Public Procurement (British Goods and Services) Bill

Sarah Champion Excerpts

2nd reading
Friday 15th March 2024 Commons Chamber

[Sarah Champion (Rotherham) (Lab)]

I beg to move, That the Bill be now read a Second time.

I am delighted to bring this important but focused Bill to the House. It would make minor amendments to both the Public Services (Social Value) Act 2012 and the Procurement Act 2023 to encourage greater uptake of British products in UK Government contracts.

The Bill aims to increase transparency and raise the importance of the origin of goods and services, animal welfare standards and environmental impact, and the standard of employment in procurement decisions. It achieves this by requiring the contracting body to publish its data, demonstrating how these areas are met in the contracts awarded. In 2014, my ten-minute rule Bill on publishing the gender pay gap for organisations employing more than 250 staff made a similar obligation. First blocked, then adopted by the Government, it has revolutionised transparency and equality within those businesses. I hope that the Government will be similarly pragmatic when it comes to this Bill and give it a safe passage.

Every year, the UK Government spend more than £300 billion on public procurement, which accounts for almost a third of all public expenditure. However, despite this huge figure, the Spend Network’s analysis found that big corporations win 90% of the contracts that are deemed suitable for small and medium-sized businesses. As a result, SMEs are missing out on around £30 billion-worth of public contracts annually. That is £30 billion that could be going to British businesses.

SMEs are the beating heart of our economy, accounting for 99% of businesses in the UK and 61% of employment, which equates to 16.7 million jobs. It is therefore shocking that they are consistently missing out on so many suitable public procurement contracts. In addition, a worrying number of contracts are awarded to foreign suppliers. Research from Tussell found that in 2020 alone the public sector spent £18 billion with overseas suppliers rather than supporting their UK counterparts.

The Public Accounts Committee’s report, “Competition in public procurement” published in December, concluded that the Government

“has not demonstrated that it has consistently used its purchasing power to support local and national policies and objectives, or to drive healthy and competitive markets, including buying from SMEs.”

It also found that the Government have

“not been fully capturing data on procurement, much less using analytics from collected data to draw insights on how competition in public procurement is operating within government and give context to purchasing decisions.”

That has to change, and my Bill can do that.

In its report “Public Sector Procurement of Food” from April 2021, the Environment, Food and Rural Affairs Committee rightly stated that public procurement

“has the potential to create significant business and growth opportunities through increased participation for small and medium-sized enterprises”—

as well as—

“improving the public sector’s access to SMEs’ creativity and innovation”.

However, crucially, it noted that SMEs have long faced difficulties in accessing public procurement opportunities.

[The Minister of State, Cabinet Office (Mr Steve Baker)]

The hon. Lady makes a very good case, and I think she knows that the Government have quite a lot of common ground with her policy intent. She may know that officials in the Cabinet Office are preparing for a new national procurement policy statement to set out the Government’s strategic priorities. May I offer her and her task group, as well as my hon. Friend the Member for Colchester (Will Quince), in relation to food, an opportunity to meet officials and, if necessary, the Minister? I would be very grateful if she took up that opportunity, because we would like her expertise and that of the group. As we have only recently legislated, it is difficult for the Government to support her Bill, so I hope she will take up the offer of that meeting.

[Sarah Champion]

The Minister, as ever, is trying to find a solution which benefits us both—that is what I am trying to do with the Bill—so I absolutely take up his offer and thank him for it. I will talk more about the working group at the end, but I have brought together a group of industry professionals. We all want to see British businesses getting a fair slice of the £300 billion pie, because we want our businesses to flourish, so I thank him for that offer. I have one more Select Committee report, this time from the Defence Committee in July 2023, which simply stated that the UK defence procurement system is

“broke—and it’s time to fix it”.

I welcome the Minister’s offer.

To tackle these long-recognised issues within the UK Government procurement system, my Bill aims to: back British businesses for public contracts; champion the UK’s world-class manufacturing and food production; increase the visibility of British food procured by the public sector; encourage investment and jobs created in towns and cities across the country; improve transparency around contracts awarded to small and medium-sized enterprises; and, just as importantly, recognise and reward good employment practices.

