SMEs awarded more government contracts than ever before – but is it enough?

UK small and medium-sized businesses received £21bn worth of government contracts in 2021/22, equating to around £3.8k per SME, according to figures released by the Cabinet Office.

The contracts covered a breadth of sectors, including public infrastructure, technology and healthcare through clinical, medical and digital health services. The total sum is an increase of £1.7bn on the previous year.

The news is positive for small businesses who had hoped for more government business ahead of this Spring’s budget. 

“SMEs continue to be the backbone of the UK economy, and it’s great to see this being recognised by the government,” says Steven Mooney, CEO of FundMyPitch. “They all host immense potential to innovate and revolutionise various sectors, and sometimes all they need is to overcome the hurdles to accessing finance. “The government should continue to work on initiatives to support SMEs and work on collaborations with investors to improve confidence.”

Under new rules for the Procurement Bill, all departments and public bodies will be required to consider SMEs when designing their procurements. In theory, this means that more SMEs will get the opportunity to compete for government contracts through simpler regulations. The new rules include:

• Greater visibility of upcoming work, giving SMEs more time to gear up for bidding
• A new central platform showing future work in each area. This means, for example, that a new SME tech company in Lancashire will be able to search for upcoming tech opportunities in their region
• Creating one single website to register on, rather than the multiple and time consuming systems SMEs currently have to register on before bidding for work
• Reducing unnecessary insurance costs before a supplier has even bid for a contract
• A new competitive flexible procedure, which will allow contracting authorities to design more innovation into the process
• Strengthening prompt payment, so that businesses throughout the public sector supply chain receive payment within 30 days

Falling short?

Despite the seemingly positive news, is there still more the government should be doing to boost its spending in SMEs? 

In a report published by the National Audit Office (NAO) in 2016, the government set a target for 33% of spending to reach SMEs by 2020. At the time, the NAO claimed that reaching the target would depend heavily on the Ministry of Defence (MoD), which was then responsible for 44% of central government procurement. In 2014-15, 19% of the MoD’s procurement spend reached SMEs – and the other 16 departments collectively reported 33% of spending reaching SMEs. 

Despite these ambitions, in 2023 – three years later than its target year of 2020 – government spending in SMEs is still falling short of its seven-year-old target of 33%. 

In 2020/21, a breakdown of departmental spending showed that 26.9% of total spend went to SMEs – and in the financial year 2021/22, this figure actually decreased to 26.5%. For the latter, 14.1% covered indirect spending and just 12.3% was direct.

So, what’s next for this relationship? It’s essential that the government continues to communicate with small business leaders and implement the new rulings under the Procurement Bill – in addition to making concerted efforts to reach its missed 33% target for SME contract spending.

“Seeing the new rules introduced will hopefully unlock more of SMEs offerings, benefitting not only their business but the UK PLC overall as SMEs contribute significantly to many job opportunities and over half of UK turnover,” adds Sjuul van der Leeuw, CEO of Deployteq. “Investing in SMEs and levelling the playing ground in such a way is an important step in helping weather the current turbulent times.”

Other content you may be interested in:

• ‘A fundamental error by the Government’: why the R&D Scheme is still far from serving SMEs
• UK startups react with scepticism to government’s new innovation department

Kirstie Pickering - business journalist

Kirstie is a freelance journalist writing in the tech, startup and business spaces for publications including Sifted, TNW, UKTN, The Business Magazine and Maddyness UK. She also works closely with agencies such as CEW Communications to develop content for their startup and scaleup clients.