My Lords, I begin by drawing attention to my entry in the register of interests and by congratulating my noble friend Lady McGregor-Smith on securing a debate on this important topic, on which she spoke with such authority. It is an honour to follow her and other esteemed colleagues. I pay particular tribute to my noble friend Lord Maude for his tireless devotion to procurement reform during the coalition Government.
Every year, the Government spend a staggering amount of taxpayers’ money—more than £44 billion—buying goods and services. While our priority must always be to get the very best value for money, in both quality and price, it is important to look at the social value of these contracts too; otherwise, we risk missing half the picture. The coalition Government’s Public Services (Social Value) Act was all about ensuring that the Government use their buying power to effect lasting social good. That is the other side of my noble friend Lord Maude’s procurement reforms, which were about opening up the public procurement market to SMEs and new digital providers, growing the supplier market by encouraging more mutuals and co-operatives, and improving commercial skills within government. Despite much progress, this remains unfinished business.
For too long, we have been operating under the false assumption that only government can create social value. Businesses pursue profit and generate externalities that either the Government have to mitigate with tax and regulation, or the company itself effectively apologises for with a corporate and social responsibility programme, but businesses can and should have social value at their core—not as an afterthought but in their DNA and not as an offset but through day-to-day activity. Businesses that get ahead of the curve in their social and environmental responsibilities tend also to be the most successful in building long-term shareholder value. The Government can do more than tax and spend to create social value: they can enable businesses to do it themselves and hold them to account for doing so.
In 2013, the Government implemented the social value Act. By 2017, around £25 billion of annual public sector procurement spend was shaped by that Act. That is a significant achievement but still represents less than 10% of the total public sector outlay. The truth is that, since the Act was passed, insufficient progress has been made. Businesses are enabled but not yet accountable. We need better to hold businesses to account on social value and continue to drive improvement in contract management and procurement in government, where skills and capacity remain lacking. Crucially, my noble friend Lord Young’s 2015 review of the Act concluded that there is a lack of consideration of social value as part of procurement. In fact, social value for both buyer and seller was positioned as an afterthought, not as part of the procurement itself. This will always reduce the potential to create genuine and lasting social value.
The Government can enable but businesses, especially large ones, must take more responsibility and procurement teams must hold them to account. We have been talking about late payments to SMEs for too long, yet the problem is still endemic. We now have 30-day payment terms right down the supply chain, but are they being honoured? We can mandate the inclusion of SMEs and break up large contracts into smaller ones, but if SMEs are not paid on time, they will likely be dissuaded from bidding in the first place. Large companies, which often win large contracts on price, might well agree to tack on some apprentices or BAME targets, but unless they have fully considered the cost and training at the outset to enable the full benefit of those they take on, an opportunity is missed.
How can we go further and improve the Act’s effectiveness? We need to move beyond social value as a mere consideration for buyers. I therefore applaud the Cabinet Office Minister, the right honourable Member for Aylesbury, whose amendment assigns a strong 10% of public procurement buying power to social value. More needs to be done. We need to engage earlier in the buying process, at a more fundamental and strategic level. Social value needs to be part of pre-market engagement wherein buyers engage with the entire supply chain.
Following this, social value needs to be written into the tender. If contracts were awarded with social value properly weighted, it would be priced into the contract itself and the chance of delivery would be maximised. When apprentices are taken on, they must be given meaningful work with the strongest focus on real training and supervision. If they are recruited as an afterthought, as a retrofit to a contract, it is unlikely that genuine social value will be created.
There remains an overall lack of transparency about how companies will act, when they will pay and where they will embed social value in delivery, but good practice is out there. In 2012, London Underground launched its station stabilisation programme using its Stake delivery model, which was designed to create greater efficiency by engaging directly with SMEs to employ the craftspeople to work on-site. Craft academies were established to provide skills training and front-line leadership for those delivering the programme. The benefits of the approach were that those who undertook the work were those who planned it. The early involvement developed clear accountabilities, increased planning and programme ownership, and gave a long-term commitment to suppliers, thus ensuring competent and capable resources. The Stake programme was designed in collaboration with Infrastructure UK and takes its origins from a 2011 keynote speech by the then Cabinet Office Minister, now my noble friend Lord Maude, who said:
“We are looking for more innovative ways to structure services. We know that employees who have a stake in their business, or take ownership of it completely, have much more power and motivation to improve the service they run”.
He eloquently made that case again today.
Cross-cutting all of this, however, means improving the commercial capability of public sector buyers. We need to combine value for money training with social value training so that the one is not seen as being in conflict with the other. Only if we improve the commercial skills in Whitehall will it be able to cut through this lack of transparency and hold businesses to account, as well as driving value for money for the taxpayer. As the noble Lord, Lord Young, found in his review, evaluation criteria are vital to align social value with value for money and offer greater clarity to providers on how it would like to see it measured.
We have long discussed how to improve procurement to bring in more SMEs, get value for money and drive efficiencies across government, but now we are talking about something far more profound: the scope for government not to punish business for doing harm, but to enable it to create social value. That is surely the ultimate public-private partnership and one we should aim to improve by properly implementing not only the letter but the spirit of the Public Services (Social Value) Act.