The Tories know the price of everything and the value of nothing

Below is a copy of my speech at ResPublica’s event on the importance of social mobility in public service procurement.

“I want to start by thanking both ResPublica and Chris White MP not only for hosting the event here but also inviting me to speak on such an important matter. If I may so, it is typical of the socially responsible ethic promoted by ResPublica and Philip Blond to raise these valuable issues.

There will be others today who will focus, through their experiences, on the detail, but let me start the discussions with some thoughts on social value in public sector procurement as procurement is a key responsibility in my role as Shadow Minister for the Cabinet Office.

First, it is quite clear to me that the argument in favour of taking account of social value in purchasing decisions is overwhelming.

There is an old expression that in a market economy we all know the price of everything but the value of nothing.

Much of the current reform of public services is being driven by increased marketisation and outsourcing. There is a very real danger that judgements about public services will be based on a crude analysis of the lowest price alone.

Of course, purchasing managers have long wrestled with the problem of defining non-monetary factors in judging tenders.  And it will be interesting to hear how you address this complex issue today.

But whether clearly defined or not, social value matters.

In everyday life, the purchasing decisions of each one of us, even in areas where price dominates, such as retail and banking, are rarely made purely on cost alone. This is increasingly the case despite the mass marketisation of almost all areas of our society.

For example, I and many millions of others always attempt to buy fair trade because I want to support ethical employment practices.

The 2006 Companies Act was the biggest shake up of UK company law for 150 years. When the Bill was going through Parliament, I along with several colleagues fought for amendments to the Act to deal with the supply chains of the largest companies. Over 100,000 people contacted their MP directly in support of our amendment to enshrine social and environmental value in legislation.

As a result of this amendment then being passed, the biggest companies in the UK are now required by law to publish their supply chains annually. This enables the public to make informed purchasing decisions based not simply on price, but also on ethical, environmental and social values too.

Such companies reporting social and environmental impacts has allowed campaign groups and the public to make informed decisions as to which product to buy and from which company.  Indeed pressure from groups and the public forced many companies to focus on and improve their social value.

When buying clothing for example, the working conditions of those making the clothing can be identified and this information can then be part of an individuals’ decision making.

Despite the recession and current economic situation, fair trade products are thriving and sales continue to outperform overall commercial trends with growth up 12 per cent in the last year alone. Clearly, therefore the importance of social value to the individual consumer continues to grow.

Of course these decisions are made by individual consumers deciding how to spend their own money. The situation is slightly more complex if you are spending other people’s money. Nonetheless, it is surely right that we, as elected representatives responsible for taxpayers’ money ought to take into account the need to balance price with broader ethical and social issues.

In fact, it could be argued that our obligation is all the greater, because collective responsibility is a far better opportunity to make an impact and generate wider-reaching outcomes. There need not be a contradiction between wider social issues and price.

If for example a local authority can increase the consumption of locally produced goods and services at competitive prices by procuring services from local suppliers, then they can both secure a good price for the taxpayer but simultaneously generate increased local affluence thereby raising the tax base for the local authority which then becomes a virtuous circle.

As leader of Leeds City Council I made it my mission to know procurement inside out. The need to spend wisely and prevent abuse and corruption were of course key factors in my mind, but the need and above all the obligation to help the local community in a time of great difficulty was equally a major driving force. At that time, this practice was known as contract compliance.

However, as I am sure many of you know, the Thatcher Government, which was in power at that time, did their utmost to abolish such procurement practices that took account of social values. Contract compliance was largely outlawed.

However recent headlines, particularly regarding care for the elderly and the example of Southern Cross care homes have brought wider attention to the dangers of price as the main or only value used by procurers. Who among us would want to put their parents in a care home which had been selected purely on the lowest price?

Let me turn now briefly to the current situation. The Coalition is in danger of facing two ways at the same time.

Back in 2008 for example, David Cameron himself spoke of the importance of social value and went some way in setting out how it would be prioritised. In one speech he said:

“The next Conservative Government will attempt to establish a measure of social value that will inform our policy-making when in power.”

Chris White’s admirable aim in his Private Members’ Bill to pass the idea of social value into law was a product of this thinking.

But despite the Prime Minister’s early enthusiasm, it is clear that there is a gap between his Government’s rhetoric and the reality of their procurement policies. After over two years in government there is now what amounts to a whole series of missed opportunities to which we can point.

For example, there is only one reference to ‘social value’ in the Government’s entire Open Public Services White Paper, simply stating that ‘social value’ should not be ignored. But ignoring ‘social value’ is precisely what is now happening.

During the passage of the Public Services (Social Value) Act, it was very clear at every stage that the Government was merely paying lip service to the Act’s objectives, and was in fact undermining some excellent clauses.

At the second reading of the Bill, during which I spoke for the Opposition, I argued that there was an irreconcilable tension between the communitarian aspirations of its author and the Tory’s neo-liberal drive to reduce the cost and extent of government. It seemed to me that there was an ideological faultline between the idea of value-laden commissioning on the one hand and price-driven tendering on the other.

I predicted that the latter imperative would will over the former. Regrettably my premonition about the Government’s intentions proved to be accurate.

The Minister for Civil Society, Nick Hurd, tabled more than 20 amendments to the Act, each diluting and weakening the original. These Government amendments included inserting a clause stating that social value could be “disregarded” in cases where the need for urgency was paramount. Some might say that a coach and horses could be driven through that clause.

Not only this, the Bill also originally included a requirement for the Government to publish a “national social enterprise strategy”, and another clause which committed local authorities to promoting social enterprise in their area.

Both of those clauses were removed – as were the words “social enterprise” from the title of the bill- itself a clear signal that the Government’s intent was to limit the Bill’s remit.

The Government’s amendments also restricted the Bill to include only public services, removing contracts for goods and work as well as limiting the scope of the Bill to the pre-procurement stage of the commissioning process.

But I do not want to conclude my comments on a negative note; it was very good that the Bill became law.

We are all having to become experts on commissioning and procurement as the state is being re-shaped. Equally it is evident that there is a growing consensus that price alone cannot be, or at least ought not to be the sole arbiter of contract allocation.

I do believe that there is scope within existing legislation and practice to find ways of taking account of social value in our procurement decisions and I strongly endorse the idea.  We will monitor carefully, how the Government and all other public sector bodies conduct their procurement decisions in the light of these thoughts.  In the meantime may I wish you well in your deliberations.”

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