Recent media reports have been insisting that a number of suppliers have been ‘going bust’ this year. But how accurate is this?
Yesterday’s online editions of The Guardian, The Telegraph and the FT – amongst others - reported a 47% increase in the number of public sector suppliers affected by the degraded economic environment.
The figures derive from research attributed to accountancy firm Wilkins Kennedy, which claims that H1 2010 saw an increase to 168 insolvent companies, up from 114 in the same period last year.
However, it would be interesting to put that 47% increase into context.
A few figures:
According to statistics reported in February’s HM Treasury speech on government procurement:
• There are 4.7 million small and medium sized enterprises (SMEs) in the UK, representing 99.9% of UK business
• At the time the government was spending 95% of £220bn of public sector procurement in UK-based firms.
Needless to say, that by its size the well-being of SME space is fundamental to economic recovery, which is perhaps why the news of a near 50% increase in the insolvency rate made such news.
I do not mean to down play the meaning this increase has for individuals whose livelihoods depend on the jobs created by insolvent companies. However, it’s clear that £209bn (95% of £220bn) has been spent in UK-based procurement suppliers, which begs the question - how much of this percentage actually goes to SMEs?
“There’s no doubt that public sector work is of major importance to small businesses” said Chris Gorman, Private Business Forum (PBF) spokesman.
“Countless small firms up and down the country rely on bodies like local authorities, health trusts, police forces, schools and colleges for business. If these important contracts suddenly start disappearing, I think it’s safe to say many smaller businesses are going to suffer and may even go to the wall.”
It is probably not much although according to the Government, in 2004/2005, SMEs won 59% of the total value of local-authority contracts and 22% of central-government contracts.
Similarly, around 10% of members consistently report concerns about public procurement-related issues, according to proprietary research conducted by the Forum of Private Business.
It is something the coalition government has promised to address and the ‘supply2gov’ website is supposed to be part of the answer. The website, designed to make it easier for micro-business to tap into public contracts, originally launched in 2006 it is expected to re-launch later this year.
The portal in theory, allows SMEs to gain free access to contracts worth £10,000. Higher value deals, with tender documents worth more than £25,000, would follow, in order to meet the target of allocating 25% of all state contracts to small businesses..
The current 'supply2gov' portal does not seem to delivery. Let’s hope the portal re-launch changes that.
The stats presented may have been a bit misleading, having omitted the size of the business community – however, they do depict the reality.
While many will say that any economic downturns serves to ‘cleanse the system’ and rid it of inefficient players, the fact remains that some competitors are too small to absorb the shock caused by unfavourable trading conditions which makes them more likely to go bust than larger players.
“Although small business owners traditionally favour low taxes and low spending, many are very wary of calling for ‘slash and burn’ public spending policies from the new government,” noted Gorman.
The question in everyone’s mind is: will the measures taken by the government succeed in rebooting the economy as well as boosting investor confidence?
It would seem that uncertainty remains close to the only certainty – aside from taxes and death!