Only one in five pounds of direct Government public procurement spending awarded to SMEs

October 18, 2022

Just over one in every five pounds (21%) spent by Government on public sector procurement in 2021 was awarded to small and medium enterprises (SME), a report from the British Chambers of Commerce (BCC), powered by Tussell, has found.

The BCC’s SME Procurement Tracker – the UK’s most comprehensive source of data on SME procurement, in partnership with Tussell – has revealed that while the value of published public sector procurement spending with SMEs has increased, the proportion of total Government money awarded directly to SMEs has not grown over the past five years.

Based on procurement expenditure data published by public bodies for transparency purposes, the value of reported public procurement spending in the UK increased significantly over the period 2016-2021. The amount spent on third-party goods, services, and works increased more than two-fold during this time, rising from £80bn in 2016 to £181bn in 2021.

The total value of direct public spending with SMEs in 2021 was up significantly on previous years, nearly doubling from £20bn in 2016 to £38bn in 2021.

In 2021, just over 105,000 SMEs invoiced the wider public sector directly for a median annual amount of £32,000.

However, SMEs are now receiving a relatively smaller amount of reported direct Government procurement spending than they were five years ago.

In 2016, 25% of public sector procurement spending was awarded directly to SMEs. By 2021, this figure had dropped to 21%, indicating that only just over one in every five pounds spent by Government on public services went straight to SMEs, excluding indirect spend with SMEs via the supply chain. This is significantly behind Central Government’s target of spending one in every three pounds with SMEs by 2022, a target which also includes indirect spend with SMEs via the supply chain, which is hard to measure.

As a proportion of their overall procurement budget, direct spend with SMEs by Local Government bodies was the highest at 38%. NHS bodies across England spent 22% of their procurement budget with SMEs, while Central Government was significantly lower than the average – awarding only 11% to SMEs.

Reacting to the findings, Alex Veitch, Director of Policy and Public Affairs at the BCC, said:

“SMEs have traditionally struggled to access government business and have often found bidding for public sector contracts prohibitively bureaucratic, time-consuming, and expensive.

“While gradual improvements have been made in recent years, our tracker shows that further change is still required to unlock the public sector’s access to SMEs’ innovation and creativity.

“It is disheartening to see that as the level of public sector procurement spending grew over the past few years, the proportion of spending awarded directly to SMEs did not.

“We welcome the Government’s Procurement Bill which we hope will create a simpler, more flexible system which should accelerate Government spending with SMEs. However, business will not see the benefit of this until 2023.

“If Central Government are to meet their target of spending one in every three pounds with small businesses by 2022, they will need to give serious consideration to what steps can be taken in the short term to open up the public sector market to SMEs.”

Link to report here: British Chambers of Commerce & Tussell – SME PROCUREMENT TRACKER 2022 -2