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Supporting SMEs to Tackle Economic Inequality - How a partnership between the public sector and financial services is key to levelling the playing field for SMEs and tackling economic inequality
Tackling Economic Inequality - Create new businesses, jobs and skills, and increase supply chain resilience and capacity.
Like most major global challenges, tackling economic inequality is complex. The public sector has a responsibility to support the creation of jobs and skills, enable the conception of new businesses and increase supply chain resilience and capacity. Small, medium and micro enterprises (SMEs) tick all of these boxes as they can make a real difference to the economy and their communities and increase vendor options for government departments. But is enough being done to support them?
CIPS recently reported that government spending with SMEs in 2021/22 dropped 0.4% vs the year before to 26.5% of total [procurement expenditure, despite higher overall public sector spending. The government missed its own target of 33%. Furthermore, there has been a 16% YoY rise in insolvencies.
The public and private sectors have the opportunity to pull a number of levers to improve the current situation, and level the playing field for small, medium and micro enterprises (SME’s).
Financial Education
The first lever I’d like to discuss is financial education and the provision of tools and data. The government can help to increase knowledge and help businesses grasp the right opportunities. This can be even stronger when the public sector works with its private counterparts, for example the financial sector.
In general, SMEs (particularly the smaller ones) have a limited awareness of the financial side of running a business. To comprehensively address tackling economic inequality, SMEs need assistance in scrutinising financial statements, monitoring cash flow, tracking credit ratings, and other pertinent data. Through this analysis, SMEs could gain valuable insights into potential avenues for cost savings, opportunities for revenue growth, and for efficiency improvements.
Banks can also become a trusted platform for SMEs – offering more than just lending by providing additional value in the shape of easily accessible tax services, advice, invoice processing, debt management and more. Even if in some instances this additional support is available to SMEs, they are often uninformed of the products available to them, beyond overdrafts and loans.
By proactively signposting smaller businesses to available education resources or support, and by being transparent about the different funding options available them, government, financial services, and big businesses would be empowering SMEs to compete on the wider playing field.
Democratising Data
In the last few years, we’ve had the Commercial Credit Data Sharing (CCDS) policy in place across 9 of the larger banks, which helps in gaining a more holistic view of lending from multiple organisations, thus supporting the economic inequality agenda through improved transparency. But perhaps this data isn’t shared widely enough – certainly the challenger banks are not included, and with many SMEs (55%, according to the British Business Bank) turning to less traditional banks, this means a gap could emerge in the picture.
Democratising data would help SMEs view their own perceived credit risk, enabling them to proactively manage their finances and make themselves more favourable to lenders and contracting authorities.
The Procurement Act
The Procurement Act 2023, set to be enforced in October 2024, represents a significant overhaul of UK procurement regulations. It introduces comprehensive changes to principles, objectives, and procedures throughout the procurement lifecycle. Transparency is a keystone of the Act, as is opening doors for SMEs as the government hopes to raise its SME supply base from the current 26.5%.
The introduction of the centralised Supplier Registration service means that vendors only need to provide information once to be considered for contracts across government. This should allow resource-constrained SMEs the chance to be considered for contracts they may previously have avoided due to the current complex and overwhelming public sector onboarding processes.
Public sector departments must carry out proportional Economic and Financial Status (EFS) checks – much like a lender would do before offering credit. In many cases, assessments can use standardised metrics and ratios, such as those provided by Dun & Bradstreet. To level the playing field, it is critical that SMEs understand what these checks mean for them and how they might be scrutinised. Having access to credit reporting tools and understanding how they are perceived by government and lenders will be essential if they are wishing to make the most of public sector opportunities.
Once the new Procurement Act is live, it will be good to monitor how many contracts are awarded to SMEs, as an additional measure of its success.
Environmental Social and Governance
Another area to tackle is around Environment, Social and Governance (ESG). SMEs are generally ready to embrace sustainability and can even be ahead of the curve vs their big business counterparts. However, the challenges that they continue to face include resource constraints and knowledge gaps.
An area where the public sector is already supporting is through grants. Almost £5 billion of funding is available to help UK businesses become greener as part of the government’s commitment to reach net zero emissions by 2050.
As for the financial services sector, there is a lot of effort on its own ESG goals, though while many have focused on the ‘E’ or environmental aspect, due to COP 27 and the drive for NetZero, the ‘S’ (social) and ‘G’ (governance) aspects can be neglected. These are areas that traditionally address SMEs as part of the wider ecosystem. Technology and data can help to better understand ESG performance and identify areas where both the banks and their SMEs can make changes together.
Moving the needle
With SMEs making up such a large percentage of businesses, one, or a combination of these levers can help move the needle around risk and resilience and create opportunity for small business growth and in turn help the public sector to tackle economic equality.
Dun & Bradstreet provides access to global financial data and analytics tools, so that businesses of all sizes (including government, financial services and SMEs), can keep track of the financial status of themselves and others. Visit www.dnb.co.uk or email us on [email protected] for more information.
Heather Cover-Kus
Heather is Head of Central Government Programme at techUK, working to represent the supplier community of tech products and services to Central Government.
Ellie Huckle
Ellie joined techUK in March 2018 as a Programme Assistant to the Public Sector team and now works as a Programme Manager for the Central Government Programme.
Annie Collings
Annie is the Programme Manager for Cyber Resilience at techUK. She first joined as the Programme Manager for Cyber Security and Central Government in September 2023.
Ella Gago-Brookes
Ella joined techUK in November 2023 as a Markets Team Assistant, supporting the Justice and Emergency Services, Central Government and Financial Services Programmes.
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