Let me give some context to demonstrate the need, right now, for the Bill. The UK is in a recession and has experienced years of stagnant economic growth. The number of companies going bust in 2023 hit a 30-year high. More than 25,000 UK company insolvencies were registered last year. Those figures show that one in 186 active firms went bust in 2023. That grim economic outlook is compounded by the fact that many SMEs feel shut out of the public procurement system. Taxpayers’ money is being spent with big multinationals and foreign suppliers, when as much as possible it should be spent on supporting British businesses and jobs, as other countries do with their own industries.

The Government have long argued that the EU had rules preventing them from prioritising British businesses. Many saw Brexit as an opportunity for more taxpayers’ money to be spent with British suppliers. We were told that British businesses would be first in the queue for UK Government contracts once we left the EU. The 2019 Conservative party manifesto even stated, with regard to food procurement:

“When we leave the EU, we will be able to encourage the public sector to ‘Buy British’ to support our farmers and reduce environmental costs.”

This has simply not happened. Now is high time for some of the benefits voters were promised from Brexit to come to pass. My Bill, if the Government accept it, would deliver more contracts to British businesses.

This is not a new issue. Since my election in 2012, I have been continuously highlighting how the UK Government need to do more to support British steelmakers through public procurement. The UK steel industry employs almost 40,000 people directly, with another 50,000 jobs supported through the supply chain. It also directly contributes £2.9 billion to the UK economy and adds £3.8 billion indirectly through supply chains. My constituency of Rotherham is a hub for steel production. We are incredibly proud of that heritage. Liberty Steel employs 900 people locally and supports the employment of many more workers throughout the steel chain. We make unique, speciality green steel much valued around the world, especially in aerospace. Despite this expertise and the high-quality steel that Liberty and other steelmakers produce, our steel industry still needs Government support. Let me be clear that I am not talking about handouts; I am talking about public contracts. UK Steel analysis of the 2023 steel pipeline report found that of the £603 million-worth of steel procured by government in the last financial year, 2022-23, only £365 million-worth was UK-produced. Furthermore, the British Constructional Steelwork Association analysis of steel used in the HS2 project found that only 58% of steel contracts were awarded to British suppliers, despite the British steel industry having the capacity to have carried out 100% of the work.

I welcome the recent introduction of the UK steel safeguards and the fact that UK Government Departments are now required to report past buying and future purchase pipelines of UK-made steel bought by the public purse. Those measures, particularly the reporting of where the steel is procured from in projects, are designed to encourage the uptake of UK-produced steel. The mandatory reporting model is a good template for other industries and Departments, and I welcome it. My Bill takes that mechanism and seeks to use it to achieve similar results across the economy, compelling contracting authorities to publish where they are procuring from, and to encourage the uptake of goods and services from British suppliers.

Let me give another example. I am sure hon. Members are aware that the public procurement system is failing our great British farmers. I strongly believe we must support our local food producers by ensuring that we buy, sell, make and grow more of our food, entrenching Britain’s reputation as a beacon for quality food, high standards and ethical animal treatment. The UK public sector spends about £2.4 billion a year procuring food for organisations such as schools, hospitals and the armed forces. That accounts for approximately 5.5% of UK food sector sales. Despite that level of spending, there is no accurate measure of how much food the public sector procures from British farmers. My Bill will address that.

The British public support buying British. The online supermarket Ocado reported that 87% of its customers considered it important to support British farmers, with searches for British produce on its website up by 77% year on year—

[Peter Gibson (Darlington) (Con)]

The hon. Lady conveniently mentions the addition of the “Buy British” button on Ocado. Will she pay tribute to my hon. Friend the Member for Bosworth (Dr Evans) for leading a fantastic campaign, bringing in that “Buy British” button on a number of supermarket websites? Will she also join my call for all the others to catch up and do the same?

[Sarah Champion]

The hon. Gentleman has had a premonition, as that is my next line. The hon. Member for Bosworth should indeed be commended for the “Buy British” button and we absolutely should roll it out across all websites, across all suppliers. Every supermarket and local shop should be proud to say that they stock produce that was made in Britain and made as locally as possible. That helps us on so many levels, particularly the environmental one. It also supports our workers, who are doing an amazing job in a very tough environment. I absolutely support the hon. Member for Darlington (Peter Gibson) and the hon. Member for Bosworth for the work that they have done and are doing on this.

