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Session 2008 - 09
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Public Bill Committee Debates

The Committee consisted of the following Members:

Chairman: Joan Walley
Binley, Mr. Brian (Northampton, South) (Con)
Blizzard, Mr. Bob (Lord Commissioner of Her Majesty's Treasury)
Brown, Mr. Russell (Dumfries and Galloway) (Lab)
Browne, Mr. Jeremy (Taunton) (LD)
Duddridge, James (Rochford and Southend, East) (Con)
Eagle, Angela (Exchequer Secretary to the Treasury)
Evans, Mr. Nigel (Ribble Valley) (Con)
Greening, Justine (Putney) (Con)
Hepburn, Mr. Stephen (Jarrow) (Lab)
Keeble, Ms Sally (Northampton, North) (Lab)
Moran, Margaret (Luton, South) (Lab)
Morley, Mr. Elliot (Scunthorpe) (Lab)
Pound, Stephen (Ealing, North) (Lab)
Pugh, Dr. John (Southport) (LD)
Stoate, Dr. Howard (Dartford) (Lab)
Taylor, Mr. Ian (Esher and Walton) (Con)
Gosia McBride, Committee Clerk
† attended the Committee

Ninth Delegated Legislation Committee

Wednesday 17 December 2008

[Joan Walley in the Chair]

