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‘Social value’ plan for services

Political reporter, BBC News

Railway maintenance workers

Infrastructure projects like new railway lines could be subject to the social value requirement

Councils, government departments and bodies like the NHS could be required to consider “social value” – as well as cost – when awarding contracts.

The plans are part of a private member’s bill put forward by Conservative MP Chris White.

He says it would apply to any public services or works, such as the construction of buildings and railways.

The bill has cross-party support, but Labour have accused the government of cutting some of its key clauses.

If it becomes law, it would also apply to police, fire and rescue authorities and even the House of Commons itself, and cover services like accounting, auditing and advertising, the provision of education, care and recreation facilities, and the commissioning of works like fire alarm systems.

‘Best practice’

At present, a procurement manager within any public body has to achieve “best value” for taxpayers’ money – the cheapest provider who can meet the quality requirement.

However, Mr White’s bill would require them to consider how a service or project could be procured in a way that might improve the economic, social and environmental wellbeing of their area – and where appropriate, to write that social value objective into the contract process.

The Warwick and Leamington MP uses the example of two bidders for a contract to refurbish social housing – the first offers the cheapest price, the second costs more but promises to take on local unemployed people and teach construction skills in schools.

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This culture change in public sector commissioning could have a big impact across the services that we use every day”

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Chris White
Conservative MP

He says the bill would allow councils to look beyond a narrow concept of value for money and choose the second option.

“I think the bill is needed to make what is essentially best practice for many public organisations, become standard practice,” he said.

“It will send out a powerful message to charities, voluntary organisations and social enterprises up and down the country that we want greater involvement; we want to support them and we want to give them a greater role in our local community life.

“This culture change in public sector commissioning could have a big impact across the services that we use every day, from adult social care to recycling, so the potential is huge.”

Mr White says the bill could have given those involved in making the controversial Bombardier decision – which saw the Derby-based rail company lose out on a £1.4bn contract to German rival Siemens – extra factors to consider.

Campaigners have called for the government to reverse the decision given the huge impact of the loss, but ministers say they are bound by bidding rules which state the contract had to go the best value bid.

Mr White says he believes social value could have considerable wider benefits to British businesses, and his bill has the backing of the Federation of Small Businesses who believe it could help small and medium-sized enterprises win public sector contracts.

‘No brainer’

Minister for Civil Society Nick Hurd has tabled more than 20 amendments to the bill, which include inserting a clause stating that social value could be “disregarded” in cases where the need for urgency is paramount.

The bill also originally included a requirement for the government to publish a “national social enterprise strategy”, and another clause committing local authorities to promoting social enterprise in their area.

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This is an opportunity for the country’s leaders to prove that they’re serious about the Big Society”

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Peter Holbrook
Social Enterprise UK

Both of those clauses have been removed – as have the words “social enterprise” from the title of the bill, which reached the Commons committee stage last week.

But Social Enterprise UK – which represents firms with a stated social or environmental aim – warmly welcomed the bill and said it “would embed social value into the procurement process”.

“Social enterprises and charities would still be competing with private sector providers who too would be asked to add social or environmental value,” chief executive Peter Holbrook said.

He added: “It’s a no brainer. This is an opportunity for the country’s leaders to prove that they’re serious about the Big Society as a policy.”

Mr White said he was also not worried about the amendments, and the “urgent cases” clause was sensible – for example, to procure services in situations of national emergency.

But Labour’s shadow minister for civil society Gareth Thomas accused the government of wanting “to axe plans for vital legal requirements which could have helped social enterprises to flourish”.

“This measure would have forced those working in government and local government to think through how they could promote the growth of social enterprises and could have been a huge shot in the arm for the sector,” he said.

A Cabinet Office spokesman said the amendments “would focus the bill exclusively on pre-procurement and services” in order to “better pinpoint the types of contracts which have the greatest direct impact on individuals and communities”.

End fast-buck culture? First, Miliband needs a revolution in business values

Many of the moral shortcomings of “fast buck” capitalism Ed Miliband identified in Liverpool on Tuesday are also deep-seated problems associated with the British economy. If Labour is to win over the country, and re-engineer Britain’s business model, Miliband will need to translate his rhetoric into a detailed policy programme and take on a fearsome array of the “vested interests” he’s so angry about.

Governments can influence businesses in at least four distinct ways. They set the general mood – the moral climate in which firms operate; they lay down rules and regulations; they levy taxes; and they can choose how to deploy billions of pounds of taxpayers’ money through outsourcing, public-private partnerships, and, in the case of the bailed-out banks, direct public ownership. If he was really serious about re-moralising capitalism, Miliband would need to attack the problem on all fronts.

“The key is to identify where there are incentives to do things that aren’t in the long-term interests of companies, and how we change that,” says Nicola Smith, chief economist of the TUC. “It’s about which levers you can use.”

First, the mood music. From John Smith’s fabled “prawn cocktail offensive” in the early 1990s, through Peter Mandelson’s admission that he was “intensely relaxed about people getting filthy rich” [see footnote], to the knighthood awarded to Topshop boss, Sir Philip Green – whose business paid a £1bn dividend to his Monaco-based wife – and the Blairs’ habit of holidaying at the second homes of wealthy chums, Labour’s approach for the past 15 years or so has been to stick as closely as possible to the “wealth creators”. If it’s time to re-moralise capitalism, that will have to change.

Force of law

Moral persuasion is hardly the strongest weapon in a government’s armoury, but it would be a start. Changing the climate could begin with naming and shaming corporate rogues, being choosier about which names make the honours list, and listening to a wider range of voices, instead of a cabal of favoured business leaders (mainly from the banks) when testing out new policies.

