By Daniel Hunter
Extensive new research from the Federation of Small Businesses (FSB) shows that 58 per cent more of the money spent by local authorities with small firms is re-spent in the local economy compared to that spent with large businesses in the same area.
In an exclusive report the FSB and the Centre for Local Economic Strategies surveyed local authorities across the UK and found that in the last year they spent a total of £8.7 billion buying goods and services in their local area.
The findings highlight how doing business locally is better value for money as small local firms generated £746 million more for the local economy compared to large local businesses — even though more than £500 million less was spent with them. The research shows that for every £1 spent with a small or medium-sized business (SME) 63p was re-spent in the local area compared to 40p in every £1 spent with a larger business.
The FSB wants to see more local authorities using businesses in their areas to help boost economic growth. The business group believes that if each authority had spent an additional five per cent of their budget locally and committed just three per cent more of that to small local firms, an additional £788 million could have been generated for local economies.
The FSB’s report, Local Procurement, making the most of small businesses, one year on, is the second report on the power of local authorities and how they utilise local businesses in their areas for goods and services. It shows good practice across many of responding local authorities, including 86 per cent of local authorities breaking contracts into smaller chunks to help SMEs win work.
For example Leicester City Council has opened up opportunities for SMEs within larger contracts and ensures that large contracts include clauses which make sure small local firms are used in the supply chain. Furthermore, Surrey County Council has committed to switching lower value construction and maintenance projects from a single contractor to a panel of small local suppliers.
John Allan, National Chairman, Federation of Small Businesses, said: “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.”
Business Secretary, Vince Cable MP, said: “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, 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, said: "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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