Report - Brexit success will depend on government’s digital procurement prowess

The next British government’s ability to make a success of Brexit will depend “heavily” on its digital procurement policy, according to a new report by analyst group GUIDE Consultancy.

It’s not a conclusion that one may jump to, but a report released this week makes a compelling case for the government’s use of digital procurement to stimulate growth in certain industries, encourage social value investments by private companies and also further develop the UK’s SME tech community.

GUIDE chief executive, Greig Baker, said:

The general election has been called with a view to improving the UK’s position regarding Brexit. The Government’s ability to secure the best outcome from the Brexit negotiations will rely – to a surprising extent – on how it chooses to spend more than £240bn a year with private sector suppliers.

Government procurement policies rarely make the front page, but they should be given careful consideration in this general election. If the next Government commits to spending money wisely, especially where public sector procurement is becoming increasingly digital, our negotiating position in Brexit talks would be strengthened and the UK would be in line for an economic boost after Brexit takes place.

The document released by GUIDE is fairly detailed, but there are three main points that I think are worth highlighting, which are outlined below.

Encouraging investment

The National Audit Office estimates that central government (so the figure would be much higher if including local government too) procures approximately £240 billion of goods and services each year.

GUIDE rightly notes that “such an immense amount of money” plays a role in shaping the kinds of goods and services that suppliers provide, which in turn can influence the investments they make. The report notes:

In other words, Government spending influences what the UK economy sells inside and outside of Whitehall.

For example, the government’s ‘Cyber Essentials’ scheme started with a focus on suppliers to the public sector, but has now been adopted and promoted by companies that include Barclays, BT, Vodafone and Airbus.

GUIDE believes that by encouraging private companies to invest more heavily in UK-based tech, the government would dramatically improve its ability to support the UK economy post-Brexit should it need to do so. This should be applied in sector where there could be the highest risk of capital flight if new trade barriers are put up between the UK and the EU.

The report states:

Economists with concerns about the impact of Brexit should take some cheer when they see where these benefits will be most keenly felt. While these measures will ostensibly be available across all sectors of the UK economy – which means they will stay on the right side of industry specific state aid restrictions – they will offer the greatest benefit to industries that have voiced concern about the impact of Brexit on their future prospects.

So, for instance, automotive industry worries about tariffs may be mitigated by tax relief on investment in driverless cars, while financial sector concerns about passporting might be countered by improved cyber security for fintech.

Even in instances where the Government is not directly commissioning goods or services, the size of its overall digital procurement spend means it can influence what the market produces, how it provides digital services, and the shape of the regulatory environment designed to protect and encourage investment in sectors that might be ‘hit’ by Brexit.

Social value

Alongside guiding areas of investment for the UK in a post-Brexit world, the use of digital procurement policy could also have an impact on the development of digital skills and training in the UK - or more widely, social value.

This can be achieved by the next government encouraging suppliers to further social policy goals as they deliver on their contracts.

Whilst the government has said that it is committed to “placing social value at the heart of procurement”, the report claims that researchers have struggled to identify clear examples of social value criteria being applied consistently in public sector procurement contracts secured through the government’s digital cloud platforms (e.g. the Digital Marketplace).

This is particularly surprising given the rise in the use of the Digital Marketplace and that social value is being placed in contracts outside of these platforms. GUIDE notes:

When a Government Department signs any contract outside the cloud that is worth more than £10m or that will take more than a year to deliver, it must explicitly consider the social value of that contract.

Social value criteria that must be considered include the potential to improve people’s digital skills, users’ digital confidence and the public’s understanding of why using the internet can be relevant and helpful. It is ironic then that if a Government Department must consider the impact on digital skills when signing a traditional procurement contract, the same Government Department can sign another procurement contract through a digital platform without appearing to give the same level of consideration to that contract’s impact on digital skills or other social value goals.

As such, after the general election the government should consider ways of ensuring it can deliver social value goals that will improve the UK’s chances of success in a post-Brexit world through their digital procurement decisions.

Committing to the SME agenda

Over the past few years the government has been very vocal about its commitment to supplying to UK-based SMEs, opening up its procurement to a more diverse set of providers. We at diginomica have tracked this over time and it’s clear that the results are very mixed.

GUIDE believes that greater use of SMEs in the digital supplier network could help the government “stem the erosion of the tax base” - an issue that is garnering more and more public attention, as multi-nationals set up HQ in low tax countries, whilst employing marketing and sales teams in the UK. The report states:

If the Government intends to protect the tax base in the digital retail sector, there are corresponding reasons for protecting the tax base through public sector digital procurement.

A clear commitment from the next Government to increase the value of digital contracts secured with and through SMEs would encourage more digital start-ups to launch in the UK in the first place, too.

Again, this would make expansion of the digital tax base more likely – as more companies would be incorporating and paying their taxes within the UK. This would also be in line with existing policies designed to support growing tech clusters in the UK and a more benign regulatory environment for incubators (like the FCA’s “regulatory sandbox”) for start-ups in new digital industries.

These sentiments were echoed by UKCloud, one of the UK SME success stories supplying IaaS services to the public sector via the Digital Marketplace. UKCloud’s Commercial Director Nicky Stewart said:

The UK’s flourishing digital economy will be fundamental to a successful Brexit, and wider economic stability and growth. UK SMEs are the powerhouse of the UK’s digital economy, and government recognises this. Given government’s massive spending power and transformation agenda, the UK really needs to have social value embedded in the DNA of its digital purchasing

There is a real risk that the government will repeat the mistakes of the past, and become locked into a few global technology companies, and in doing so be at the mercy of currency fluctuations and other price rises. How can this be a good deal for the tax-payer?

My take

Digital procurement policy doesn’t often get too many people excited, but it’s clear that it could play an important role in shaping the future of the UK outside of a formal relationship with the EU - if used correctly.