Birmingham Council Chamber (victoria statue)

Social value’s good intentions look costly for the public sector

By: SA Mathieson
Published: Monday, November 24, 2014 - 18:19 GMT Jump to Comments

Local authority buying local could damage economies of scale for the public sector, while other social value aims look better handled in other ways

This week saw Birmingham City Council announce that more than 100 contractors have signed up to its charter for social responsibility. Social value, the concept that procurement can be a force for good rather than just a way to buy, is on a roll.

But on the basis of the charter and the arguments heard in InformationDaily.TV’s AnswerTime debate on the topic, social value sounds like a mixture of things that could actually harm the public sector as a whole, and others that would be better tackled by example or through legislation.

The potentially damaging ingredient lies in localism. Birmingham’s charter requires signatories to create employment and training for local residents, and use local suppliers where possible. Many councils have a mandate to promote their own economies, and this appears to be a way to achieve that.

But what happens if most councils introduce localism requirements? Suppliers trying to sell to anyone outside their own council’s territory might need bases in every area they serve. In many cases, this would be more expensive than large hubs – the conclusion that HM Revenue and Customs reached in closing many local offices in favour of a few big administrative factories.

Localism requirements sound attractive for individual councils, but may represent a poor deal for the public sector overall. Also, hub operations are often based in places that need economic regeneration more than others, where good-quality staff are available for lower wages. Such areas could lose out if councils insist on things happening locally.

Many of the other clauses in the Birmingham charter boil down to ‘obey the law’, but a few go beyond it, including one to pay the Birmingham Living Wage. This is the ‘living wage’ for the UK outside London calculated by Loughborough University. It is currently £7.45 an hour, 95p more than the legal minimum wage for those over 21.

There is a strong case for every employer to pay a living wage, based on staff motivation and retention as well as doing right by people. Many individuals may prefer to use companies that do this. But a council is buying on behalf of everyone in its area, including people who are not paid a living wage themselves.

Unless local authorities believe that suppliers will provide a better service through having better-paid staff (and that can be argued), they would do better to campaign for the minimum wage to be increased for everyone. This could be through paying it themselves and encouraging local employers to do the same (South Lanarkshire Council does both), but ideally through a change in the law. A similar argument can be made over the requirement that charter signatories “pay their fair share of taxes” – something that can only be effectively tackled through national and international work.

Social value may also favour big companies over small ones. Some proponents claim the opposite, but anything that makes bidding for work more complicated is likely to favour those with dedicated bid teams.

Hazel Blears, the former Labour minister, had an answer to that at the AnswerTime debate: she said that smaller companies could have a shorter list of qualifications. She mentioned Trading for Good, a free service aimed at those employing fewer than 250 people, which aims to make it easy for firms to publicise their ‘social value’ work through a quick process.

Ms Blears, who co-sponsored what became the Public Services (Social Value) Act 2012 – which requires public bodies to “consider” social value before a procurement, although doesn’t bind them – is a great advocate for the concept. But she is also the MP for Salford. The day of the AnswerTime debate saw Salford City Council saying it will have to cut £56m from its spending over the next two years. It joins local authorities across the UK making swingeing cuts.

Social value procurement will in many cases mean councils spending more for the same, regardless of hard-to-calculate benefits which don’t appear on the balance sheet. Buying based on localism might benefit the economies of the first few councils which introduce it, but if widely used would reduce economies of scale and lead to higher costs for the public sector overall. Other elements of social value would be better handled by example or changes to the law, not procurement guidelines.

Social value is a concept full of good intentions – but for the public sector, using it in procurement looks like a doubtful way to achieve them.

SA Mathieson edits Council News Monitor, a daily email service that tracks news on local authorities. Click here for details

Social Value will be in the May 7th election manifestos (InformationDaily.TV AnswerTime)

100 contractors sign up to Birmingham council 'social contract' (Birmingham Post)

Birmingham Business Charter for Social Responsibility

Living Wage: South Lanarkshire Council urges businesses to sign up (Daily Record)

Trading for Good

Salford council to make £56m of cuts over next two years (Manchester Evening News)

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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