Draft Trading Fund (Extension and Amendment) Order 2008
The Chairman: Before I call the Minister, I think it would be appropriate to wish all members of the Committee a happy Christmas.
2.30 pm
The Exchequer Secretary to the Treasury (Angela Eagle): I beg to move,
That the Committee has considered the draft Trading Fund (Extension and Amendment) Order 2008.
May I be the first to return the good wishes that you have just expressed to the Committee, Ms Walley, in wishing everyone a nice and relaxing Christmas holiday? I hope that that applies equally in Stoke for you, too.
The order makes a small number of technical changes to update and clarify the statutory environment in which operates. It may be helpful to remind ourselves briefly about, the purpose of the organisation and the legislative arrangements that govern its operations. On 1 April 1991, a trading fund known as the Buying Agency was established under the Government Trading Funds Act 1973. Following the Gershon review of central Government procurement, a new organisation, the Office of Government Commerce, or OGC, was set up as an independent office of the Treasury. The Buying Agency was transferred to it as an Executive agency and renamed works with its parent organisation, the OGC, to secure value for money and efficiency in procurement, which I hope every member of the Committee supports.
Mr. Ian Taylor (Esher and Walton) (Con): Is this part of a big strategy that the Minister is pursuing? The Government procure about £150 billion of items per year, and I have long argued for smarter public procurement. How does this fit into a strategy that might be developed in that context?
Angela Eagle: The hon. Gentleman is right to have me down on his list as a strategic sort of person, and I can reassure him that this is part of an ongoing strategy to have even smarter, more effective procurement. He slightly underestimates the amount that the Government spend every year on procuring goods and services. It is £175 billion, £70 billion of which is procurement by central Government, and the rest by local government and other agencies. It is vital, therefore, that we get the best possible value for money. Although technical in nature, these changes will strengthen our approach to ensuring that we get the best value for money out of every single penny spent by national Government or local government. is a way to ensure operationally that we give as much support as possible to that end.
Buying Solutions achieved more than £1.6 billion of savings for its clients in the wider public sector in the last spending period, and had a total influenced spend of £4.4 billion. The significance of its trading fund status is that Buying Solutions is dependent on the funds it earns and, consequently, receives no central budget for its operations. It covers its expenditure completely through sales to its clients and customers.
The order that established the Buying Agency—the precursor to Buying Solutions—set out what operations could be funded by the trading fund. Broadly speaking, it was the procurement and supply of goods and services for certain explicitly described types of public body. That order has been in force since 1991. In the subsequent 17 years, the shape and structure of the public sector have evolved significantly.
The public bodies described in the original order have undergone structural changes and in some cases have devolved their functions to other organisations. Some have evolved out of existence. The result is that the wording in the original order is an increasingly inaccurate reflection of the public sector customer base to which Buying Solutions offers its services.
The purpose of the order we are discussing today is to bring that wording up to date and to provide the accuracy and clarity necessary to ensure that Buying Solutions can continue to serve a wide range of public sector customers while operating within the law. The evolution of the public sector over the last two decades has seen charitable, voluntary and not-for-profit organisations play an increasingly important role in the attainment of Government objectives. The third sector contains a range of valuable specialist capabilities, knowledge and experience, which makes it a vital partner for the delivery of public services.
However, the 1991 order makes no mention at all of the third sector, which means that those third-sector organisations that help to deliver public services are ineligible to enjoy the benefits of being a Buying Solutions customer. The order seeks to rectify that omission and help the Government’s third sector partners to secure better value from the goods and services they use.
Buying Solutions is helping to deliver the vision that the Government set out in “Transforming Government Procurement”, published early in 2007—the document that I suspect the hon. Gentleman was hinting at. The organisation’s expertise and innovative approach have already helped to save billions of pounds of public money. Approximately one third of all public spending—the £175 billion that I referred to earlier—is spent on procuring goods and services. It is important that we ensure that we wring every last drop of efficiency out of public sector procurement, which is what the order seeks to assist us to do going forward.
2.36 pm
Justine Greening (Putney) (Con): I, too, shall take this opportunity to wish everyone on the Committee and you, Ms Walley, a happy Christmas. It has been a long year and many people will welcome the prospect of a break.
As the Minister said, the statutory instrument makes relatively straightforward changes to enable to work within Government, as it stands and as it is developed. I have a few comments to make regarding not only the statutory instrument, but, more broadly, the work of The organisation is part of the delivery unit that is helping to achieve the Gershon savings. The Minister talked about the team delivering £1.6 billion in savings over the past spending review period. What is the cost base of
The Minister also said that any savings are used to fund, but what is the rate of return on the £1.6 billion of savings? How is the figure of £1.6 billion calculated? Is it in relation to previous contracts or an assessment of what would have been spent without being involved?
The original framework clearly set out the team objectives on value for money. It will be helpful if the Minister gives us a breakdown of that £1.6 billion across recent years. What projections do she and her Department have for savings and what target is it expected to deliver over the coming two to three years? Regarding the statement in the pre-Budget report and the announcement of another £5 billion of additional value-for-money savings, will those be added to the original targets of Does she expect the team to deliver part of that extra £5 billion? If so, how much and over what time frame?
I have a few questions on the statutory instrument, which are intended to achieve clarification. The explanatory memorandum talks about a 12-week consultation, which
“involved 80 per cent. of our top customers”.
How many distinct customers does have? How was a “top customer” defined for the consultation? In other words, how many customers is
“80 per cent. of our top customers”?
