of public contracts valued below £200 million, 2.3% were awarded directly to foreign suppliers, but this rose to 17.6% when indirect awards were accounted for. The story is similar for contracted values over £200 million: 2.1% were directly awarded to foreign suppliers whereas 31.5% of contracts were indirectly awarded to foreign suppliers.

An example of such a contract is the £1.6 billion Royal Navy contract awarded to a Spanish-led consortium in 2022 over an all-British one. Analysis shows that at least 40% of the work, worth £64 million, will go abroad and be carried out in Spain. To compound this issue, there have been no concrete answers as to whether there is a limit on how many jobs will be created in Spain and why there are no targets for UK steel in the contract.

[Janet Daby (Lewisham East) (Lab)]

I thank my hon. Friend for making such significant and poignant points, and I am sure she has given much thought to this. Why does she think the Government have allowed so many procurements to foreign suppliers over British small and medium-sized enterprises?

[Sarah Champion]

My hon. Friend asks an impossible question and she might want to ask it again to the Minister. In developing this Bill, I had conversations with the relevant Minister and he has been very open, and I know the Minister who is due to reply is also very open to this. I think the block is hesitancy in terms of the legislation and finding a way through, which is why my Bill is terribly modest in that it is just looking at transparency around where those contracts go, with the hope that that will do enough to influence where they actually land, which we would like to expect might be British businesses. So my answer to my hon. Friend’s question is, “Who knows?” And it is a question the British public are asking all the time, particularly when a local business goes bust as a consequence.

On the £1.6 billion contract I was talking about, the all-British bid would have generated over 6,000 good UK jobs and supported a full onshore build of the ships. This bid also promised an investment of £90 million in UK shipyards and a further £54 million in training, apprenticeships and improving the UK skills base. Had social value to the UK been prioritised, as my Bill would encourage, surely it would have won the contract. Instead a sizeable proportion of the work will go abroad at the expense of British jobs and supporting British businesses. My Bill raises the level of importance attached to the origin of goods and services in procurement decisions by increasing transparency around how public sector contracts are awarded and encouraging the uptake of British-originating products.

My Bill also seeks to highlight good employment standards within procurement. When developing the Bill, the TUC shared with me the dire state of employment standards and working practices within public procurement. To be clear, most employers treat their employees well, but it is common for outsourcing to have a detrimental effect on wages and conditions, with outsourced workers more likely to work longer hours, receive less pay and be on insecure or temporary contracts.

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[Janet Daby (Lewisham East) (Lab)]

I rise to support the aim of this private Member’s Bill, which is more commonly known as the “Buy British Bill”, introduced by my hon. Friend the Member for Rotherham (Sarah Champion). We have the Bill because the Conservative Government have failed to properly reform the procurement system and to support British businesses, which means that they have failed to bring well-paid jobs to communities up and down our country.

The British Chambers of Commerce found that, in 2021, small and medium-sized enterprises received a relatively smaller amount of direct Government procurement money than they did five years previously. I therefore ask the Minister: why are SMEs being sidelined from access to public procurement under this Government, and why do they prefer to procure from foreign suppliers? That is how it seems to me.

A Labour Government would cut red tape, ensure that every small national contract includes an SME at shortlisting, and streamline the bidding process. Meanwhile, the Conservatives have failed to take opportunities to reform the procurement process to support British businesses and communities. When the Procurement Act comes into force later this year, it will do nothing to address the wasteful approach to emergency contracting rules that we saw during the pandemic. That approach saw friends and donors of the Tory party being given the first bite of the cherry, while decent, skilled local businesses were denied the same opportunities.

One of those donors is Frank Hester, who, as we know, was abusive, racist and misogynistic. Even more shockingly, he spoke about ending an MP’s life. I take that incredibly seriously. He is also the sole director of the Phoenix Partnership, an IT company that has been paid nearly half a billion pounds by central and local government and the NHS since 2016. I would like the Minister to reflect on that because the Government have to change course.

Turning specifically to the Bill and British food procurement, the Government’s food strategy from nearly two years ago stated:

“Public sector food should be healthier, more sustainable and provided by a diverse range of local suppliers. Locally produced food with reduced distance between farm and fork can provide societal benefits”.

I would like the Government to put those words into action, and I wholeheartedly support my hon. Friend’s Bill.