It’s a real pleasure to be asked to deliver the closing address at the Public Sector Show, now in its fourth year.
I pride myself on being the minister responsible for the plumbing in government. When I tell people that I’m responsible for things like procurement and commercial reform, quite often their eyes glaze over because I talk in a very animated way. So it’s great to talk to an audience that lives and breathes these subjects.
Sometimes our work may seem to be all about spreadsheets and flowcharts or endless meetings. But of course, it really matters. It’s central to helping people get the services they deserve. It’s about ensuring taxpayers get a fair deal. And actually, it’s about shaping the future of our country. So what we do in this space is really important and we must never lose sight of this.
Today I’m going to focus on how government is opening up to small- and medium-sized enterprises (SMEs). Because the way in which the public sector goes about buying goods and services can make or break a small business. But equally, the success of SMEs will make or break Britain’s mounting economic recovery.
It was Napoleon who called us a nation of shopkeepers. He meant to be derisory but it’s actually a great compliment. He was of course referring to our commercial and trading strength – and he was onto something. Two hundred years later, 9 out of 10 companies in the UK are SMEs – let alone the micro businesses and the sole traders. They’re the job creators and the wealth generators.
When we talk about growth, it’s not some abstract concept invented by the City. This is real – it happens every time a small business takes on a new member of staff; every time an innovative new tech start-up takes a brilliant idea and converts it into a marketable product; every time a great British success story secures its first contract overseas.
And that’s precisely why this government is doing everything in our power to help Britain’s SMEs to succeed by levelling the playing field which previously was stacked against them.
Let me tell you about a recent case dealt with by my Mystery Shopper team in the Cabinet Office.
These are the officials we have on standby, ready to jump in through the window – plunger in hand – whenever a small business reports a blockage which makes it more difficult for them to bid for a government or public sector contract.
Earlier this year, they were contacted by an SME, which was owed money by a major government department. It wasn’t just a one-off payment. The department had racked up a substantial bill over the course of a year. Around £70,000.
Now sometimes we get so used to talking about spending in terms of millions or billions of pounds that we lose perspective… £70,000 is in the overall scheme of government spending is a ripple. But it can make or break a small firm.
The business in question had already contacted the department several times. They just wanted to be paid. No one likes to be left dangling on the end of the phone. But they were brushed off with patently unacceptable excuses.
Thankfully, the Mystery Shopper team lost no time in contacting the department and they worked together to unblock the problem. The company was finally paid the money it was owed. The department – suitably contrite (which isn’t something you always see) – promised to be more aware of the needs of small businesses in the future. So everyone went away happy and the problem was solved.
Well no actually. It’s not quite that neat. You see, when we did the digging, it turned out the real problem was that nobody in the department knew how to use the payment system.
And that’s the nub of the issue – basic commercial knowledge and common sense.
Understanding the needs of SMEs
Too often in the past, government seemed to be oblivious to the basic needs of small and medium sized firms.
In this case, it failed to understand that SMEs rely on prompt payment – and that government can set an example to others by paying on time. Equally, it failed to equip public sector staff with the skills and the commercial capability to do their job properly.
The whole public sector spends £230 billion a year on goods and services – equivalent to the economy of a medium sized country and roughly 15% of the UK economy and £1 for every £7 spent in Britain.
Yet at the time of the last general election, just 6% of central government procurement spend was with SMEs. They were frozen out by an clearly bureaucratic and painfully slow system that worked against them.
Not only was government missing out on a powerful way to support growth: it was failing to recognise the innovation and value that SMEs provide. The economic downturn meant we couldn’t afford to miss out for a moment longer.
So in 2010 we committed ourselves to creating a supportive environment in which ambitious businesses can flourish. We’re aiming for 25% of overall central government expenditure to be spent with SMEs by 2015 – not just at the top, but down through the supply chain. We’re working to weave that commercial common sense into the fibres – the warp and weft – of government.
And we will continue to hold other departments and the wider public sector to account. Since we set up Mystery Shopper in March 2011, the scheme has tackled 620 cases. In 4 out of 5, we were able to make a change which resolved the issue.
We’re now extending the service so that it not only investigates reports of unfair treatment raised by SMEs and other concerned suppliers, but also undertakes proactive spot checks on procurement processes across the public sector. It’s about weeding out potential problems before they get in the way.
The results are being published on GOV.UK so that poor practice by public bodies and their contractors can be challenged and good practice identified. We want to get to the point where we have a kind of Trip Advisor system for public procurers so we can know which bits of the public sector are doing it well and which aren’t.
Lord Young reforms
And that’s not all we’re doing. As you heard earlier, the government commissioned the Prime Minister’s adviser on enterprise – and my old boss – Lord Young to recommend more ways to open up procurement to SMEs.
In central government we’ve already been working hard to simplify our procurement process and cut out some of the needless form filling and red tape. Now these reforms will spread to the wider public sector to ensure a single market when doing business with the state.
We’re completely abolishing pre-qualification questionnaires (PQQs) for low value contracts. For high value contracts, we’re insisting on a simplified, standard PQQ, which absolutely prohibits unnecessary questions or excessive requirements.
We want to increase the visibility of the opportunities available to SMEs within the public sector. All opportunities valued over £10,000 for central government and £25,000 for other authorities must now be published on Contracts Finder. Furthermore, contracting authorities must also publish contract award notes, with information on whether a contractor is an SME or a voluntary organisation, charity or social enterprise.
And there will be absolutely no hiding place for late payers. All procurers will be required to publish cases where they fail to pay within 30 days, including interest paid or interest liable. They must also include a clause in the terms and conditions of all new contracts, mandating payment of invoices in 30 days all through the supply chain.
As Lord Young has outlined earlier today, we’re introducing these changes at the first possible opportunity.
