A new report by the British Chambers of Commerce concludes that UK government contracts are "out of reach" for most small businesses.
Only one-fifth of direct procurement spend from the public sector (including central government) went to small businesses in 2023, according to data from the British Chambers of Commerce (BCC).
Now in its second year, the BCC's SME Procurement Tracker, powered by data provider Tussell, measures how well the government is supporting small businesses by doing business with them.
The latest report finds that while absolute public spending directly with SMEs has grown over the past six years, SMEs only made up 20% of overall spending last year. The total value of reported procurement expenditure by the UK government in 2023 was £194.8bn; of this, £39.7 billion was spent by government directly with SMEs last year.
"While it's welcome [that] the value of SME procurement contracts is continuing to increase, government deals remain out of reach for too many businesses. It is vital that public bodies always consider SMEs when tendering contracts." Jonny Haseldine, BCC policy manager.
SMEs win one in three local government contracts
BCC findings show that local government had the highest procurement spend directly with SMEs last year, both as a share of total procurement spend (34%) and in absolute terms (£24.1bn). This compares to 11% (£5.8bn) for central government and 20% for the NHS (worth £8bn to SMEs).
Public sector spend with SMEs varies widely across different sectors. The health and social care SME sector earned £11.9bn in direct public sector revenue in 2023. This accounts for 34% of total public spend in the sector, up from 29% in 2018. £4bn was spent on public sector spending with SMEs in education, training and recruitment.
Within central government, the Department for Culture, Media and Sport (DCMS) spent the highest proportion of its procurement spend directly with SMEs in 2023. DCMS spent 29% of its procurement total (equivalent to £256m) with UK small firms. The Department for Education spent the highest absolute amount directly with SMEs, amounting to £2bn in 2023, or 25% of its total procurement spend.
SMEs need greater access to government contracts
Jonny Haseldine, BCC policy manager, said: "Central government can learn lessons from local authorities who are consistently spending more on SMEs deals. We'd welcome further devolution of decision-making to allow more procurement contracts to be awarded at a local level.
"The Procurement Act coming into force at the end of October has the potential to make the system simpler and more transparent for businesses. In addition, it's crucial we hear more from the new government on their pledge to give SMEs greater access to contracts. Businesses up and down the country want to see a reformed process in which they can properly compete."
Written by Rachel Miller.
