Mark Field has been MP for Cities of London and Westminster since 2001 and has held a number of front bench opposition roles, including a spell as shadow financial secretary to the treasury. He is currently Chairman of the All-Party Group on Business Services and
since mid-2008 has been Acting Chairman of the All-Party Venture
Capital and Private Equity Group.
Public sector purchasing policy may quicken the pulse of few people. However, it may soon enjoy wider interest. Since my days in business, I have always believed that prudent public sector procurement provides the ideal opportunity to rein in waste and in time help fund responsible tax cuts without compromising delivery of service.
There is no one source where it is possible to understand what the government buys. I decided some months ago to undertake some research under the Freedom of Information Act to understand more about where our money is going. This has made intriguing reading. Nearly one-third of taxpayer’s money is spent on the goods and services purchased by government – yet the results of my questioning suggest a disturbing level of financial waste and administrative incompetence.
A significant proportion of the government’s procurement spend is incurred by government departments directly (rather than via quangos or public institutions such as hospitals or local government). As such I concentrated my research on the central government departments, submitting a Freedom of Information (FOI) request to each posing two simple questions. My first request was that each department provide an aggregate figure of spending on goods and services for each of the last three years. Secondly I asked for details of the number of suppliers used per annum.
This is the simplest possible thing to request and the sort of information that is a fingertip away for finance directors and procurement directors in the private sector.
From the responses that I received (five departments could not answer) central government spends over £47 billion per annum. More interestingly, to date the total number of suppliers is well over 100,000. Clearly even a modest reduction to these numbers potentially translates into a significant tax cutting opportunity.
In the financial year 2007/2008 the Ministry of Defence unsurprisingly
led the way in purchasing expenditure with a total figure of nearly
£18.1 billion. Meanwhile the Department for Health spent £9.7bn and the
Department for Transport was another big spender with a total of
£3,2bn. The number of suppliers used by central government varied but
notably high numbers of suppliers are found at the Department for Work
and Pensions (31,521), the Department for Children, Schools and
Families (14,815) and the Foreign and Commonwealth Office (26,418).
Indeed the Foreign Office also reckoned that they expect this number to
rise in 2008/2009 to exceed 30,000 separate suppliers. These figures
are quite simply astronomical.
I believe that there are clear lessons that need to be learnt from the
present procurement policy. To start with a greater visibility and
transparency of each departmental spend is essential. Five government
departments seemed to be unable to provide answers to my simple FOI
requests. These departments included the Department for Business,
Enterprise and Regulatory Reform (BERR) and the Cabinet Office.
If BERR lacks the systems to provide its own data to those who request
it then it is likely that there is little internal clarity on its
purchasing decisions. Government departments must have their house in
order and should be made to disclose freely and openly their
expenditure with their contracted suppliers each year. It is ironic
that the departments which run government (Cabinet Office) and which
advise business (BERR) are not capable of producing this data. Next
time Lord Mandelson or the Cabinet Secretary lecture us on needing to
be more efficient, remember that their own backyard isn’t so ‘tidy’.
I believe spending and budget control within our bureaucracy must be
subject to frequent and effective reviews ensuring accountability,
protecting taxpayers’ money and encouraging greater competition amongst
potential suppliers and contractors.
Whilst there has always been much discussion surrounding central
government expenditure and accusations of financial irresponsibility
behind the civil service curtains it is important not to play the
gallery with loose accusations of “bureaucratic waste”. Instead this
exercise was designed to produce firm evidence. However, when analysing
the data it was evident that a “laissez faire” culture all too
frequently appears to be reflected across central government. In my
research much of the data provided was riddled with mistakes and
duplications and was revised when challenged. This inward looking
culture must be replaced by a tougher and more professional attitude
towards auditing, ensuring compliance with public sector procurement
rules and regulations. Data needs to be reliable, systematically
processed and not chaotically managed.
Even making allowance for duplication, and the absence of five
departments, I have already discovered that central government uses
over 100,000 suppliers. This is a huge number and from the data
presented it is clear that many suppliers are contracted to several
different offices of different government departments, presumably on
different terms. This in turn creates higher processing costs and
produces yet more central government waste. Radically reducing the
number of suppliers and managing them more efficiently should itself
result in a sizeable saving to the public purse.
Ultimately, government must demand greater professionalism and a much
more commercial outlook in its purchasing policy. The science and
skills of sales needs to be translated to purchasing and procurement.
Even a cursory analysis of the research that I have carried out
suggests three specific pathways to revitalise the relationship between
government and commercial suppliers.
First, by requiring that all suppliers with which a department spends
more than £10,000 annually should be disclosed on the department’s
website within three months of the year end. Personal responsibility
for this expenditure should also be made public. This ensures that data
is captured and provides suppliers with the knowledge of which of their
competitors are being used, encouraging competition, a wider range of
competitive bids and a more commercial dynamic to negotiating a better
deal. It keeps incumbents on their toes.
Secondly, a contractual commitment should be inserted in all contracts
that all suppliers who are dealing with central government should agree
to charge the lowest rate that they offer other customers should be
implemented. Such a contractual term would be upheld by a penalty of
twice the difference in rates and a unilateral break clause in the
event that benchmarking shows that they operate a differential pricing
level to the detriment of the public sector.
Thirdly, all departments should have benchmarking clauses in contacts
of greater than six months duration and no department should agree to
confidentiality clauses which prevent benchmarking of rates.
Even these three simple changes would reduce the information asymmetry
which suppliers have historically been able to use to their advantage.
From advice that I have picked up from procurement specialists with
extensive public and private sector experience it is difficult to
believe that an annual saving of at least £4.7 billion (10%) could not
easily be made on central government procurement alone. Recent
publicity on the out of control IT spend only reinforces this
The evidence is overwhelming. The present government has created
substantial levels of “Whitehall Waste” and a decade of purchasing
irresponsibility must be brought to an end. The British taxpayer
deserves a more transparent, responsible and professional approach to
government expenditure. The Conservatives must seize this opportunity
boldly to promote a prudent procurement policy that restores people’s
faith in government spending without detrimentally affecting public
services. From my research in this area I now believe that this is not
only a sound idea in theory, but a realistic policy option in practice.