Only five responses were received, which does not seem like very many. Will the Minister give us more detail about the amendment made to the order in response to the comments received? What amendment came out of those comments?
I also have a slight concern about charities. The fact that the measure is being extended to the third sector is important, and we all recognise the third sector’s valuable role in enabling us to provide good-quality public services. It may have a much bigger role to play in future, so it would be important if the Minister talked more about the concerns that were raised in respect of charities in particular, because that is a key part of how the statutory instrument is changing.
The explanatory memorandum states:
“The impact on business, charities or voluntary bodies is minimal.”
It continues:
“The impact on the public sector is minimal.”
Again, I accept that the Minister says that that means that there will not be a massive impact, but will she outline what she thinks the impact will be? Obviously, there is going to be some impact, even if it is apparently minimal. What will it be, and what was the assessment of its different aspects?
Moving away from the consultation to other changes that the statutory instrument brings in, I should say that the other key factor is its introduction of the words “products”, “fuel”, “energy” and “services” in addition to the original outline of, whereby it would become involved in procuring goods, materials, plant and equipment. Will the Minister talk about, for example, how she sees products as differing from goods and materials? Why has it been necessary to add this extra category? What new categories will that enable to become involved with, compared with those that it cannot become involved with based on the current definition in the statutory instrument?
On the introduction of the additional words, will the Minister confirm whether services include the procurement of consultancy services, cleaning services and a host of manpower-driven services, or is there a much broader definition, as I think there probably is? It would be useful if she gave the Committee more information about the extra work and extra Government spend that can look to in order to achieve additional value-for-money savings. It would be helpful if she also set out what extra savings she thinks will be achieved through the broader remit in the statutory instrument. If nothing else, it would enable us to tie down what we think the impact will be over time. I am sure that that is something that Her Majesty’s Treasury has looked into during these times of extremely constrained tax revenues and public spending.
Will the Minister also talk more about how she sees the remit of developing? We have seen changes to the Government’s structure and to the delivery of public services, and they have led to today’s changes, but will she talk more about current Treasury thinking on the future changes that may face? She talked about overall public spending of £175 billion, which is a truly phenomenal figure. As we go into the next—
The Chairman: Order. I do hope that this is relevant to the order. It seems to me that we are going a little wide of it.
Justine Greening: I take your point, Ms Walley, but I think that this issue is important, because much of the debate in Parliament in the coming months and years will be about value-for-money savings and public spending. I was about to ask, as we embark on a load of infrastructure projects that the Government say are a key part of their public spending and fiscal stimulus strategies, what role the Government see having in that, and whether, after all the work has taken place, the Minister sees Government spending involving exceeding the current figure of one third. That is important: if two thirds of Government spending remains unscrutinised while a third is scrutinised effectively, will cast its eye in the coming spending periods over a bigger percentage of public spending than the third it already looks after?
2.45 pm
It is important to retain that freedom, because there are many variations on that solution. Within the NHS and local government, there are parallel organisations to the OGC, and individual hospitals and local government departments are given the flexibility to decide how they procure in light of their other priorities. However, they can do that while having on the table a sound proposition based on exploiting the benefits to the public sector of being a massive consumer.
I do not want to go beyond the scope of the statutory instrument, but will the Minister venture a few remarks on what the OGC’s role will be in advising charities and public bodies on how to smart procure—if I may put it that way—while prices are falling and VAT is reduced? Within the NHS, individual hospitals are encouraged to advance their works and procurement precisely to take advantage of current circumstances. In the third sector, however, there may not be that astuteness or readiness to take advantage of the situation. By informing people of the offers, could not the OGC go a step further and tell them what favourable circumstances there might be for purchasing at the moment?
The explanatory memorandum to the order says, under the heading “Impact”, that the impact on businesses and charities is “minimal” and that the
“impact on the public sector is minimal.”
The memorandum also says that the
“legislation does not apply to small business.”
It says, too, that 80 per cent. of top customers were consulted—stakeholders and suppliers. Of those, only five were motivated to reply. One must therefore assume that this statutory instrument is remarkably uncontentious. Perhaps the appropriate thing to do, Ms Walley, is wish you and the Committee a happy Christmas.
2.47 pm
Angela Eagle: Having already wished everyone on the Committee a happy Christmas, I shall do my best to deal with questions as quickly as possible so that people can go out and do whatever they still need to do before Christmas is upon us.
I welcome the general support from around the Committee for this updating and technical order, which will enable all aspects of the evolved public sector—it has changed so much since 1991—to take advantage of the expertise that can put on the table and to achieve efficiency savings.
The hon. Member for Putney asked about the savings figures that I referred to. She asked about the cost base, the rate of return and how the £1.6 billion of efficiency savings that achieved in the last comprehensive spending review period was calculated. I can tell her that those savings were externally benchmarked and validated by the NAO against the average public sector price. Assumptions of that kind are made when arriving at such savings, and they are accepted by all concerned. That was a good start to the Gershon efficiency savings, but it can be exceeded.
It is important to update the order so that it applies across the public sector. For third-sector suppliers in particular, it increases the potential for greater savings to be made because it opens up the expertise that can offer. It provides operational expertise to organisations that are now effectively delivering public services, but which under the old order were not eligible to take advantage of the savings that has to offer.
