In response to widespread economic injustices and a burning planet, the march for a new economy gathers momentum. Central to these efforts should be a ‘mission-oriented’ approach to procurement in central government, as outlined by new Demos research this week.
Procurement is the government’s largest expenditure, amounting to almost £300 billion a year – around 13% of the UK’s GDP. That’s an enormous amount: nearly three times what we spend on the NHS in England. Procurement is therefore a uniquely powerful tool for progressive policy makers to wield.
Useful fundamentals already exist for progressives to build upon. Through ‘social value’ criteria, the government can try to maximise the social, environmental and economic impact of procurement.
Social value has already been used to deliver positive economic change at a local level. Organisations such as CLES have long worked with local authorities to ensure procurement better addresses local needs and delivers more for local people. The most well-known example of this is probably the work of Preston City Council and their pioneering approach to community wealth building.
However, whilst progress has been made in local government there is also an opportunity to go much further at the national level. Our research finds progress at this level has often been hampered due to a failure to align social value priorities in central government.
To tackle this we need cross-government social value objectives to foster a ‘mission-oriented’ approach to procurement. This would seek to use procurement across government to tackle a number of national challenges, complementing the mission-oriented approach to innovation and industrial strategy developed by Mariana Mazzucato.
These challenges could include tackling Britain’s endemic low pay problem. Commissioners could require suppliers must offer to pay their workers the Real Living Wage. When we know almost two thirds of FTSE-100 companies are not accredited by the Living Wage Foundation, the effects of this change could be felt widely across the economy.
Procurement could also be used to help tackle climate change. Strict new environmental minimum standards could be introduced, dramatically ‘levelling up’ the playing field. If a number of big government suppliers sought to improve their environmental practices we could see a ‘snowball’ effect emerging, as corporates seek to keep up with their competitors in being seen to do good on climate change.
Procurement is already being used to tackle climate change in Europe. Potential government suppliers in the Netherlands are required to meet certain environmental standards, including measuring and publishing data on their carbon dioxide performance. Organisations are then awarded certificates relating to how sustainable their business is; higher ratings increase a firm’s chance of winning government contracts.
A new approach to procurement could also drive better tax behaviour from big companies. Our research found that nearly three quarters (73.5%) of the government’s biggest suppliers have operations in tax havens. New standards should allow government departments to include a bidder’s effective tax rate – the amount of tax they pay to the exchequer – when considering who to award bids to.
These are just three examples – low pay, climate change and tax avoidance – of challenges that could be addressed by a progressive approach to procurement policy. But there are other reasons for procurement’s appeal as an agent of change.
This spending power represents an opportunity for the government to nurture best practice in the market, raising economic standards without relying on state-administered redistribution. This is highly desirable: for too long progressives have been reliant upon redistribution as a means of delivering change, when this has often been ineffective at addressing structural inequalities.
Furthermore, any government seeking to introduce, for example, new, higher environmental standards would likely face significant levels of opposition to these changes. Introducing these standards, however, through minimum procurement standards would likely be easier to achieve, quickly buying real economic change for a government seeking results. What’s more, by demonstrating these standards do not lead to economic rack and ruin, opposition to their wider adoption would likely be reduced.
Government procurement can and should be so much more than the purchasing of goods or services. Anyone interested in building a fairer, greener economy must put a new procurement regime at the heart of their plans.