Authority Money Stays Local with Small Businesses

A report by the Federation of Small Businesses shows that money spent by Local Authorities on local businesses stays within the local economy

Local Procurement - Making the most of Small Firms, 2013The Federation of Small Businesses (FSB) has conducted extensive research into where money goes when it is spent by local authorities and goes to local small businesses.

Conducted alongside the Centre for Local Economic Strategies, the FSB research shows that, when compared to money spent with big businesses in an area, 58 per cent more money stays within the local economy when it is spent with local small firms.

The research has been conducted with local authorities across the UK over the last year and has tracked £8.7 billion worth of local authority spending on locally-purchased goods & services.

To highlight the difference between a local big business and a local small business, the research found that for every £1 spent with a local SME 63 pence went back into the local economy. Every £1 spent with a big business only recirculated 40 pence back into the local economy.

Small and medium-sized businesses were therefore deemed to be better for local economies, generating £746 million to be put back into local areas despite authorities spending £500 million less with them.

The FSB report, Local Procurement, making the most of small businesses 2013 (PDF), is a follow up to last year’s report and highlights that many local authorities have been adopting good practice, even splitting contracts into numerous smaller jobs to assist in helping SMEs to win the work.

The FSB wants to see more local authorities working to get contracts to small firms believing that keeping money in the local economy will stimulate local economic growth.

FSB estimates indicate that spending just an additional 5 per cent more locally with just 3 per cent more on local SME contractors would generate a further £788 million to be recirculated within local economies.

Examples of local authorities spending with small businesses have included Leicester City Council putting clauses in contracts that big contracts use small firms somewhere in the supply chain and Surrey County Council allocating low value contracts from a single large supplier to a panel of smaller local contractors.

John Allan, the FSB’s National Chairman, said of his organisation’s latest report:

“This report shows the power and strength of small firms to create jobs and growth in the local economy if they are given the help to do so. With budgets being cut there seems to be an increasing realisation that spending more locally will benefit the local economy. The evidence speaks for itself. Spending locally invests in jobs and growth for the area. We want to see more of this happening across the country.”

“Engagement with small firms is essential. While our members do win contracts, many are still deterred by the process. We had a good response to the survey which shows local authorities working with SMEs, but we say that more of this will help boost the local economy.”

“As with most things, a one-size-fits-all approach won’t work and something that works for one council won’t necessarily work in another. This is why we’re calling on local authorities to work with their local FSB to create an environment in which small firms can grow and prosper and the areas they work in.”

The Business Secretary, Vince Cable, welcomed the report, adding:

“This report shows what I have known for a long time – more of our small and medium sized companies must get a fair share of public contracts.”

“In central government we are already trying to level the playing field with an aspirational target that 25 per cent of our contracts should be awarded to small and medium sized enterprises by 2015. To make this happen, we have put measures in place. A new website that provides free access to public sector contract opportunities worth over £10,000, the abolition of pre-qualification questionnaires for contracts under £100,000 in value, and the appointment of a Crown Representative for SMEs will all help.”

“But there’s more we can do. We are currently working on Lord Young’s ‘single market’ recommendation to establish a simple and consistent approach for all public sector procurement contracts. This should mean more SMEs can take advantage of the £230 billion of potential business each year.”

Local Government Minister, Brandon Lewis MP, said:

“Small businesses are the heartbeat of our local economies. Today’s report shows the benefits of working with local firms – for every £1 spent with a small business 63 pence is reinvested locally.”

“Councils have billion pound procurement budgets at their disposal and they should be supporting their local economy by cutting back procurement red tape, like Pre-Qualification Questions and unnecessary equality requirements, in order to allow small firms to bid for more contracts. I’d like to see every council increase what they are investing in their own communities so they help it grow and prosper.”

Neil McInroy, Chief Executive of the Centre for Local Economic Strategies, said:

“Small businesses are the bedrock to many local economies. And through progressive public procurement, we have the means of making sure they remain so. Local authorities by taking up excellent procurement practices can ensure that local economies remain healthy, local jobs are created and strong supply chains are extended. This report highlights how we can accelerate these benefits and how a virtuous relationship between local authorities, local FSB and small businesses can be a winning combination for local economies.”

Cllr Peter Fleming, Chair of the LGA’s Improvement and Innovation Board, also chimed in by saying:

“Councils have a vital role to play in driving economic growth by helping create the right infrastructure and environment at a local level to enable business to succeed, from maintaining roads to helping companies cut down on their energy bills.

“At the heart of this, councils are ensuring that they themselves are open for business, in particular working with SMEs and local suppliers to make it easier for them to bid successfully for public contracts on everything from building houses to caring for the elderly.

“By spending money locally we know that we are helping to pay the wages of local people, giving them money to spend in local shops and helping the whole local economy as a result. Half of all council contracts are now awarded to small and medium-sized businesses compared to just 13 per cent for central government, and we will continue to work with the FSB to seek out and promote best practice from councils who are simplifying procurement practices and finding new ways to help their local small businesses compete.”

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