Monday, 25 March 2013

Encouraging small businesses to grow – or not!

Small and Medium Enterprises (SMEs) are key innovators and vital for economic growth. 

The Government is the UK’s biggest single consumer – the biggest purchaser of goods and services - but it is failing to ensure that public procurement is being used effectively to support SMEs across the country.

In February 2011, David Cameron and Cabinet Office Minister Francis Maude outlined Government procurement reforms. They both pledged to ensure that “25% of all government contracts are awarded to small and medium-sized enterprises”.  Of course, this promise got good headlines and supportive editorials in the media. However, like various other pledges, the Government has since dropped this as a target, and downgraded it to an “aspiration”. Not surprisingly, there has been little media comment about this.

At the beginning of March, the Cabinet Office published full year figures for procurement spend with SMEs across central government departments.  The figures show that the percentage of procurement spend with SMEs has actually decreased in the majority of government departments.

SMEs are very dependent upon good cash-flow. In 2011, the Government promised to pay all SME invoices within ten days, and that subcontractors would get paid at least within 30 days, and that it would "name and shame" large suppliers who fail to pay SMEs on time. 

But the latest Forum of Private Business research shows that 18 per cent of small businesses are still being paid late by the public sector.  And the survey found that nine per cent more members are reporting late payments from the government departments and agencies compared to 2009. Even worse, despite government promises of a concentrated effort to improve payment performance by major contractors, the latest  figures show the opposite.  The big outsourcers are getting worse, putting small companies that they subcontract the work to under enormous financial pressure.

So, despite all the rhetoric, the reality is that this government’s failure to procure from, and its late payment to, SMEs is threatening the survival of many small business and the country’s economic performance as a whole.