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Just an eighth of expenditure is with small firms

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Only an eighth of council spending with business was with small firms, a report has claimed, leading to concerns that the market is tilted in favour of big companies.

The Centre for Entrepreneurs – headed by the former Channel 4 chair Luke Johnson – has issued a breakdown of how much of each council’s total spend with private businesses goes to small firms, revealing wide variations.

Mr Johnson said this showed for the first time that “many entrepreneurs struggle to win business from government, finding the process to be complex, bureaucratic and tilted in favour of large incumbents”.

According to the report, in the three years up to March 2014, councils spent £89bn with companies. Of this, only £11.1bn, or 12.5% of the total, was spent with small firms. These were defined as meeting two of the following three criteria: having a turnover of no more than £6.5m, a balance sheet not in excess of £3.26m or having no more than 50 employees.

The centre said it researched almost all councils in England and three in Wales, for which data was available. It established that 78,128 small businesses shared £11.1bn from councils in the past three years, while 20 large suppliers shared £9.9bn.

The centre said the amount of spending with small firms had no discernible relationship to councils’ financial size, location, local earnings or political control, but depended on policies to support small businesses.

Mr Johnson said: “One of the best ways that government can support small businesses is buying from them.

“Although central government has an explicit strategy to do more business with small firms, the same cannot be said for local authorities, so performance varies widely. It’s time for all areas of government to ‘spend small’.”

Monmouthshire CC headed the index with 25.6% of its company spend going directly to small firms.

Wandsworth LBC had the largest increase in small firm spending between 2011 and 2014 (+30.5%), while Nottingham City Council had the largest decrease (-36.4%).

A Wandsworth spokesman told LGC the council had long worked with the private sector so the result was unsurprising.

However, the centre is locked in a row with Barnsley MBC, which it identified as the lowest spender, with only 4.17% of its spending with businesses going to small firms.

But the council has disputed the figures as “distorted”. A Barnsley spokesman told LGC: “These figures are not ones we recognise as our spend with small businesses is 47-50% of the total.

“We think they have used the wrong data, or at least data which shows only amounts over £500 and a lot of our small business spend would be below that and does not show up.”

Centre for Entrepreneurs director Matt Smith replied: “We have used published spend data and a transparent definition of what constitutes company spend and what is a small firm.

“Only through such transparency of data and methodology can figures be trusted and allow for reliable comparison between councils. 

“Far from ‘distorting the true position’, for the very first time we are cutting through councils’ opaque statistics to give a true picture of small firm spend.”

A national procurement strategy adopted in July by the LGA urged councils to make framework contracts more accessible to smaller suppliers and to ensure that ‘lotting’ – the practice of bundling up several pieces of work into one contract – did not create barriers to small firms.

It also said councils should measure the amount of local spend as a way of identifying and reducing the barriers for smaller organisations in bidding for council contracts

According to the Centre for Entrepreneurs, the top five fields of spending by councils with small firms, judged by the average per year, were:

  • Residential care – £448.7m
  • Construction – £313.2m
  • Business support – £220.6m
  • Education – £205.2m
  • Social work (non-residential) – £202.3m
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