10.8 million people work in businesses which employ fewer than 50 people. A further three million are employed by medium-sized enterprises employing between 50 and 250 people. Yet SMEs account for less than half the value of contracts with local government. With central government, the figure is just 6.5 per cent.
My constituency is a typical suburban middle England, ‘one nation’ constituency where 40 per cent of people work in small- and medium-sized enterprises. It is typical of the types of constituency we need to either win back or, in my case, hold on to. The challenges faced by small businesses are ones which Labour should address for good economic reasons. Small businesses are crucial in delivering growth as they have the agility and ability to grow and create jobs individually and collectively at a pace far in excess of what large enterprises can generally achieve.
Owners and staff alike in small businesses are also affected by the austerity which the Tories and Liberal Democrats have imposed and lack the protection that comes from being a large organisation. Small businesses are a key part of the ‘squeezed middle’ and we should be demonstrating our support for them.
We are a (one) nation of shopkeepers as someone famously almost once said. As well as being able to grow far more quickly than big business, small businesses can be often forces for good, productive business practice.
The smallest businesses are often sources of innovation and creativity and often some of the best hi-tech businesses able to compete internationally are some of the smallest. For this country to succeed as a niche modern economy, we need our cutting edge small businesses to do well.
Bank lending to small businesses remains low despite government calls for the banks to respond. If the banks won’t change their policy, the government needs to intervene to ensure small businesses have the financial support needed.
Small- and medium-sized businesses employ more people who have been unemployed and more young people than big businesses. And yet small businesses often struggle to compete for contracts, not least in the public sector, because the playing field is far from level. Bidding for contracts in either public or private sectors favours big business, not small. The rules often require evidence of financial clout which is only available to large organisations, yet the small organisations are often those with the better skillsets. Those same tender documents are also complex and long-winded and there is a knack to completing them. The firms which are best equipped to win public sector contracts often have specialists who know exactly how to complete tender documents and how to win tenders. Such expertise is not available to small businesses and neither do they have the time needed to go through lengthy and challenging procurement processes.
In short, public sector procurement is designed to ensure that the big firms get bigger and the small stay small, collecting crumbs from the table of the big firms if they are lucky. It is no different in the private sector either.
When I was running my own training consultancy, we constantly ran into the difficulties of compliance with procurement rules, none of which were anything to do with our suitability to do the job. Yet, the compliance officers in both public and private sector organisations would automatically disqualify us from tenders even though our clients in operational or training departments wanted to give us the work as we were the best for the job. It was and remains a mad system and is one of many examples of the risk-averse approach endemic in organisations in this country. Clearly procurement systems need to look at the risks but it is one thing to be risk-aware, quite another to be risk-averse. There is a real cultural problem in the way we do business and in our lack of preparedness to take risks. The old adage was that no one was ever sacked for contracting with IBM. That is still true today.
There is a big economic benefit to be derived from ensuring that procurement is fair to the smallest businesses. In many companies, contracts are given to friends of the procurement manager both in public and private sectors. We could help small businesses in procurement and improve our competitiveness at the same time. Part of that improvement would be to end the cosy relationship which persists between procurement officers and some contractors, often the larger ones.
There is an economic dividend from boosting our small businesses. There is also a big political dividend in ensuring that small businesses including micro businesses, see Labour as on their side. Let’s regulate in favour of small- and microbusiness and listen to what they need to kickstart sustainable growth.
This can start with public sector procurement rules including in construction. Why engage large construction firms when there are many smaller ones based locally.
The Federation of Small Businesses published a recent report, Local Procurement: making the most of small businesses. The survey of more than 11,000 members found that ‘the time and cost involved with the public sector tendering process remains a major barrier to participation, as does the difficulty in finding and accessing public sector contracts. Too many small businesses are left bruised by the impenetrable wall of bureaucracy and the widespread conviction that big is beautiful. Coupled with strict eligibility criteria, this leaves small businesses unable to compete with larger ones and locked out of public procurement contracts.’
In government we improved the payment terms for small businesses. Labour could do more, much more, to help small businesses prosper and help create jobs and growth.
The next Labour government will need to ensure better bank lending, something this government has clearly failed to do. But we can also boost small business in the way procurement operates by improving their chances of winning business in the public sector. Labour has a big opportunity to be on the side of small business and it is an opportunity we should take.
Bill Esterson is the Labour MP for Sefton Central and a former small business owner. He tweets @BillEstersonMP
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