I know some public sector procurers have already have plans in place to prepare for these changes and they should be congratulated.
For everybody else, this is the time to take note and take action. There’s nothing stopping you adopting these changes straight away, but at the very least you should now be considering how you will brief your staff and whether training is required. If you need it, help is available from the Crown Commercial Service.
My message is simple: change is coming – be ready for it, because we need to deal with it when it happens.
Transforming public services: 5 principles
Our reforms to public procurement are just one part of a wholesale transformation of public services as we rebalance the British economy.
Part of this was an immediate reaction to the economic situation we inherited. We faced the deepest recession in peacetime history, coupled with the largest budget deficit in the developed world – and public sector productivity had, amazingly, over the previous decade remained completely flat, showing no improvement at all. This was a perfect storm that threatened to ravage public services unless we took urgent action.
At the same time austerity in public finances is going to be a fact of life for some time to come and there will always be pressure on governments – of all parties – to deliver more for less. For far too long we have been prisoner to the fallacy that you can’t deliver more for less. We have definitively proved that defeatist consensus wrong and showed we can deliver much more for less by transforming the way we work.
So we faced a choice: the low road of salami slicing departmental budgets to impose top-down savings; or we could take the high road of redesigning public services from the bottom up. We took the high road because governments owe it to the public and the taxpayer.
After a few years, we have realised that we were really applying – and it was retrospective – 5 principles for public service reform to help us meet these challenges. They’re practical, not ideological – this is about creating truly 21st century public services, and as we do it we will create even more opportunities for Britain’s smaller businesses.
The first principle is open, because being transparent builds trust, sharpens accountability and brings improvements. People can compare costs in once place with costs in another.
Publishing open data can also stimulate economic growth in exciting new ways. The first industrial revolution was based on the raw materials of iron and coal. This one is based on the raw material of open data.
Our open data portal, Data.gov.uk, is the largest resource of its kind in the world. There are over 14,000 data sets there already, and more data is being added all the time. And that’s supporting a thriving community of digital start-ups, SMEs and tech-based companies that can use this raw data as the basis for new ideas and solutions, cultivating new markets and creationg new jobs in the process.
So that’s the first principle, transparency and openess.
The second principle is tight control from the centre over common areas of spend. Controlling discretionary spending helps ensure every penny of taxpayers’ money is spent to maximum effect, by reducing waste, fraud and inefficiency.
It’s why our new Crown Commercial Service, which Sally Collier spoke about earlier, brings together the government’s central commercial capability into a single organisation. It will gradually take on direct procurement of all common goods and services from departments – everything from energy supplies to photocopier paper – and it will offer indirect support for large and complex procurements.
It’s one of the largest commercial and procurement organisations in Europe, it can maximise economies of scale to deliver the best possible value for the taxpayer. The government ought to be the best customer there is. We operate at scale; we can deliver better, consistent prices and better value from the taxpayer by managing things like property and IT from the centre.
But tight control at the centre should be matched by looser control over frontline operations, which is my third principle. We’re strongly supporting the creation of staff-owned mutuals, joint ventures and social enterprises in this country.
There are now nearly 100 public service mutuals around the country – all of them new enterprises – employing between over 35,000 people and delivering around £1.5 billion worth of services. An entirely new sector of the economy – and it’s thriving. Boston Consulting Group projects an average increase in revenues of 10% this year.
And let’s face it: public service commissioners had become too dependent in too many areas on too limited a range of suppliers. Every new mutual that spins out of the public sector helps to remedy that deficiency, making the market deeper, wider, more dynamic and competitive – and that’s good for the economy, it’s good for the taxpayer and it’s good for the user of public services.
It drives productivity dramatically – marked and dramatic improvements almost overnight – as well as a better quality of service for the user. Loose control liberates and empowers the people actually delivering the services to the public.
Digital by default
The fourth principle is digital by default, because as well as being cheaper – a 50th of the cost of doing it face to face, a 30th the cost of by post and a 20th cheaper over the phone – it’s also a chance to redesign services around the needs of the people who use them, rather than designing them in a way that’s convenient for the government.
We know the best technology and digital ideas often come from small businesses, which is why we’ve created the G-Cloud framework. It’s an open market where public sector organisations can purchase cloud-based IT off the shelf. For both government and the companies listed on the CloudStore, this means less bureaucracy and less hassle.
As of last month – the figures hot off the press only yesterday – the public sector as a whole has already spent more than £175 million through G-Cloud. And over half of this, 60%, is going to small- and medium-sized firms. Central government is spending is higher still at 63% and we want it to grow even more.
And we have committed to spend a further £100 million with small businesses offering IT services and technology to government by 2015.
Fifthly, there needs to be a properly innovative culture in the public sector.
Public servants must be given the training, skills and confidence they need with the responsibility to do their jobs and to be accountable for what they achieve. For too long the commercial profession has been undervalued and under-developed within the civil service and has failed to attract and retain sufficient high calibre staff. We’ve also managed our people poorly.
So we’re going to strengthen expertise among our specialist practitioners through stronger leadership, better career development and better talent management. We’ve already established the Commissioning Academy to help commissioners develop the practical skills and judgement to design different ways to deliver services and manage new markets.
At the same time commercial understanding and confidence shouldn’t be just the preserve of those deemed to be procurement specialists. All civil servants involved with policy development and delivery must be more commercially attuned.
So, in conclusion, open, tight, loose, digital, innovative… these are what I believe should be the characteristics of modern, productive and effective governments, now and in future.
Taken together, they represent a positive and historic opportunity to transform the public sector. They’ll help ensure that the way government works – and the money it spends – boosts, rather than undermines, Britain’s competitiveness.
And they’ll introduce new ways of working and thinking into government – helping us deliver better services to the public, in a way that is affordable and sustainable in the future.