Thanks for nothing

If there was one important policy change you would like the government to make to mark the millennium, what would it be? Mine would be to start taking meaningful action to back up the rhetoric and help construction’s small and medium-sized enterprises.

No one can deny that, in every budget speech, Gordon Brown has patted us on the head and said what a wonderful job SMEs are doing for the economy, but the main beneficiaries of Finance Bill legislation have been a handful of start-up enterprises. Government policy in the late 1990s was aimed at redistributing a large slice of SME’s traditional workload to a handful of large contractors and consultants. Just think about the three major initiatives of the past two to three years:

• The private finance initiative’s contractual process has evolved in such a complex and onerous way that few thinking SME consultants, specialists or contractors can consider entering the market. The adversarial nature of PFI client/contractor relationships suits lawyers and major contractors, which are now encouraging the extension of PFI procurement through the bundling of smaller projects that excludes SMEs.

• The shambles of the Inland Revenue’s Construction Industry Scheme, promoted by the major contractors, specialists and the construction establishment, was specifically designed to drive smaller SMEs out of business, irrespective of their competence or probity. And it has worked. The scheme has had a devastating effect on the medium-sized core of construction SMEs, stripping away the flexible and self-motivated workforce that gave them a competitive edge over larger companies – just as the promoters intended.

• Many SMEs paid £100 to attend the Treasury’s Achieving Excellence conference last month only to be told by the Ministry of Defence that they were to be excluded from prime contracting – unless they want to subcontract to a handful of major contractors.

At the same conference, Kate Priestley, director at NHS Estates, announced that NHS trust projects between £1m and £10m were to be bundled for the benefit of “regional partners”; only contracts below £1m would be available for SMEs. The 550 health trusts, along with the 650 or so local authorities, are among SME contractors’ biggest clients. If all their best jobs are let through the PFI to the major contractors and the £1m-10m contracts are bundled for the regional contractors, the SME backbone of construction – 75% of the industry – will be forced to cut their own throats in the discredited adversarial market.

The government should back up what it says about SMEs and discriminate in favour of them

One can understand the government’s and the major clients’ desire to reduce the number of companies they have to deal with, but this should not be at the expense of the majority of the construction industry and its SME customers. Although less than 25% of construction’s annual output is generated by the major clients, including government, this is relatively low risk, repeat work that benefits from the reforms instigated by Sir John Egan. Take that away and the SMEs are in trouble.

The Egan reforms must be established fairly from the top to the bottom of the construction industry. The Movement for Innovation has already generated sufficient momentum on larger contracts. Its resources should now be directed towards specifically encouraging change in the £40bn SME sector.

The government should back up what it says about SMEs and, in the same way as the US government, positively discriminate in favour of SME contractors when awarding its contracts. A start would be to reserve public sector contracts of less than, say, £3m for SMEs – provided everyone involved adopts the principles outlined in the Egan report. Bundling should also be restricted to contracts worth more than £3m.

Most important, the politicians have to grasp the nettle of self-employment and smaller companies. They should either come clean and admit that they want to do away with sole traders and SMEs, or they should have the courage to curb the Inland Revenue.

The first step must be the immediate withdrawal of the Construction Industry Scheme, together with the Revenue’s restrictive definitions of self-employment. Next, all tax and National Insurance differentials between self- and directly employed people should be equalised, so that everyone is treated equally. Most important, a Right to be Self-Employed Bill should be introduced to protect everyone’s right to choose the way they are employed without a paranoid and envious Revenue interfering.