Guest blog: Is procurement practice an obstacle to channelling spending into small businesses?

Economy, Guest Blog | Tue 19 Jan | Author – Business & Finance

Marc Coleman is founder of Octavian Research, an economic research publication and public affairs consultancy. In this guest blog, he discusses how, at a time when government spending is so vital to our economic recovery, procurement practice is a massive obstacle to channelling that spending into the small businesses.

A much vaunted feature of the last budget was the absence of any tax increase. In fact, the austerity taxes levied in the last crisis – principally the Universal Social Charge – are still on the books and haven’t gone away. That is despite austerity spending restrictions being abandoned with gusto. Our previous analysis has examined how recent fiscal policy has strongly favoured spending increases to a point of more than offsetting any austerity on that front while, at the same time, retaining most of the austerity tax increases imposed between 2011 and 2015.

As well as retaining austerity taxation from the last crisis, businesses have been hit hard in the last few months and weeks by new hidden and highly destructive tax increases in the form of the huge drain on time and energy posed by Brexit bureaucracy and COVID compliance. While some limited progress was made in reducing some of the more extreme problems of procurement procedure, Irish government procurement practice continues to work against small business.

At a time when government spending is so vital to our economic recovery, procurement practice is a massive obstacle to channelling that spending into the small businesses.

COVID compliance

As well as reducing footfall and trading volumes, social distancing in shops pubs and restaurants – and a host of logistical arrangements to reorder space within businesses – has put many small business owners to the pin of their collar in terms of time.

Welcome though they are, business supports, and grants have often come at a cost of substantial, often duplicatory requirements for documentation. Low take up across a range of supports – from the Temporary Tie Up scheme in fishery to the Credit Guarantee Scheme – is often the result of application processes that demand levels of time and complexity that are not feasible for smaller struggling business owners.

A question arises: How much thought has gone into the design of these processes? A further question arises: Have those engaged in their design ever run a small business? Yet another question is whether the strong impetus towards caution in procedures related to public expenditure – welcome generally – is being applied proportionately? Or are smaller businesses paying the price for a lax approach on bigger projects?

Are smaller businesses paying the price for a lax approach on bigger projects?

Save the pennies and spend the pounds?

The €1 billion cost overrun run – or, depending on your point of view the €1 billion cost underestimate – in relation to the children’s hospital certainly puts into perspective recent business supports. That amount is comparable to the entire cost of the Employment Wage Subsidy Scheme last year, a scheme which is about to incur a tax burden.

A comparison between the government’s negotiation with public sector unions for a pay increase on the one hand, and the claw back of TWSS tax liabilities on the other will not be lost on many in the private sector: As the private sector counts the pennies, the public sector appears to be able to spend the pounds.

Brexit Bureaucracy

For UK freight drivers and businesses generally – and despite valiant efforts by the Revenue Commissioners to provide extra staffing – the red-routing of traffic where paperwork is not deemed in order for Brexit requirements is becoming a thing of dread.

Currently affecting trade into Ireland this will later in the year affect Irish exporters who – being generally smaller than their UK counterparts will have less administrative capacity to handle the growing complexity of customs.

In all a twenty fold explosion in customs declarations is expected for goods crossing the Irish Sea. This is nothing less than a hidden and often devastating tax on business. And for smaller operators it may prove fatal.

Far from being an exaggeration, reports of consternation amongst exporters and importers about this problem, if anything, understate the extent of difficulty.

Some see the problem as exporters’ “failure to prepare”. And it is fair to point out that Revenue have spent two years giving helpful information and advice to business (and have been relatively prompt in improving their overall efficiency and digitalisation of their service). Government has provided free training courses and a €9,000 grant to aid business.

But this is missing the point: A key difference between the public sector that designs policy and the private sector that must implement it is that very few people at the top of the former have ever worked in the latter. There simply is not in the policy making system the level of understanding of what it is like to run a small business under severe pressure, often acute funding problems and staffing shortages. In the public sector missing deadlines does not result in loss of livelihood, staff are available and there is a continual source of tax funding. None of these securities exist in the private sector. One hour spent complicating processes within the policy making system can often create several hour of extra work outside it. Often the problem is simply that – being more paperwork and process oriented – those designing systems of compliance accountability  and governance and more trained in and more familiar with those systems than the often baffled and helpless SME owners who must learn to grapple with them. And for SME owners working a 60 and 70 hour week, the availability of training courses and grants presumes a degree of time and staffing resources that – outside the public sector and larger corporations – simply does not exist.

Marc Coleman (marc@octavian.ie) is founder of Octavian Research, an economic research publication and public affairs consultancy that wrote the world’s first researched strategy response to the Covid crisis (download www.octavian.ie ) and currently produces the world’s first weekly Covid-19 specific economic and business client research note (now in its 32nd edition). He works with leading clients across industry, financial services and government agencies to produce policy influencing research and publications. He has authored five influential books on the current and previous recoveries and worked as an economist with the European Central Bank, Department of Finance, as Economics Editor of the Irish Times and Newstalk 106fm, a Sunday Independent columnist. He is a leading speaker, event host and policy analyst.