Ros in the Lords: Second Reading, Public Services (Social Value) Bill

I am fearfully behind with Ros's contributions, and here's one from 27 January last year...

The Public Services (Social Value) Bill was intended to encourage government procurement from smaller, local providers, as this would encourage a wider range of potential providers, countering the trend towards fewer, larger vendors and service providers. Ros's experience in local government, as well as the information that we picked up when touring the country during her Party Presidency, led us both to wonder whether opening up contracts might offer better long term value...

Baroness Scott of Needham Market (Liberal Democrat)

My Lords, I thank my noble friend Lord Newby both for picking up the mantle of this Bill and for the work he does on the All-Party Group on Social Enterprise. It is of course a fact that all providers are able to think about social value; it is also a fact that most of them do not, which is where there is a real gap and a need for social enterprises. There is a lot of talk about social enterprise, mutuals and not-for-profit at the moment, but it is interesting how many misconceptions there are about the sector. People think that somehow it is an offshoot of the voluntary sector; that social enterprise is something new; that social enterprises are necessarily small; and that they do not have profit-making as an objective. Of course these things can be true, but not necessarily.

I was a board member of the Lloyd's Register, a not-for-profit distribution organisation which works in the field of safety. At 250 years old it certainly is not new, and with over 5,000 employees it certainly is not small. Last year, I went to talk to the head of Hackney Community Transport, which was originally a small dial-a-ride service and is now a multimillion pound business and operates some commercial services as well. Both demonstrate the key identifiers of social enterprise, its public good and its not-for-distribution profit, but both have also demonstrated that social objectives can be good, sound commercial business.

However, those two examples are exceptional in the field. Most social enterprises are small and operate locally, and in this is both their strength and their weakness - a strength because they offer tailored services, based on a real understanding of the needs of service users; but a weakness because, as we have heard, they find it very hard to get a foothold in the market for public services, which is dominated by large enterprises. There is a wealth of evidence from around the country that small social enterprises-as well as small businesses-face often insurmountable hurdles in the public procurement process, so this Bill is designed to address that most significant problem faced by the sector.

I have to be honest enough to admit to some misgivings about this approach. I do not much like duties and requirements being piled on to local government by central government. We have had far too much of that in the past. The previous Government introduced a general well-being power to local government, and the coalition has gone further by introducing the power of general competence. We also have the Sustainable Communities Act, which is relevant in this area, as is the right to challenge introduced in the Localism Act. Local authorities have the powers required by this Bill and some use them, as we have heard, but many more do not. Given this legislative framework and the wealth of evidence about how beneficial this sector is, we need to think about why this is simply not happening. It may be because some are blinkered, as my noble friend Lord Newby said, but it also comes down to two other things: money and capacity.

Local authorities have been finding savings year on year for some time and face a very stringent settlement this year. Rightly, their priority is the protection of front-line services so they strip away back-office functions, which include the staff who work on procurement and managing contracts. With fewer people working in that area, public authorities find it easier to manage fewer, larger, more straightforward contracts rather than a plethora of smaller suppliers offering services that really have to be thought about. This is not just an issue for social enterprises; it is a major problem for small local businesses. It is even happening now in the voluntary sector; I have been watching as around the country small local voluntary agencies have been losing local authority contracts to large suppliers.

There is another problem for local authorities. When you outsource something, you have to keep the risk in-house. If the service goes wrong, the risk remains with the local authority. That explains the risk aversion that we tend to see in local authorities that the noble Lord, Lord Wei, so trenchantly referred to.

The attitude of public procurement authorities is understandable, though short-sighted. I am afraid of going down the route of compulsory competitive tendering. I have watched that process for the past 30 years, and at the beginning large savings and efficiencies were indeed made and the regime was judged a success. Over time, though, as the smaller in-house suppliers disappeared, competition in the market lessened to the extent that in some areas - waste and local buses are two that spring to mind - there is now very little competition left in the market. That is bad for the public purse and for public services, and we must not go the same way in the social enterprise and voluntary sector.

The Bill, and government support for it, would go a long way towards sending a message to public bodies that they can adopt a different approach that values local services with the added public value that they can bring. It is a sad fact that local service providers still look very much to Whitehall departments for direction.

There are problems with measuring social value - it is not straightforward - and that is another area where the Government can help. As well as initiatives that are needed to improve the social enterprise sector, such as the creation of the School for Social Entrepreneurs or the academy proposals being developed by the noble Lord, Lord Mawson, we also need to work with the public sector to learn most effectively how we can evaluate and assess social value so that these factors can be taken into account by the decision-makers.

We also need to learn how to think about and measure the benefits of social enterprise that are much more difficult to measure: the improved productivity that comes along when people are motivated by working to their own objectives and feel a direct sense of responsibility to service users, and the community benefits that come from people working who are active and engaged in their own service delivery.

Words of support are all very well but there comes a time when action has to be taken. Passing this Bill will not of itself make things happen, but it will be an important first step. If social enterprises, SMEs and local charities benefit from this approach and thrive, the larger commercial organisations will also begin to think more seriously about social value, and then we all win.

Social enterprise is unusual. It does not matter what your political philosophy is; there is something in it for you. It is about enterprise, social value and communities, and it is often good for the environment. I am sure that we can all join together to support not just this Bill but other measures to help this sector to grow.