· Published in Cities versus multinationals

The “Preston Model”. A UK city takes the lead in progressive procurement

Strongly affected by deindustrialisation, and more recently by austerity policies imposed on councils following the financial crisis, Preston, in the north of England, has chosen to no longer depend on external investors for its “development” and radically reorient its public procurement to favour local economic and social objectives, rather than large corporations. It has become a model across the country, and even beyond.

One evening in spring, 2013, two left-wing councillors stepped into The Gray Friars, a cavernous pub in Preston, a post-industrial town in the north of England, for a meeting over a pint of beer. Matthew Brown and his colleague Martyn Rawlinson were in search of new ideas for Preston, where poverty was on the rise at a time of brutal cuts. They had never met Neil McInroy and Matthew Jackson, who had travelled from Manchester where they worked for a think tank called the Centre for Local Economic Strategies, but Brown knew who he was looking for from cartoons that appeared alongside their magazine articles about regeneration. The four men found one another and shook hands. That night in the pub, they would sketch out the tenets of a new way of organising spending in towns that might protect a small place like Preston from the more extractive elements of globalisation at the same time as heralding new environmental and social standards for businesses competing over contracts.

The Preston Model, as the idea became known, came in two parts. McInroy and Jackson had spent several years establishing that more money could be retained in a local economy if schools, councils, hospitals and other civic institutions used their budgets to buy goods and services from local businesses, rather than multinational companies that might take profits elsewhere. Matthew Brown believed those businesses should be worker co-operatives, where profits go into the pockets of workers, rather than shareholders. The model relies heavily on the technical elements of analysing spending, adjusting procurement contracts, educating new suppliers and establishing co-operative businesses. But at its heart is a more radical proposal: that the economy is not a separate, technocratic sphere or a set of alien forces that play out upon a place, but that it is moulded by the decisions of ordinary people, who can use it to create the kind of society in which they want to live.

For Martin O’Neill, a senior lecturer in political philosophy at the University of York, this proposal transforms procurement from a mere financial process into a lever that can be applied by governments to enact a set of values, in a similar way to the redistributive potential of the tax system. “It’s the sense that procurement, which sounds like a dull and technocratic issue, is intensely political and we have massively undersold an important function of government to improve people’s lives by not seeing procurement as having this role,” he says. “We need a better language to describe it.”

In the US, the term “community wealth building” has been coined by the think tank the Democracy Collaborative. The term describes the Democracy Collaborative’s strategy of drawing and keeping dollars within the community: first by preventing local financial resources from “leaking out” of an area; and second by leveraging the use of procurement and investment from existing local “anchor institutions” such as hospitals, universities, foundations, cultural institutions, and city government for community-benefiting purposes. In 2007, the think tank, which is based in Washington DC, was commissioned by the Cleveland Foundation to do a spending analysis in Cleveland, Ohio. Cleveland was facing many of the problems common to post-industrial cities: its population was shrinking and many publicly-traded companies were leaving due to years of disinvestment and the decline of traditional industries. But Cleveland still had a large number of institutions that were rooted to place, including the Cleveland Clinic, Case Western Reserve University and University Hospitals. The Democracy Collaborative found that these so-called anchors were spending $3 billion a year, but very little of that was staying in the local economy. Cleveland Hospital and several other health institutions were surrounded by neighbourhoods where 40 per cent of people lived below the poverty line. “How could there be $3 billion circulating but everybody’s poor?” asked Ted Howard, the Democracy Collaborative’s chief executive.

The Democracy Collaborative conducted an analysis to identify that these anchors were purchasing from Mexico or Chicago, and looked at whether those contracts could be moved back to Cleveland suppliers. Then it looked for gaps in the market that might provide opportunities for new suppliers. Over the course of several years, it supported the establishment of a laundry and an indoor farm structured as worker-owned co-operatives, so that the workers could share in the profit of the business. They also made the co-operatives as green as possible to help anchors reach their environmental targets, and recruited employees in communities where many people struggled to get work due to time spent in prison (as many as 50 per cent of the population in some neighbourhoods). “This is a community transformation strategy,” Howard says. “The idea is that each of these companies contributes to the local economy, and coops are the vehicle to achieve this.”

By the time of the pub meeting in 2013, Preston was badly in need of transformation. The effects of the 2008 financial crisis were compounded in the UK by a central government austerity programme enacted by the Conservative coalition government that came to power in 2010. In the name of austerity, the government cut funding to councils in order to enact a sweeping realignment of the relation- ship between the state and its citizens that began with the neoliberal agenda of Margaret Thatcher in the eighties. Between 2010 and 2016, councils in England are estimated to have lost 60p of every £1 from central government. As budgets were cut, councils first stripped back expenses by firing high-paid staff or selling disused buildings. But the cuts have since got uglier. Since 2018, Preston council has wiped out £1.25 million from children and family services, plus a further million from the budget for learning, disability and autism. Concessionary bus charges for the elderly doubled from 50p to £1. Reports of rat infestations increased after the council halved the number of city rat catchers.

