Contracts from government out of reach for many SMEs

Only 20 per cent of direct public sector procurement spend was allocated to SMEs in 2023, according to the latest report from the British Chambers of Commerce (BCC) and data provider Tussell.

The SME Procurement Tracker report highlights the ongoing struggle for small and medium-sized enterprises to secure a fair share of government contracts.

Now in its second year, the tracker is regarded as the benchmark for measuring government support to SMEs through public sector contracts. It shows that while the absolute spending with SMEs increased over the past six years, the proportion remained stagnant at one-fifth of the total expenditure, the same as in 2023 and only a slight improvement from 18 per cent in 2018.

The total value of reported procurement expenditure by the UK government in 2023 stood at £194.8 billion. Local government emerged as the most supportive of SMEs, spending £24.1 billion directly with them, which accounted for 34 per cent of their total procurement spend. This is a stark contrast to the overall 20 per cent average across the wider public sector, which includes central government.

Sector-wise, the health and social care sector led the way, with £11.9 billion (34 per cent of its total public spend) going to SMEs, up from 29 per cent in 2018. In the education, training and recruitment sector, £4 billion was spent with SMEs. Within central government, the Department for Culture, Media and Sport allocated 29 per cent of its procurement budget to SMEs, totalling £256 million, while the Department for Education spent the highest absolute amount at £2 billion, representing 25 per cent of its procurement spend.

BCC Policy Manager Jonny Haseldine said: “While it’s welcome that the value of SME procurement contracts is increasing, government deals remain out of reach for too many businesses.

“It is vital that public bodies always consider SMEs when tendering contracts. Central government can learn lessons from local authorities who are consistently spending more on SME deals. We’d welcome further devolution of decisionmaking to allow more procurement contracts to be awarded at a local level.”

It is vital that public bodies always consider SMEs when tendering contracts. Central government can learn lessons from local authorities who are consistently spending more on SME deals.

Jonny also pointed to the upcoming Procurement Act, set to come into force at the end of October, as a potential catalyst for change.

He added: “The Procurement Act 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.”

Tussell Founder Gus Tugendhat echoed these sentiments, emphasising the importance of the SME Procurement Tracker: “We’re delighted to partner with the British Chambers of Commerce to produce the market’s reference statistics on how much the government purchases directly from small businesses.

“We hope our findings will help policymakers across all parts of government to support local communities by reducing the official obstacles to awarding public contracts to small businesses.”