Simple Shopper To Go Green?

October 12, 2010 7:32 AM


 

You're being ripped off, my friend


Regular BOM readers will be all too familiar with the Simple Shopper and his staggering ability to burn our cash (see previous blogs gathered here). But Mr Cameron's procurement guru Sir Philip Green has clearly been stunned by what he's discovered about the Shopper's operations:


"The process is shocking. There's no reporting, there's no accountability... You could not be in business if you operated like this. It would be impossible."

Sir Philip's report is refreshingly brief and punchy - very unlike the telephone directory reports we get from officialdom. Among the real shockers he highlights:



  • £2bn pa spent on landline telephony, where the Shopper is overpaying by an astonishing £600 - £700m every single year

  • 400,000 hotel rooms booked every year in central London alone - Green estimates £50m pa could be saved by teleconferencing

  • £800 laptops bought for £2000 each

  • £20m lost on failure to break expensive central London lease - government property costs £25bn pa, but has not been managed on a commercial basis (especially taking opportunities to break expensive leases)

  • Failure to exploit HMG's AAA credit rating - a commercial operation with such a rating would insist its suppliers extend lengthy credit facilities (aka paying invoices later).


Green declines to give a figure for the total possible savings, but with the total procurement spend getting on for £200bn pa, we're clearly talking tens of billions annually. Savings that would go a very long way to closing our fiscal gap.


So why hasn't it been done already? After all, governments overpaying on procurement has been a problem for centuries (see this blog for what Charles II's Clerk to the Navy Board - a certain Mr Pepys - had to say about it). And Gordon Brown used to bang on all the time about his procurement reforms.


Sir Philip suggests it's because government buying is too fragmented - scores of different departments and quangos buying their own paperclips and not capitalising on their combined buying power. What we need is centralised buying in the hands of hard-nosed professionals such as... well, such as Sir Philip.


An excellent idea. Entirely logical.


Except... hang on a minute... isn't centralised buying precisely what was supposed to have happened under Gordon Brown's reforms? Didn't he set up the Office for Government Commerce under the direction of hard-nosed (and expensive) professionals, specifically to wring better prices out of suppliers by exploiting scale?


Well, yes he did. And yes, it flopped.


You see, what Sir Philip has failed to understand is that once you set foot in Whitehall, you aren't in Kansas any more. You no longer have people around you who are driven by the cost imperative. Instead, you have people who are driven more by the need to defend territory, and to keep the politicians off their backs.


Just what that means in practice was neatly illustrated by one of those politicians responding to Green's report. Labour's Margaret Hodge is the new chairman of the Public Accounts Committee - the grand-daddy of Parliamentary watchdogs and the very body set up by Gladstone to ensure taxpayers get value from public spending. And her kneejerk response to Green was to say he doesn't know what he's talking about - government is much more complex than running Topshop. Even in the Public Accounts Committee, politics ultimately trumps saving taxpayers' money.


The fundamental problem here is that government does not do cost efficiency - never has and almost certainly never will. And the reason is very simple - unlike Topshop, the "customers" of government have no choice. Yes, of course they can replace the non-execs every so often, but they cannot simply take their business to another shop just along the High Street.


So government isn't under the same pressure as Topshop to deliver value for money. Not the same pressure to screw their suppliers down to the last penny. Which is why even where you have centralised buying - as for example in defence equipment - because the competitive pressure isn't there, you never get the cost saving the private sector takes as a matter of course.


Of course government must do whatever it can to cut procurement costs, and Sir Philip's report is a valuable contribution. But we should recognise that the only sure cure for all the billions government wastes in its procurement programmes is to stop government procuring stuff altogether.


In other words we need to downsize government drastically, and to break its monopoly hold on our public services.


 

You're being ripped off, my friend


Regular BOM readers will be all too familiar with the Simple Shopper and his staggering ability to burn our cash (see previous blogs gathered here). But Mr Cameron's procurement guru Sir Philip Green has clearly been stunned by what he's discovered about the Shopper's operations:


"The process is shocking. There's no reporting, there's no accountability... You could not be in business if you operated like this. It would be impossible."

Sir Philip's report is refreshingly brief and punchy - very unlike the telephone directory reports we get from officialdom. Among the real shockers he highlights:



  • £2bn pa spent on landline telephony, where the Shopper is overpaying by an astonishing £600 - £700m every single year

  • 400,000 hotel rooms booked every year in central London alone - Green estimates £50m pa could be saved by teleconferencing

  • £800 laptops bought for £2000 each

  • £20m lost on failure to break expensive central London lease - government property costs £25bn pa, but has not been managed on a commercial basis (especially taking opportunities to break expensive leases)

  • Failure to exploit HMG's AAA credit rating - a commercial operation with such a rating would insist its suppliers extend lengthy credit facilities (aka paying invoices later).


Green declines to give a figure for the total possible savings, but with the total procurement spend getting on for £200bn pa, we're clearly talking tens of billions annually. Savings that would go a very long way to closing our fiscal gap.


So why hasn't it been done already? After all, governments overpaying on procurement has been a problem for centuries (see this blog for what Charles II's Clerk to the Navy Board - a certain Mr Pepys - had to say about it). And Gordon Brown used to bang on all the time about his procurement reforms.


Sir Philip suggests it's because government buying is too fragmented - scores of different departments and quangos buying their own paperclips and not capitalising on their combined buying power. What we need is centralised buying in the hands of hard-nosed professionals such as... well, such as Sir Philip.


An excellent idea. Entirely logical.


Except... hang on a minute... isn't centralised buying precisely what was supposed to have happened under Gordon Brown's reforms? Didn't he set up the Office for Government Commerce under the direction of hard-nosed (and expensive) professionals, specifically to wring better prices out of suppliers by exploiting scale?


Well, yes he did. And yes, it flopped.


You see, what Sir Philip has failed to understand is that once you set foot in Whitehall, you aren't in Kansas any more. You no longer have people around you who are driven by the cost imperative. Instead, you have people who are driven more by the need to defend territory, and to keep the politicians off their backs.


Just what that means in practice was neatly illustrated by one of those politicians responding to Green's report. Labour's Margaret Hodge is the new chairman of the Public Accounts Committee - the grand-daddy of Parliamentary watchdogs and the very body set up by Gladstone to ensure taxpayers get value from public spending. And her kneejerk response to Green was to say he doesn't know what he's talking about - government is much more complex than running Topshop. Even in the Public Accounts Committee, politics ultimately trumps saving taxpayers' money.


The fundamental problem here is that government does not do cost efficiency - never has and almost certainly never will. And the reason is very simple - unlike Topshop, the "customers" of government have no choice. Yes, of course they can replace the non-execs every so often, but they cannot simply take their business to another shop just along the High Street.


So government isn't under the same pressure as Topshop to deliver value for money. Not the same pressure to screw their suppliers down to the last penny. Which is why even where you have centralised buying - as for example in defence equipment - because the competitive pressure isn't there, you never get the cost saving the private sector takes as a matter of course.


Of course government must do whatever it can to cut procurement costs, and Sir Philip's report is a valuable contribution. But we should recognise that the only sure cure for all the billions government wastes in its procurement programmes is to stop government procuring stuff altogether.


In other words we need to downsize government drastically, and to break its monopoly hold on our public services.

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