At the same time, smaller towns like Preston have struggled to attract outside investment. In 2008, Preston Council had signed off on a £700 million regeneration project called the Tithebarn, in which developers Grosvenor and Lendlease would reimagine 32 acres of the city with restaurants, cafes, cinemas, shops and pedestrianised streets. But retailers grew cooler on the project until the scheme collapsed in 2011, not long after John Lewis, a major department store, pulled out.

That same year, the Centre for Local Economic Strategies invited Ted Howard to speak to an audience drawn from its network in London. “We were inspired by [the Democracy Collaborative’s] concepts and ideas,” McInroy says. “But there were contextual issues that meant the Cleveland Model had to be different.” Top of the list: European procurement law. In the US, if a university or other local institution wants to give a contract for bed linen to a local co-op, there’s nothing to stop them. In the UK, as in the rest of Europe, procurement law requires that supplier contracts for local authorities worth more than £181,302 and works contracts of more than £4,551,413 have to go out to market in order to make sure the process is as transparent and competitive as possible.

By this time, McInroy and CLES had been testing ideas about procurement for several years in partnership with towns including West Lothian and Swindon. They wanted to try a spending analysis, but realised that Manchester, the city in which CLES is based, was too big. Nearby Preston, with a population of 141,000, was a good size, with a large number of public sector institutions including two councils, a university, a hospital and several colleges, to try an ambitious spending analysis that might identify where money was leaking out of the economy. Plus there was an appetite among councillors to try something new after the failure of the Tithebarn project.

After their initial meeting in a pub, Brown and Rawlinson convinced Preston Council to commission CLES to do a spending analysis in the city. CLES identified the biggest institutions rooted to the city, including the city and county councils, the University of Central Lancashire (UCLan), the police and a local housing association. Together these six organisations had a combined annual spending power of £750 million. But in 2012/13, only one pound of every £20 spent stayed in Preston. So CLES worked with the anchors to rewire that spending. In 2013, the six local public bodies spent £38 million in Preston and £292 million in all of Lancashire. By 2017 these had increased to £111 million and £486 million respectively, despite an overall reduction in the council’s budget. The anchors were also supported to implement the living wage, ensuring higher levels of pay for staff and contractors.

They achieved all of this within EU procurement law. “There have not been any huge issues,” Matthew Brown reflected in 2019. “For works contracts, [the thresholds] are quite high. They potentially could hinder what we’re trying to do but [at the moment] it’s on the margins.” Preston broke large contracts, such as the £1.6 million council canteen food budget, into smaller lots allowing smaller Lancashire farmers to bid to supply yoghurts, for example. The council appointed Conlon, a local construction firm, to redevelop the Preston Market, out of a shortlist of nine local and national firms because the company could commit to higher employment practices. It uses the Social Value Act, a 2013 law that requires people who commission public services to think about how they can also secure wider social, economic and environmental benefits, in innovative ways, such as by hiring contractors who have less far to travel, cutting their carbon emissions. Changes to EU procurement law in 2014 also improved the ability for those commissioning services to prioritise suppliers with strong social and environmental records.

At the same time, Preston Council looked at how to coordinate other sources of capital to invest in local projects. The council decided to use the £5.5 billion Lancashire County Pension Fund to invest £100 million in Preston and £100 million across Lancashire, in projects including the re-opening of the Park Hotel and an £18 million student flat development. Pension payments worth £100 million have been committed to a local investment fund that will go towards capitalising a community bank. The council got the idea for a community-owned bank after working with the Hampshire Community Bank, which is modelled on the Sparkassen network of locally-owned public savings banks in Germany. Together they plan to promote Lancashire’s own network of regional “challenger” banks, in order to stimulate entrepreneurship and support small businesses.

The early results of these changes are promising. Preston had the joint-second biggest improvement in its position on the indices of multiple deprivation be- tween 2010 and 2015 (LCRCA 2018). In November 2018, Preston was named most improved city in the UK according to the Good Growth for Cities Index, which measures employment, workers’ pay, house prices, transport, the environment, work-life-balance and inequality. By September 2019, the Preston City Council was closing in on £20 million in funding necessary to apply for a banking licence to open its regional community bank for the North West. “We have made an assumption that if two per cent of people move their accounts to the new bank or open their first accounts with us then we can lend half a billion pounds to local people,” Brown said. “But if you could get real grassroots uplift and support for the concept and encourage 10 per cent of people to bank with us, then we could recirculate £4 billion locally.”

Brown, who has been Preston’s council leader since 2018, sees the community bank as another part of a strategy to democratise the economy, alongside procurement and other policies. “Anchor procurement is not everything in itself,” he says. “The community bank is another part of that. It’s the same principle, it’s localising the investment and putting the community more in control of local economies.” He is turning his attention to the next phase of the Preston Model, a co-operative education centre and seed funding from the Open Society Foundation to support the creation of ten worker-owned startups.

