The Queen

Her Majesty bags-up a little help for suppliers

By: SA Mathieson
Published: Tuesday, June 10, 2014 - 00:28 GMT Jump to Comments

Last week’s Queen’s speech included reforms to public procurement and pensions that should make life easier for state-sector suppliers.

The last Queen’s speech before a general election tends to be fairly short on ideas. There have been thinner ones than the plans announced last week, but nevertheless the contents still came across as a bit of a ragbag. For suppliers, however, it’s a bag containing a couple of interesting items.

The Small Business, Enterprise and Employment Bill is (among many other things) about “providing small firms with fair access to the £230 billion spent each year in the form of public procurement contracts”.

The focus is partly on late payments; a government note on the speech said that public bodies must already settle undisputed invoices within 30 days (with Whitehall departments committed to paying 80 per cent within five days), with the 30 day time limit covering second tier subcontractors, and third tier ones in construction.

The Cabinet Office has also put in place a ‘Mystery shopper’ scheme that has investigated several hundred cases of problems with public-sector procurement, including late payments.*

The government now plans to mandate the 30 day payment rule to the whole public procurement supply chain, getting state sector organisations to report on their performance. It is also looking at how it could tackle late payments by the private sector, but admits this is a tougher nut to crack.

The business bill has a lot in it, including a plan to stop well-paid public employees keeping redundancy payments if they return “to the same part of the public sector within a short period of time”. Another way to reduce these would be for politicians to kick their habit of reorganising the NHS every few years; the reforms in England earlier in this parliament generated many cases of redundancy, followed swiftly by re-employment for managers.

Making boomerang returns to the public sector less lucrative might encourage some leavers to join the private sector instead. The same may also be true of the government’s reform of pensions. One of the biggest differences between working in the public and private sector has been that most jobs in the former offer pensions with defined benefits (such as final salary ones), where employees know what they will receive, and the risk of poor investment returns falls on the employer. With only a few exceptions, the private sector provides staff with defined contribution pensions, where that risk falls entirely on the individual employee.

To mitigate the risk of the stock market falling just before you buy an annuity with your defined contribution pension pot, most defined contribution schemes use ‘lifestyling’: in the years running up to retirement, they gradually switch funds from shares and other riskier investments into the likes of government bonds. This makes sense given the individual risk, but when you remove risk, you also remove the potential for rewards.

The government’s solution is a middle category of ‘defined ambition’ pensions, which will provide more certainty for employees, but fewer financial risks to employers. They will do this by pooling risks between members of a scheme, meaning those near retirement can still have their money in higher-risk investments, as younger members will subsidise things during a downturn.

Pooling is also meant to reduce costs through reduced administration. These may be tricky to set up, however: in aiming to even things out for members, defined ambition sounds rather like the with-profits funds that did so badly at the end of the 1990s that then led to the collapse of Equitable Life.

If designed with care, however, such schemes might help suppliers to the public sector as a way to encourage public sector staff to move across. Many public sector staff have a justifiable fear of leaving ‘gold plated’ defined benefit schemes; defined ambition schemes may make this a bit easier to do.

* The Mystery Shopper scheme can be emailed at mysteryshopper@cabinet-office.gsi.gov.uk. More information here

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The views and opinions expressed in this article are those of the author(s) and do not necessarily reflect the official policy or position of The Information Daily, its parent company or any associated businesses.

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