Opinion

Intervention needed for SMEs to thrive in the public sector

5 min read

09 October 2017

In arguably the biggest declaration to come out of the Conservative Party Conference, I for one welcomed the government’s announcement to pledge a further £2bn into a “new generation of council houses” and affordable homes for rent – though its execution will be key.

But while this housing announcement should present opportunity in the public sector for SMEs, there is still a long way to go.

There are approximately 1.2m families on local authority waiting lists, so investing money in more social housing is definitely a step in the right direction. I can’t help feeling, however, that the government needs to combat planning problems before they embark on their housing revolution.

It’s true that a cash injection into new housing is ultimately a cash injection into the wider construction and home services sectors. After all, new homes need all kinds of different tradespeople to construct them, and subsequently maintain them.

But SME builders have a hard time accessing these kinds of contracts from councils and social housing providers, and they often end up going to the bigwig home builders time and time again, because of the growing amount of hurdles smaller business have to face.

It is part of the wider procurement issue facing SME firms when it comes to going after public sector contracts.  According to a Federation of Small Businesses study from the summer, each year UK public sector organisations spend more than £200bn on goods and services, yet only 23 per cent of small firms won any work from public sector customers in the last year.

This number is way off the government’s target of a third of all public sector contracts going to SME businesses by 2020. Without a fairer and simpler contracting process, the government will have less chance of hitting their bullseye than a darts player with double-vision.

And something needs to be sorted quickly as its hitting SME businesses hard, which brings me back to the housing industry.

Figures from a House Builders Federation report from earlier this year highlighted how the number of SME builders has reduced by 80 per cent in the last 25 years.

The Federation reckons that if they could even get the number of SME builders back up to where it was in 2007, these firms alone could build an additional 25,000 houses, ironically the number of homes that could be built with the £2bn announced by the government.

There are plenty of reasons why the amount of smaller home builders is diminishing. For example, there’s a lack of suitably-sized sites that SMEs have the capacity to cover and they also have challenges accessing finance and the advice and expert opinions larger companies have on tap.

Frustratingly, one route for growth, the Enterprise Investment Scheme (EIS), which provides tax incentives to investors to support small businesses, excludes home building SMEs.

There’s no common sense in that and it will further shun the sector from the growth opportunities that are needed by SMEs to make a valuable contribution to the economy.

SMEs are the backbone of the economy, making up 99 per cent of all private businesses, but the vertebra made up of the house building companies is weakening, unless we can tackle these issues. Only then can house building SMEs have the same impact on the economy that SMEs in other sectors are having.

We need better government intervention at this level because if things don’t change, then it’s almost inevitable that not only families, but SMEs and their employees, will suffer as a result.

After all, small businesses create jobs and growth. As Mike Cherry from the Federation of Small Businesses says, they are the route that people take to get out of unemployment, while creating greater competition, which leads to better value for money for government.

So, while the government may have the intent with its housing plans, it’s irrelevant if it doesn’t look at the bigger picture and the execution just doesn’t cut it.

[rb_inline_related]