Only a fifth of direct public sector spend went to small businesses in 2023
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Posted: Thu 8th Aug 2024
Only 20% of direct procurement spend went to small and medium sized enterprises (SMEs) last year, new figures have revealed.
Analysis by Tussell and the British Chambers of Commerce showed that of the £194.8bn total direct spending in 2023, £39.7bn was spent with SMEs.
The study found that although direct spending with SMEs has grown over the last six years (up from £22.4bn in 2018), direct SME spending as a proportion of wider public sector procurement spending has not.
At 34%, local government had the highest share of procurement spend directly with SMEs in 2023. This compares to 20% from the NHS, and 11% from central government.
Public sector spend with SMEs varies across different sectors. Health and social care SMEs received £11.9bn in 2023, 34% of total public spend in the sector, up from 29% in 2018. In contracts, £4bn was spent with education, training and recruitment SMEs.
Within central government, the Department for Culture, Media and Sport spent the highest proportion of its procurement spend directly with SMEs in 2023. It spent 29% of its procurement total (equivalent to £256m).
The Department for Education spent the highest absolute amount directly with SMEs, amounting to £2.0bn in 2023, or 25% of its total procurement spend.
Gus Tugendhat, founder of Tussell, said:
"In 2023, SMEs accounted for around 80% of direct procurement suppliers to government, yet they only received 20% of the procurement spend. Furthermore, their under-represented market share has remained broadly flat for the past four years, indicating a lack of progress against the government’s goal of buying more goods and services from small businesses.
"The obstacle lies in central government, which in 2023 only managed to spend 11% of its procurement directly with SMEs compared to 34% for local government. While some ministerial departments like DCMS and the DfE are showing signs of success in their SME spend, others are lagging behind.
"Progress by big spenders like the MoD and Department for Transport who currently channel only 5% or less of their procurement budget directly to SMEs would really move the needle. A new government and new procurement legislation provide an impetus for improvement. Next time we update this tracker, it will be interesting to see whether or not this opportunity has been seized.”
Public Procurement Act
The new figures come ahead of the introduction of the Public Procurement Act, passed by the previous government, being introduced on 28 October.
The legislation aims to simplify the system and make it easier for small businesses to win more public sector contracts.
A report by Enterprise Nation, The Entrepreneurs Network and Tussell in 2022 found that the government's failure to meet the procurement target for SMEs is partly down to the lack of information the government holds about how the 5.5m strong small business community operates and how they can be helped.
In 2015, the previous Conservative government set a target of delivering a third of public sector contracts to small businesses by 2020. It was later extended to 2022 but the target has not yet been reached.
Event: SMEs and Government - A new era of partnership
Join Enterprise Nation and The Findr Collective for a discussion on how SMEs can leverage the Procurement Act to collaborate with government like never before.
Sign up here for the event in London on 29 October.
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