The government should use the leverage from the near £300bn a year it spends on goods and services to ensure businesses behave responsibly and improve working conditions, a left-of-centre thinktank has said.
The Institute for Public Policy Research said Whitehall was failing to maximise the impact of its financial clout despite a procurement budget worth 14% of the economy’s annual output and 36% of total government spending.
All the main parties in the general election are proposing to boost spending on public infrastructure projects, such as railways, hospitals and schools, and the IPPR said the standards used to decide which companies won contracts could have a powerful effect in supporting and encouraging good behaviour among businesses.
Labour has made clear it will toughen up public procurement rules. John McDonnell, the shadow chancellor, said in a speech that his party would “move towards a 20:1 pay ratio between lowest and highest paid employees in companies bidding for public sector contracts”.
The IPPR’s report says changes needed to be made to the 2012 Social Value Act, which obliges all public bodies to take account of the economic, social and environmental implications of state spending.
The thinktank said the 2012 act required public bodies look beyond a crude “lowest cost” measure of their decisions and consider the wider value, including boosting local job opportunities and supply chains, raising standards at work, increasing skills and creating opportunities for vulnerable people.
But the IPPR said the act only influenced 9% of government procurement spending because it was narrowly focused on the provision of services.
It called for the legislation to be strengthened and broadened by:
Extending its scope from services to include the procurement of goods and contracts relating to construction and engineering.
Requiring public bodies to “account for” rather than simply “consider” social value, forcing them to state publicly the additional social benefit they have delivered.
Applying it to all contracts but with a lesser expectation depending on the scale.
Luke Murphy, the IPPR’s associate director for the energy, climate, housing and infrastructure team, said: “The public want to see businesses act not just in the interest of short-term profit but for the long-term good of the economy and society. Every year, the public sector spends hundreds of billions of pounds procuring goods and services from the private sector; it can only be right that public money is used to drive better outcomes for us all whether it be boosting local job opportunities or raising standards at work.”
The IPPR said it had examined the application of social value within housing as a particular case study. While recognising that there had been “welcome” progress, it said there was room for improvement.
There was a case, the thinktank said, for clearer and more consistent approaches to measuring social value, with less importance given to precise cash figures for any benefits, with other yardsticks also used. Within the housing sector these could include hours volunteered in community engagement; numbers of rehabilitated offenders employed; or the impact on the diversity of wildlife, measured in species richness per square metre.
