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12 July 2013 | Andrew Allen
Small businesses reinvest 58 per cent more of the money spent on their goods and services by local authorities in the local economy compared to large firms, according to new research from the Federation of Small Businesses (FSB).
The FSB and the Centre for Local Economic Strategies found small local firms generated £746 million more for the local economy than large local businesses - even though more than £500 million less was spent with them.
Overall local authorities spent £8.7 billion buying goods and services in their local area in 2012, according to the report.
"For every £1 spent with a small or medium-sized business 63p was re-spent in the local area compared to 40p in every £1 spent with a larger business," said the report. According to the FSB local authorities could have generated an additional £788 million for local economies if they had spent five per cent more of their budgets locally, and three per cent of that on small local firms.
The FSB's report "Local Procurement, making the most of small businesses, one year on" praised Leicester City Council for ensuring that large contracts include clauses which make sure small local firms are used in the supply chain. It also hailed Surrey County Council for its commitment to switching lower value construction and maintenance projects from a single contractor to a panel of small local suppliers.
Local government minister Brandon Lewis said: "Councils have billion pound procurement budgets at their disposal. They should be supporting their local economy by cutting back procurement red tape, like pre-qualification questions and unnecessary equality requirements, in order to allow small firms to bid for more contracts."
John Allan, national chairman of the Federation of Small Businesses, said: "While our members do win contracts, many are still deterred by the process. As with most things, a one-size-fits-all approach won't work and something that works for one council won't necessarily work in another. This is why we're calling on local authorities to work with their local FSB to create an environment in which small firms can grow and prosper as well as the areas they work in."