SMEs are being frozen out of the government procurement process
Most small businesses haven’t heard of the Social Value Act (SVA), but if they’ve ever been through the government procurement process, they’ll almost certainly have felt its force.
The Act requires businesses bidding for public sector contracts to give back to the community through 'socially valuable' initiatives. The intention might have been laudable, but in more than a decade since it became law, it has buried businesses under an avalanche of red tape and frozen out smaller companies from the procurement process. And despite an estimated cost to the taxpayer of £5bn per year, there’s precious little evidence of any social value having been delivered.
Perhaps surprisingly, some of the most damning criticism of the Act comes from those responsible for getting it onto the statute in the first place.
Professor Chris White is the former MP who was the architect and champion of the SVA. In the foreword to a 2023 report marking a decade since the law was enacted, White acknowledged that the “measurement and tracking of social value lacks common standards and approaches” and that “data is patchy and accountability is mixed.”
He also admitted that approaches to social value also remain largely reliant on the personal convictions of individuals within the public and private sector.
This is a shocking admission. But the problem extends beyond the fact that even the Act’s chief cheerleader recognises its demands are unmeasured, opaque, and subject to the whims of those commissioning services.
It has become clear that the administrative burden of the Act is weighing heavily on businesses at a time when they are already suffering.
In 2023 more than 25,000 company insolvencies were reported in England and Wales, the worst figures for 30 years. Voluntary liquidations were up almost 10% from 2022, their highest rate since 1960. Meanwhile, small business growth remains stagnant, with the proportion of SMEs expanding their workforce plummeting by 40% between 2021-22. And beneath the surface of these figures lies a labyrinth of compliance measures and box-ticking exercises that leave startups drowning in paperwork before they've even had a chance to swim.
At the Campaign for Fair Procurement, we hear the same story from SME owners: of page upon page of ‘social value’ box-ticking – and an absence of oversight of these community initiatives or measurement of the supposed benefits they yield.
These insanely complex criteria put SMEs at a serious disadvantage since they lack the expertise and resources to meet all these insane (and often inane) requirements. Further, no accommodation is made for the size of the contract, so the same rules apply whether the project’s worth £50k or £5bn.
Since the government seems uninterested in counting either the cost or the benefit of the Act, we decided to find out. The Campaign for Fair Procurement is currently undertaking in-depth research to discover how the procurement process affects SMEs, and their experience of navigating the Social Value Model in particular.
Moreover, some of the projects that have been heralded as examples of giving to communities are not much more than window dressing for big business. Take one of the major suppliers to HS2: they managed to count schools’ visits (in other words, selling the kids a career in construction) as beneficial to the local community. Nice work if you can get it – or rather, if you’ve got the in-house skills to dress this up being ‘socially valuable’.
None of this is to say that businesses don’t have a responsibility to deliver social value. But the entrepreneurs and SME owners who support 27 million UK jobs are already highly invested in their communities. They don’t need to tick 32 pages of boxes to show they care about the environment or creating meaningful, valuable jobs. Yet today, the barriers placed in their way by public sector commissioners are enough to make even the most optimistic entrepreneur question their path.
Back in 2015 the Cameron government committed to support SMEs by setting an “ambition” for 33% of government spend going to small businesses. The SVA makes a mockery of such targets. As entrepreneurs know all too well, it takes a delicate balance of regulation and support to nurture startups and unleash their full potential.
At the Campaign for Fair Procurement, we’ve spoken to several MPs who say they’re unaware that the Act exists, even though a quick check shows they actually voted on it. They may have forgotten, but Britain’s SMEs are all too aware of the Act’s consequences. If we want small businesses to thrive, if we want the public sector to benefit from their innovation, creativity, and competitiveness, we must show ministers and civil servants how much the Social Value Act is costing UK Plc.
The Social Value Act may have been well-intentioned, but when a law actively prevents smaller, nimbler, more innovative, and competitive SMEs from bidding for public contracts, it’s clear it has gone catastrophically awry.
If your business has experienced the chaotic complexity of 'social value', if you've lost contracts (or lost interest in bidding for them), we want to hear from you. Visit https://repealthesva.org.uk/ to find out more.