The other coloured report

Tweet I referred to the Browne report yesterday, time to turn to the Green one.

Some of the examples of price differences across government departments are horrific, of course. And there can really be little excuse for the way in which some departments have been persuaded to part with our money. It’s hardly a good advertisement for some private sector companies either that they’re prepared to take advantage of the incompetence of their customers to charge excessive prices.

But some aspects of Green’s recommendations do give cause for concern.

The suggestion that there should be more central purchasing so as to achieve bulk discounts might well produce some savings in terms of public expenditure in the short term, but what is its overall economic effect? It is likely that government would be supplied by a smaller number of larger companies rather than a larger number of smaller ones, which would be less able to supply the quantities required. Guess where they’re likely to be located? And pressure on prices means corresponding pressure on costs, usually labour costs.

The suggestion that government should simply extract more credit from its suppliers by delaying payment is also something that would make smaller companies less willing to do business with government – and again increase pressures on costs.

Both are things which large companies do as routine, of course. And both are potentially damaging to the business prospects of their suppliers. I’m aware of one large company which routinely looks at the accounts of its suppliers and demands price reductions if they regard the overall profit margin as being too high. Note – not the profit margin on the business done specifically with that large customer, but for the supplier overall, effectively demanding that the profit made on dealings with other customers is shared with the largest single customer.

It’s like supermarkets and the price of milk - large buyers can distort the market in their favour – is that really what we want of government?

We need to take a more balanced and holistic view of government procurement than to simply assume that forcing prices down is always the best answer.