Government on course to miss its target of spending 33% with SMEs by 2022

Profile picture for user ddpreez By Derek du Preez December 4, 2018
MPs on the Business, Energy and Industrial Strategy Committee have also called on the government to introduce a statutory requirement for companies to be paid within 30 days.

Business SMEs handshake
The government is on course to miss its target of awarding 33% of its annual spend with SMEs, according to MPs on the Business, Energy and Industrial Strategy (BEIS) Committee.

In a new report out today, the Committee has called on the government to urgently set out how it will meet its target and has laid out suggested plans for ensuring that SMEs get paid on time.

Diginomica/government reported back in July how central government spend with SMEs had fallen for the first time in years. Direct spend fell from 11% in 2015/16 to 10.5% in 2016/17. And indirect spend fell from 13% to 12% over the same periods.

This means that total spend fell from 24% to 22.5% between 2015/16 and 2016/17. And to provide further context, in 2013/14 total central government spend with SMEs stood at 26.1%.

Improving spend with SMEs has been a long running ambition, first established by previous Cabinet Office Minister, Francis Maude, back in 2015. The initial target was 25% of all spend, but was later extended by Matt Hancock to 33% during his tenure as Cabinet Office Minister.

A number of mechanisms have been introduced to make this happen – including the G-Cloud and the Digital Outcomes and Specialists frameworks – as well as new legislation to make it easier for smaller businesses to do business with Whitehall.

However, Emma Jones, the government’s SME Crown Representative, recently hinted that some of the early motivation behind reaching the higher target may have faded somewhat. She said:

“One of the things that I’m seeing in government at the moment, which I think is quite interesting, is the language that is used. When Francis Maude launched it, it was a target. I quite often hear the word now in government of ‘ambition’.

“Read into that what you wish. However, one thing I do see in government, is huge appetite to hit that target or ambition.”

The Committee also highlights that whilst there are a wide range of government programmes, initiatives and support for SMEs, many smaller companies find this support difficult to navigate. As such, it is calling on the government to review its online hosting of support and create a more visible and accessible portal for SMEs to navigate.

Furthermore, much of this support relies on EU funding and the Committee has said that it is “crucial” that the government immediately explains how it will match any shortfall in cash after Brexit.

Prompt payment

Earlier this week diginomica/government reported on how the government is threatening to stop doing business with companies that don’t pay their suppliers on time - in a bid to help encourage a “healthy and diverse marketplace” and to support SMEs working with larger companies as part of their supply chain.

Cabinet Office Minister Oliver Dowden said that “from next year, if government contractors are late with supplier payments, they could stop winning public contracts altogether”.

It was revealed that companies that don’t pay 95% of their invoices within 60 days over the previous two six month periods, and cannot explain why or show evidence of significant remedial action taking place, are at risk of being excluded from bidding for government business.

We highlighted, having looked at the data available, that this puts the likes of HP, Capita, Microsoft and Capgemini at risk.

However, MPs on the BEIS Committee are calling on the government to take this even further, making a recommendation that the government introduce a statutory requirement for companies to pay within 30 days and require all medium and large companies to sign the Prompt Payment Code.

The report adds that the Small Business Commissioner should be given powers to fine those companies who pay late.

Chair of the Committee, Rachel Reeves MP, said:

"Small and medium-sized businesses are vital to the health of our economy, providing jobs and prosperity to communities up and down the country. But many SMEs are placed in a stranglehold by larger companies deliberately paying late and ruthlessly taking advantage of their suppliers, causing these firms financial instability. Unless the Government levels the playing field and acts to bring in a tougher regime for poor payment practices then we choke-off the opportunity for SMEs to invest and grow in the future.

"UK productivity is falling behind its competitors and it’s important the Government’s Industrial Strategy supports the 'long tail' of less productive SMEs to benefit from new technologies and skills. Small and medium-sized businesses have an important role to play in rebalancing the UK economy and spread prosperity more widely and to all parts of the country. The Government must play its part and, at the very least, ensure that more SMEs are awarded government contracts, which are paid fairly and on time."