SMEs overlooked for central government spending, local authorities do better

A new report from the British Chambers of Commerce has shown small companies account for the majority of public sector procurement, but walk away with the least revenue.

Overall, £38.7billion was spent by Downing Street on small enterprises in 2023 — a median earning per company of £32,000. 

Both numbers are up on previous years, but just 20% of direct public sector procurement spend in Westminster is currently going to SMEs. This is despite the fact these companies are responsible for 80% of overall contracts. 

The SME Procurement Tracker, launched this month by the British Chambers of Commerce, uses Tussell data to analyse the state of public spend on smaller suppliers. Despite being overwhelmingly overlooked for contracts, 99.9% of all UK private sector businesses are considered either small (0-49 employees) or medium (50-249 employees). 

‘In 2023, SMEs accounted for around 80 percent of direct procurement suppliers to government, yet they only received 20 percent 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,’ said Tussell founder Gus Tugendhat.

‘The obstacle lies in Central Government, which in 2023 only managed to spend 11 percent of its procurement directly with SMEs compared to 34 percent for Local Government,’ he continued. ‘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 five percent or less of their procurement budget directly to SMEs would really move the needle.’

However, the picture is markedly different for council expenditure. In 2023, local government spent 34% of overall procurement budgets on SMEs, and analysts believe this should be seen as an example for central government to follow. Late-October will see the introduction of a new Procurement Act designed to simplify processes and, in theory, make budget allocation more open. 

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Image: Miguel Teirlinck