[Lloyd Russell-Moyle (Brighton, Kemptown) (Lab/Co-op)]

As my hon. Friend rightly points out, people in schools and hospitals have no choice as to what provider they go to, because they are in an institution, as we are; the choice is made by the institution on their behalf. Where consumers do not have a choice, the reporting requirement under the Bill would apply pressure to ensure that the choice made on their behalf is the right one.

[Sarah Champion]

I absolutely agree with my hon. Friend. Nobody who procures with taxpayers’ money wants to do a bad job or waste money; the highest possible scrutiny is imposed. My Bill asks them to publish their decisions, in the hope that if Ministers follow up that data, they can see why decisions are made and how much of the procurement is from British suppliers. On his specific example, parents would love to know the trail of the food their children are eating. A recent poll by Deltapoll backs that up. It found that 81% of 4,000 people polled said that being able to buy British food was “very” or “fairly” important, while 94% of people said that support of farmers was “very” or “fairly” important. Despite overwhelming public and cross-party support for buying British, let us be honest that our farmers are struggling. The Office for National Statistics reported that over 6,000 agricultural businesses have closed since 2017. Meanwhile, the National Farmers Union reports that business certainty and confidence within British farming is at an all-time low.

Alongside the obvious economic and social benefits of buying more British food, such as boosting the economy and creating jobs, there are also ethical reasons for wanting more British food to be procured. The Royal Society for the Prevention of Cruelty to Animals has long raised the issue of procuring authorities buying food from overseas that is produced to lower standards than in the UK, such as battery eggs and sow stall pork. Our animal welfare standards in the UK lead the world. Through my Bill focusing on buying British, we will also contribute to cruelty-free procurement becoming the norm.

My Bill will require contracting authorities to publish what proportion of food procured originates from suppliers in the UK. That will finally create an accurate measure of how much food the public sector procures from British farmers.

[Peter Gibson]

The hon. Lady is being incredibly generous with her time. I had the privilege of sitting on the Procurement Bill Committee recently. That was a lengthy Bill dealing with a whole panoply of procurement legislation to make our procurement system fit for the future. Will she make some remarks about why it is important for her Bill to progress today when measures in the Procurement Bill have not yet come into force, so we have not seen the results of that work?

[Sarah Champion]

I thank the hon. Gentleman and my hon. Friend the Member for Brighton, Kemptown (Lloyd Russell-Moyle) for their work on that important Bill. I am trying to aid the process of that roll-out because, if my Bill passes, procuring authorities will have to publish what they are procuring. That will probably be the only data available to see whether the cross-party intention, as set out in the Procurement Bill, to try to get more British businesses supported through our procurement processes, is working. If it is not working, Ministers would have the information to make the updated guidance bolder. That data would enable Ministers to give procurement money to British businesses if they wished, and if that was not breaching any laws. I see my Bill as a help; I do not see it under- mining what is happening because of measures in the Procurement Bill.

There is something going on—the hon. Member for Darlington has anticipated my next point. Importantly, the Bill does not require public procurement professionals to take any specific action beyond reporting what has been procured and how that benefits the local environment. Such an obligation cannot reasonably be seen as compromising the UK’s international obligations, which is a concern the UK Government previously had with “Buy British” policies. The measure will benefit UK food producers on the principle that what is inspected is generally delivered. I am proud that the NFU, the Countryside Alliance and the RSPCA all helped me to develop the Bill, and they support it.

It feels as if the Government, and particularly the Minister, support it. I welcome the recent announcement of an independent adviser, the hon. Member for Colchester (Will Quince), to support the ongoing work to improve public sector food procurement. The areas of the review are strikingly close to those I seek to address with the Bill, so I am incredibly grateful that the Minister has offered the time of the hon. Member for Colchester, and hopefully the time of civil servants, so that we can work together towards those common aims.

