CIPS News


‘Chancellor, can we lend a hand?’ Create the right conditions and the UK’s procurement capabilities will deliver.

CIPS 20 March 2013

CIPS Economist John Glen looks at today's UK Budget

As the Chancellor of the Exchequer stands at the dispatch box to deliver his budget speech he is desperately seeking drivers of growth in the UK economy. Without these drivers of growth the performance of the UK economy will continue to languish in the ‘economic doldrums’ and he will not generate the tax revenues which he desperately needs to meet his budget deficit targets.

Part of the solution undoubtedly lies in stimulating the procurement capabilities that exist in the UK economy. However the chancellor stated that it was important to;

‘… identify capability gaps in the supply chain that need to be addressed to meet future demand and take action to remove the barriers to growth’ (Autumn statement 2011)

While it is undoubtedly true that the procurement capabilities of the UK economy must always be enhanced it is vitally important that the Chancellor does everything in his power to ensure that the UK’s procurement industry is not being sent into bat with one hand tied behind its back. This is particularly so when it could be argued that the UK procurement industry is potentially in a position where it could experience a significant increase in demand due to a number of factors that have moved in favour of UK producers:

  • The reduction in the value of the pound sterling against the euro and the US dollar since the start of the year mean that UK exports are now potentially more price competitive in overseas markets and that imports into the UK have become more expensive. This latter point is not trivial, creating an opportunity for the UK procurement industry in its home market, as well as a potential danger for the Chancellor if the UK procurement industry is constrained in its ability to respond to this opportunity, as a failure to respond would cause inflationary movements in input prices.

  • The reduction in the value of sterling has coincided with an increase in input costs in many low cost countries, China being the obvious example. This has led to a number of organisations reviewing their production and sourcing strategies and starting to onshore activity. Big name examples in the last twelve months include Mulberry and GlaxoSmithKline as well as smaller producers such as Symington’s noodles who have returned production from China to the UK.

  • Finally there is a significant amount of expenditure power currently parked in cash on the balance sheets of many UK companies. This cash will start to be invested when confidence returns and companies start to invest. Current estimates put this cash mountain at anywhere between £750 billion and £1 trillion. UK supply chains must be ready when this demand emerges. Indeed one of the biggest challenges facing the Chancellor is to create confidence in UK Plc so that they start to invest their significant cash balances.

So what can the Chancellor do to help the UK procurement industry help him in achieving his objective of stimulating growth in the UK economy?

  • Firstly be aware of how big public sector procurement is in the UK. Currently the UK spends £240 billion a year on the procurement of goods and services for the public sector. Note that this is the same as the value of total UK exports.  If the appropriate skills and capabilities are to be put in place the Chancellor needs to announce expenditure plans where spending occurs sooner rather than latter and where the plans are not subject to constant revisions and uncertainties. Simply tells us what you want us to do Chancellor, stick to your plans and we the UK procurement industry will put the capability in place to deliver.

  • Where procurement capability is delivered by SMEs the Chancellor has to do more to ensure that UK banks are providing the finance to fund the real demand for procurement services. Real business opportunities cannot be frustrated by the banking systems failure to provide working capital and investment funds for viable and growing procurement services SME’s.

    In the same way that the Prime Minister has a monthly audience with the Queen I think that it is now time for the Chancellor to meet on a monthly basis with Messrs’ Anthony Jenkins (Barclays) Stephen Hester (RBS) Ana Botin (Santander) Antonio Horta-Osorio (Lloyds banking group) and Antonio Simoes (HSBC) to ensure that the lending policies of UK retail banks and the government regulation of those banks create an environment where business can flourish rather than be constantly frustrated.

  • Finally the Chancellor has to create an environment where businesses are confident and invest; this has as much to do with psychology as economics or finance. It is therefore important that the Chancellor emphasises growth and what needs to be done to stimulate growth. To that end the chancellors speech must include the word growth many more times than he utters the word austerity.

In these difficult times we constantly hear that it is important for the UK economy to export, UK procurement industries will play a key role in supporting those exports and exporting themselves. However just as important is that the Chancellor contributes to creating an environment where the UK’s procurement capability can avail themselves of the opportunities that arise and play a central role in helping the UK economy to return to a period of robust growth

 

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