Shifting the regulatory environment would have to be the next step. One of Labour’s great achievements, the national minimum wage, succeeded because it had the force of law, changing business behaviour overnight.

There are other areas where this no-nonsense approach could work: in ensuring that workers have a loud enough say about how companies operate, for example. A Miliband government could legislate for worker representation on company boards, including remuneration committees, which could be a check on some of firms’ worst excesses.

The TUC would also like to see company directors given a legal responsibility for promoting the long-term interests of the companies they run, instead of thinking about short-term shareholder returns. And shareholders themselves could be given beefed-up powers to constrain executive pay, along the lines recently suggested by Vince Cable.

Thirdly, taxation. Changing the tax system can shift what looks at first like a deep-seated culture. The fad for dangerous, heavily leveraged takeovers that swept through the economy in the boom years was not just a result of low interest rates, it also reflected a quirk in the system – that indebted companies can claim back the cost of the repayments against tax bills. That means buying a company using borrowed cash can be more profitable, even though it’s inherently riskier. It also accounts for the apparent success of a good part of the “financial engineering” that characterised many of the deals of the past decade.

“I think the encouragement of debt through the tax system rather than equity has remarkably perverse outcomes,” says the former Labour City minister Lord Myners. “We should be encouraging companies to be funded with solid, long-term capital.”

More transparency about how much tax firms are paying is also critical. Harriet Harman, Miliband’s deputy, used her conference speech to urge more action on the Extractive Industries Transparency Initiative, which demands multinationals operating in different countries publish details of what tax they pay in each country, making it harder for them to hoodwink governments in resource-rich but dirt poor African countries into giving away their raw materials at rock-bottom prices.

Public purse

“No one can accept the situation where we have to give money to poor countries but those countries – which are rich in natural resources – don’t get their fair share of the profits from their mines,” Harman said.

“The truth is, more is lost to people in poor countries from tax dodging by global companies than is paid in aid.”

Richard Murphy, of the Tax Justice Network, said: “A good company would be one which said what it’s doing in each country, how much it’s making, and how much tax it’s paying. That’s not happening at the moment.”

In the UK context, that would mean firms reporting what percentage of their profits they have paid in tax in a given year – and why it’s lower than the headline rate (eg because of mind-blowingly complex avoidance schemes involving a string of subsidiaries in tax havens).

The government’s final lever to control Britain’s morally bankrupt business culture is through the public purse.

The Treasury select committee found in a recent report that many of the contracts for running schools and hospitals set up under the private finance initiative beloved of Gordon Brown’s Treasury have since been sold on, and are now held in tax havens. The Treasury claims it has no estimate of the tax it has thereby lost out on. But any government serious about changing corporate culture would simply refuse to countenance this behaviour, writing into the contracts that they must be held onshore.

The same could go for any company that receives a government contract, or other support, through trade missions such as the one Vince Cable is undertaking in Turkey this week for example, or export credit guarantees.

As for companies the government owns, Labour’s handling of the part-nationalised banks is surely a textbook example of how not to ensure public investments deliver a social (or indeed financial) return. Instead of using them to ensure the credit kept flowing to small businesses, or breaking them up into a series of smaller banks with a mandate to lend to businesses on a long-term basis, the Treasury took a hands-off approach, hoping desperately for a quick turnaround.

Three years on and with another credit crunch looming, Adam Posen of the Bank of England’s monetary policy committee is calling for the Bank to intervene directly to unblock lending. “The banks are simply not structured or designed to lend intelligently to small businesses,” says Andrew Simms, of the New Economics Foundation.

But Simms, who has spent many years arguing against conventional wisdom, says that if Miliband really wants to change the culture of business in Britain he will have to start by overturning the fundamental belief that the markets must be right. “We’ve made a decision to put the market’s measure of value above every other consideration. It’s not until you legislate to put other issues – moral issues, social issues, environmental issues – on at least an equal footing that you can lay the foundations for a moral system.”

• This footnote was added on 29 September 2011. Peter Mandelson has asked us to make clear that he said he was “intensely relaxed about people getting filthy rich as long as they pay their taxes”.

U.S. culture reinforces stereotypes

ATLANTA, Sept. 29 (UPI) — U.S. books, movies, TV, radio and the Internet may contribute to racism, sexism or ageism because they reinforce stereotypes, researchers suggest.

Paul Verhaeghen of the Georgia Institute of Technology and colleagues gave participants a questionnaire designed to rate the amount of prejudice — both negative and positive — they exhibited.

The researchers timed their subjects’ response times to different types of word pairs. The first types were word pairs typically associated with stereotypes, such as black/lazy, female/weak or old/lonely. The second group paired words that contain the same first word but are not stereotypical pairings, such as black/goofy, female/uptight, or old/playful.

A third type were words that are highly related but do not reflect stereotypes, such as night/cool or summer/sunny. Social psychologists believe the very fast response times people tend to exhibit for stereotypical pairs are a reflection of an unconscious, gut-level type of prejudice, Verhaeghen said.

The researchers then examined a collection of books, newspaper and magazine articles — about 10 million words — believed to be a good representation of American culture.

The researchers looked at how often the words they tested their subjects on were paired together in the sample of books, newspaper and magazine articles.

The study found participants responded faster to the pairs that were more often found together in the literature, whether they were stereotypical or not; for example, words like black tended to be more associated with negative and positive stereotypes like lazy or musical than with words like goofy not associated with stereotypes.

Other pairs that had strong correlations were white with greedy and successful; male with loud and strong; female with weak and warm; old with lonely and wise; and young with healthy and reckless, the study said.

The findings are published in the British Journal of Social Psychology.