I turn to another key driver behind the Bill, which is enabling small and medium-sized enterprises to access public contracts. SMEs make up 99% of UK businesses and account for 61% of employment. Despite being the beating heart of our economy, research from the Federation of Small Businesses has found that SMEs are effectively shut out of the public procurement system. Only one in five SMEs has bid for a public sector contract in the last three years. In the construction industry, a sector heavily reliant on SMEs, only two in five SMEs have bid for a public sector contract in the last three years. Of SMEs new to public sector opportunities—those with experience of between one and nine bids—49% have failed to secure a single contract in the last three years. The lack of transparency means that they do not know why they have failed. Submitting a tendering application is a resource-heavy process. If an SME keeps getting knocked back, the stats show that it will eventually stop trying.

The National Federation of Builders, a trade association representing the interests of small and medium-sized house builders, told me that one of its members had not successfully bid for a public sector contract for over a decade, even though it is well qualified to deliver. Sadly, this situation is replicated across most sectors. Of course some SMEs are rejected for good reasons, but there is clearly a cultural issue in public contracts being awarded to large, often multinational businesses over SMEs.

[Mark Tami (Alyn and Deeside) (Lab)]

Smaller companies are often put off because the cost of tendering for such contracts is so high that failing to win the contract could have a really detrimental impact on the business as a whole.

[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.

[Lloyd Russell-Moyle]

Is it not also a particular problem when procurement is given to a foreign company who will be using workers with different standards and different collective bargaining, which is totally unfair to the British businesses that have to follow British laws and British agreements with trade unions? Providing this data will give a level playing field to businesses who will know where they are being undercut.

[Sarah Champion]

Again, my hon. Friend is absolutely right. If companies pay people appallingly low wages, they can then undercut British businesses that want to pay people well and give them the terms and conditions so that work is fulfilling economically as well as psychologically. Yes, we are losing hand over fist in the current situation.

My Bill would therefore require contracting authorities to consider how they might act to support good employment standards and working practices. My Bill defines good employment standards and working practices as including, but not limited to, compliance with national and international obligations in the field of environment, social and labour law, and collective agreements. The Bill also requires contracting authorities to include reasonable details about how they have complied with their obligations to meet such standards in a contract award notice.

My amendments to existing legislation raise the importance of good work within public procurement, and encourage contracting authorities to award contracts to good employers by attempting to replicate regulation 56 of the Public Contracts Regulations 2015, which relates to excluding suppliers who are not compliant with international and domestic social, labour and environmental laws. It is designed to stop bad employment practices being tolerated within public procurement, such as fire and rehire or contractors refusing to implement the annual uplift of the real living wage.

Great care has been taken in drafting the Bill to avoid including measures that would threaten the UK’s international obligations with respect to trade rules and the agreement on Government procurement. It is also important to note that my Bill would place the responsibility on the contracting authorities, not on the suppliers or UK Government, to publish data on their compliance with the relevant provisions under clause 2.

I hope that my Bill will also influence the conversation on reforming the public procurement system, so I am grateful that the Minister has offered me and the working group the opportunity to meet the civil servants and perhaps the Minister to make changes, if needed, to the national procurement policy statement. Published in June 2021, the NPPS argued that the “huge power” of public procurement expenditure

“must support the delivery of public sector policy priorities, including generating economic growth, helping our communities recover from the Covid-19 pandemic, and supporting the transition to net zero carbon.”

It goes on to outline how:

“Public procurement should be leveraged to support priority national and local outcomes for the public benefit… Contracting authorities should consider the following social value outcomes”

when procuring such goods and services. My Bill seeks to cover all those, but I would be a little stronger on the “should” becoming a “must”. Aside from that, I think we are absolutely on the same page.

To conclude, my conversations with Rotherham businesses and national industry groups have made it clear that the changes I am proposing are welcome and overdue. I defy the Minister to find anyone in the UK who would not see this as common sense. Implementing the changes will increase transparency and encourage more public contracts to be awarded to British suppliers. By supporting this Bill, the House has an opportunity to demonstrate their support to British manufacturers, builders, farmers and SMEs. I thank the Labour Front Benchers for their support, and I am grateful to the members of the working group who helped me to develop it— the TUC, UK Steel, National Farmers Union, the RSPCA, the YPO, the Countryside Alliance, APSI, Bloom Procurement Services, the National Federation of Builders and Jonathan Davey—for all the help, support and guidance they have given me to date.