The hon. Lady also asked what is the cost per pound saving of running Let me re-emphasise that has to make money to keep itself going. It does not get a penny of public money to exist. It takes a fee to run itself, and the savings that it makes. In 2007-08, its costs were 3.5p per pound saving. That means that the costs of were £23 million in that year, but it made huge efficiency savings and so is providing us with an extremely good deal.
The hon. Lady also asked whether will be delivering on some of the pre-Budget report’s £5 billion of extra efficiency savings. Its target for savings in the comprehensive spending review from 2007 onwards is £2.6 billion, with £1 billion being delivered in the last year of the comprehensive spending review 2007. That is what it is working towards. Those are stretching and challenging targets, which is why it is important that we update the order so that it can search around all those providing and supplying services to try to achieve them.
The hon. Lady also asked how many customers were involved in the consultation. There were 30 customers and 30 suppliers, of which five wrote back. I suspect that the response rate was so low because this is a fairly uncontentious order. It is simply a way to modernise the legislative structure within which operates. However, the consultation was sent out to the top customers and suppliers, and was flagged up on the website.
The hon. Lady also asked what changes were made following the consultation. The word “charity” was taken out of the original draft order and replaced by “third sector organisation”. One respondent rightly said that that would better reflect what is going on out there in the third sector. That made for a more accurate definition, and so a better order, which reinforces the effectiveness of consultation, even if only a small number of organisations took part. Perhaps we had a quality rather than a quantity response.
The hon. Member for Southport, who is a distinguished member of the Public Accounts Committee, rightly shared in the Committee’s general support for the order. He asked what is the role of the OGC in advising public bodies on buying at a time of falling prices. There are two issues here: the OGC does policy issues and reports to me as Minister responsible—it would be more likely to have comments and information on what to do in the current economic climate of falling prices— and is more operational. It creates framework agreements, and it runs collaborative procurements cross-departmentally—for example, e-auctions and various other platforms, which those who are considering buying and procuring goods and services can plug into and use.
There is a distinction between the two. In such an environment, I expect that OGC would issue the general guidance, whereas might have an operational solution already up and running that had been plugged into by other organisations. It certainly could put a similar organisation in touch with another so that they could benchmark. It has information about costs, improvements and potential savings for organisations that are similar to one another, so that the right amount of preparation could be done before decisions were made. I would expect such an approach.
Justine Greening: Given the changes in the ownership of some of our banks following the bank recapitalisation process, those banks will obviously be operating in a different environment. Does the Minister envisage working with banks to challenge itself on its procurement or does she see a cross-fertilisation of ideas between the new group of, as it were, public corporations that we now have?
Angela Eagle: There is a difference between the banks that have been recapitalised by an injection of Government funding that are not public corporations and those that have been nationalised. The question relates to Northern Rock and to Bradford & Bingley. If they wished to access any of the services as public corporations, they would be perfectly entitled to do so. From my experience, I would have thought that most private sector organisations had sorted out such procurement services differently. However, those organisations are on the list of public corporations, so they are perfectly entitled under the order to have access to the framework agreements and all the expertise that can bring to a particular efficiency matter.
Justine Greening: That is helpful, but my question was more about whether the Minister sees finding out whether it can learn anything from the procurement departments of some previously private sector banks that are now nationalised?
Angela Eagle: is an operational arm to make available solutions to particular issues. Sometimes that involves payment, travel, e-commerce, property and offices, and utilities. For example, there could be a chance to make efficiency savings through collaborative energy procurement throughout different Departments or different public bodies. Framework agreements are in place that public bodies, if they wished, could plug into, so could undertake an operational role.
Dr. Pugh: May I take the Minister back to the previous point? I completely understand the distinction that she is drawing between the strategic role of the OGC and its supply side role. In the commercial sector, those roles would tend to be blurred. If a private company was selling something and making a good offer, it would emphasise to a person the merits of buying now rather than later and so on. At present, anything that is specifically to do with the construction industry must be at a rock-bottom price. There could not be a better time for a hospital or any public body to buy anything apropos of that. That point is not lost on organisations that are strapped for cash. Those that are going through the motions and are relatively cash rich will not realise the appreciable savings that they could deliver at this stage, as well as the appreciable benefits that they could deliver to the construction and supplier industries.
Angela Eagle: I agree. Most financial directors of public organisations are well aware of that, and processes in the run-up to the announcement of the pre-Budget report brought forward £3 billion of capital spending to take advantage of precisely the savings that the hon. Gentleman hints at. A process was put in place to see what it was possible to do without causing increased costs. The figure relating to bringing forward planned investment came from that process.
The OGC keeps a close eye on all those matters, and it is always ready and available to provide expertise should it be asked for. It goes out actively in its procurement capability reviews to ensure that Whitehall Departments are on their game. It makes such expertise available, if desired, to other public bodies such as local authorities. Clearly, the Local Government Association and the Audit Commission have other ways of doing that. There is plenty of assistance and advice out there, if public bodies wish to take it, and I am happy that we have a good story to tell.
With those reassurances, I hope that the Committee, as its last action before Christmas, will feel happy about passing the motion on the new operating order for the trading fund.
Question put and agreed to.
That the Committee has considered the draft Trading Fund (Extension and Amendment) Order 2008.
3.2 pm
Committee rose.

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