McInroy and CLES have had conversations about community wealth building with more than 40 local councils in the UK, from Birmingham to Wigan, Southampton to South Ayrshire in Scotland and even some borough councils in London, such as Islington, where the principles have to be heavily adapted to respond to a drastically different economic context. “It’s all different blends,” McInroy says. “In Preston we led on procurement, but we did lots of different work on land, property and assets, and now they are focussing on democratising the workforce. In Islington we are doing less on procurement and more on co-operative ownership of the economy and of land.” He sees the work as part of a growing global network of cities pioneering a new kind of municipalism. These so-called “fearless cities” believe in the democratic ownership of public services by organisations that may one day replace local authorities altogether. They have found the city to be the ideal sized template to try out ideas.

Matthew Jackson, meanwhile, has since left CLES and is working with Preston City Council as it leads a network of seven cities on the European Union’s URBACT programme Making Spend Matter. The programme explores how to use spend analysis as an evidence tool to enhance the impact of procurement by public or anchor institutions in order to bring additional economic, social and environmental benefits to the local economy and its citizens. It runs from May 2018 to December 2018 and primarily exists to transfer the good practice developed by Preston in this area. Partner cities including Pamplona in Spain, Kavala in Greece, Bistrita in Romania and Koszalin in Poland have spent six months researching action around social and environmental criteria and another 12 months on their own city spend analysis. They are now moving on to how procurement strategies can evolve and adapt to different scenarios. “It’s a really interesting time,” Jackson says. “The only slight problem we’ve got is what happens after we leave the EU: whether Preston City Council can lead it and whether I can still work with them as an expert.”

Anti-EU campaigners have long said that decisions around procurement will be easier for UK councils to make after the country leaves the union, as long as the UK no longer has to comply with existing rules about procurement. Yet researchers say it is not EU law, but attitudes at councils and other anchors that prevent community wealth building policies from being implemented more widely. Tom Sasse, a senior researcher at the Institute for Government, says that contrary to false statements in the press, as long as authorities run a fair process they can already select bids based on a range of criteria including price, quality, risk, social value and other factors. “The lowest price bid doesn’t always win and often represents poor value,” Sasse says.

Research from the Institute for Government has shown the UK Government initially succeeded in increasing spending with small companies by introducing measures including abolishing pre-tender questionnaires. This increase peaked in 2014/15, however, and has since fallen back. In the last five years, big suppliers that receive over £100 million in revenue a year from government have won an increasing share of government work. “It is easy to blame EU rules for this, but the real barrier is changing behaviour among those awarding contracts,” Sasse says.

A Labour government in the UK could do much to support the development of community wealth building and to support other towns to adopt more radical procurement policies. Martin O’Neill says that so far Preston has demonstrated what community wealth building can do to bring values to the regulation of the economy when the government isn’t on its side. “These strategies have been important to protect quite vulnerable places in harsher climes when government isn’t on board to create more liveable economic conditions,” O’Neill says. “But what you get in this defiant move is the seeds of an agenda that with the support of a national government can be more ambitious.”

Since 2018, Neil McInroy has sat alongside Labour councillors and MPs and Ted Howard from the Democracy Collaborative on the Labour Party’s Community Wealth Building unit, which has looked at how to embed these principles into future policies. And while they have so far been able to do much “on the margins”, in the words of councillor Matthew Brown, some believe that more sweeping reforms would come up against EU law. Costas Lapavitsas, a former member of parliament for Syriza in Greece and professor of economics at the School of Oriental and African Studies, says that if a Labour government wanted to fully embrace the principles of the Preston Model, it would find EU procurement law standing in the way. “The way companies are selected would be directly affected by EU regulation. That’s clear,” he says. “The only real argument is how radical the Labour Party wants to be. If they want to be really radical, they cannot do that within the EU.”

Jackson, however, believes that EU procurement directives will continue to influence the UK after it leaves the union. However he thinks an exit might embolden cities to more fully embed the principles of the Social Value Act. “There will be an opportunity to embed social values far more effectively than [authorities] have to date,” he says. “I still think UK local authorities are a bit scared to embed this in policy because of EU law.”

The Social Value Act puts the UK ahead of Europe in its attempts to embed social and environmental values in public contracts, Jackson says. He believes much more could be done by the EU to implement the standards set out in the 2014 directives for procurement. “The directives for 2014 were meant to be transposed into the procurement law of the member states, but what’s missing for me is implementation, flexibility for SMEs and social and environmental goals for cities,” he says. “There are always barriers in that we need to be compliant, we can’t be anticompetitive, but there’s not that realisation that procurement can be used to address many of the social and environmental challenges.”

Jackson says many European cities are unwilling to go a bit further on the social and environmental criteria. He says a lack of good case studies of cities with progressive policies contributes to unwillingness to experiment. “It’s easier to choose on price,” he says. “How you embed progressive procurement into the behaviour of seven cities is just the start. There needs to be a lot of investment in capacity building and examples of practice at the EU level.”

By Hazel Sheffield

Hazel Sheffield (@hazelsheffield) is a journalist and filmmaker based in London. She was business editor of the Independent, a national UK newspaper, and now writes about business and economics for publications including the Financial Times, the Independent and the Times. In 2016, she founded Far Nearer, a reporting project that has mapped more than 100 local economies during austerity and Brexit.

Illustration: Eduardo Luzzatti.

Photo: Clive Varley CC BY

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