How to buy British

The Governments plans for procurement reform

This week the new Chancellor John Healey briefed that he wanted to “buy British on a scale never seen before”, through plans to use public procurement to boost economic growth. And in his speech upon becoming an MP, Andy Burnham made the same commitment, along with saying that “we will make sure that all eligible public contracts are subject to proper social value weighting”. Meanwhile, Reform UK’s Robert Jenrick announced that they would scrap social value weighting… so that procurement could back British jobs. What’s going on? How can they both be trying to do the same thing through two completely opposing policies, and what should they do?

“Buying British” sounds appealing. We all want taxpayer money to go towards great British companies. But I worry that the Government will fall down the same trap which caught out every other government trying to do this, when they can still pursue a very different strategy. Let me explain:

Most Governments, including the ones I worked for in Whitehall, have tried to buy British much more. Mostly by directing contracting authorities (public sector buyers) to just do it. This tends not to make it off the drawing board, and although they get to say some warm words in a press release it doesn’t move the dial on the policy.

Two reasons. First, outside of a couple of limited exceptions (defence & national security), forcing people to buy British runs against the letter of our trade deals - our Trade and Cooperation Agreement with the EU, and the WTO’s Agreement on Government Procurement. When we do free trade deals, our trading partners don’t want us to shut off our procurement markets to their companies. Nor do we want them to shut our companies out of their markets, of course – we want our government suppliers to be great exporters too. Balancing this might be easier for parties which want to take a more protectionist approach to trade overall, but it’s challenging for Labour who tend to want to more closely align with the EU’s Single Market – where open procurement markets are table stakes.

But second, and more importantly, we shouldn’t want to buy from British companies if it means getting a worse quality product or paying much higher prices. Mandating “buy British” makes it more likely that that happens. The main things we should want from procurement is that the things we’re trying to buy work well, and are cheap. Sometimes those come at a trade-off with guaranteeing that they’ll be bought in Britain, and we shouldn’t let procurement Everythingism or false economics prevent us having good public services.

Instead, governments which want to buy British should focus on the structural policies which make the procurement market so hostile to companies competing in it, and level the playing field for new companies trying to enter the market. This way, the natural advantages that British companies have for government contracts (proximity, access to local labour markets, English language, relevant experience, regulatory fit) are going to help them against competitors based overseas, when at the moment they’re often prevented from even getting into the market because of arcane rules.

Public procurement is profoundly uncompetitive. 20% of public contracts receive one or zero bidders. Often companies are effectively banned from doing public sector work because they need to prove they’ve already done public sector work to be allowed to bid – a real ‘chicken and egg’ problem.

Practices which aim to make procurement competitive have often had the opposite effect – the more duties we’ve layered on top of contracting authorities to make sure they’re considering all the options, the longer it’s taken to run procurements and award contracts, meaning lots of companies never bother applying. A start-up or scale-up often can’t afford to wait a year to find out if they’ve won a contract, and investors won’t back them to do that either. The market is crying out for the equivalent of what economists call ‘supply side reforms’ – we’re used to how important these are in sectors like housing, energy and infrastructure, but they’ve been neglected in procurement.

To crowd more suppliers in, they need to simplify procurement processes. The biggest problem, and where the procurement market is most different from any other market, is that public procurements are almost always ‘buyer-led’ – contracting authorities mostly buy things they think they need, and they try to avoid being sold something which a company has invented. This makes sense if you view the whole process through the prism of ‘fairness’, but if you want the best products from procurement you need to be able to take advantage of the kind of innovative solutions which companies invent outside of tender processes – that’s how the rest of the economy works.

Our paper Procure and simple called for an approach which sees more contracts for smaller, newer companies awarded directly rather than competed – because counter-intuitively, in the longer run that will make the landscape more competitive by crowding in new kinds of suppliers. There are plenty of areas where that’s legal, but contracting authorities avoid it at all costs because they think long, bureaucratic open competitions are the only way to select good bidders.

Small isn’t necessarily beautiful. Procurement markets have carve outs which encourage more of contract value to be awarded to SMEs. But small businesses aren’t economically special, in fact the consensus is in Britain that we’re held back by a long tail of unproductive small businesses. People confuse SMEs with start-ups, but most small businesses aren’t start-ups or other high-growth companies – they’re just small because they operate in a small market, and they will always be small. As a rule, we shouldn’t distort procurement markets through favouring some companies over others, but the one area we should make an exception is genuine ‘new entrants’ – start-ups and scale-ups. Recognising the barriers to entry are already high, this would be a ‘second-best’, way for correcting that and keeping the market competitive in the long run, and it will be British start-ups who find it easiest to access our procurement markets because of their proximity to the kind of problems the public sector needs help with.

Finally, we shouldn’t undercut British companies through using ‘social value’ tests to award contracts. 10% of the marks in most procurements aren’t awarded for the price or quality of a bid, but for ‘social value’ commitments – companies saying they’ll be carbon-efficient, do good employee training, base their offices outside of London, or do equality and diversity initiatives. None of these are bad policies, but trying to further them through making companies do them is inefficient – and it biases procurement towards the kind of big existing (often international) suppliers who are used to competing on social value grounds.

Through good reforms to the procurement market we can make it much more open to new companies competing in it and winning contracts, especially British companies, and also create the conditions domestically for more companies to be great exporters of their services to other governments. But doing that requires a stripped-back approach to procurement policy, not an even more bureaucratic one.