With the cost of living soaring, and inflation rates rising, we explore how this may impact public sector tendering.
With inflation soaring, wages stagnating and the cost of living increasing at unprecedented rates, we have entered a period of economic uncertainty unheard of since The Great Depression. Surging oil, gas and food prices resulting from Russia’s invasion of Ukraine, with further increases predicted in the autumn, paint a gloomy economic future for many. Indeed, a recent survey by the Office for National Statistics (ONS) showed how inflation and energy prices top the list of concerns for UK businesses, indicating these concerns are firmly embedded within commercial consciousness. With this economic uncertainty comes risk aversion, with risk aversion comes less investment, and with less investment comes less growth, trapping the economy in a cyclical downturn of worsening prospects.
The impact on the public sector
The squeeze is affecting the public and private businesses alike. As more and more of the public’s disposable income disappears into larger energy bills, more expensive grocery shops, and tax rises, the private sector begins to suffocate under the pressure of less consumer spending, cutting off a valuable arm of the economy that puts food on the tables for 82.5% of British workers and their families. This comes off the back of the extraordinary economic turmoil caused by the COVID-19 pandemic, which saw the UK economy contract by a record 9.9% in 2020 alone.
The good news is that the economy has since bounced back, with the latest figures from the ONS indicating that it is now above pre-pandemic levels. The current situation may lead to yet another economic downturn, but there is good reason to be optimistic about how quickly things can turn around. The recovery from the depths of the pandemic has demonstrated the elasticity of the national economy, and has, in no small part, the public purse to thank.
Government intervention throughout the pandemic, including the £70bn worth of public funds allocated to the furlough scheme, provided a springboard from which the economy could get back on its feet, and, once again, an injection of public funds may provide a solution to the current economic uncertainty. There is no need for it to be as heavy-handed as the response to the pandemic, where public procurement activities have faced increasing scrutiny in regard to both the ease and the excess with which PPE contracts were handed to suppliers, but targeted government procurement activities can provide a direct stimulus for local economies to the ultimate benefit of the public and their finances.
What this means for public sector tendering
Public procurement has been shown to promote the development of skills and training opportunities for local communities, alongside innovation and employment amongst local people. By making more cash available to SMEs through increasing the number of contracts going to tender, the government can stimulate the forces that will help work against the rising cost of living. Whilst this is less true for inflation, increased public procurement activities provide greater supply and price stability, ultimately leading to more confidence in the wider market.
With the Chancellor Rishi Sunak under increasing pressure to intervene, public procurement provides indirect economic stimuli that will be more palatable to many within Government than the other solutions being bandied about by economists and journalists within the British press. That is not to say the government will start paying people to dig holes in the ground, but it may begin to be more generous with the levers of public money, so keep an eye out.
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