In 2023, only 20% of the direct public procurement spend was awarded to SMEs, a figure that has remained stagnant since 2022. Although this share is slightly higher than the 19% recorded in 2019, it highlights smaller businesses’ difficulties in accessing lucrative Government contracts.
Local authorities have been the most supportive of SMEs, with 34% of their procurement spending going to small businesses, amounting to £24.1 billion. This contrasts sharply with the central Government, where only 11% of the procurement budget, or £5.9bn, was allocated to SMEs. Sectors such as health and social care, education, and training saw the highest SME participation, with £11.9bn spent on health and social care alone, representing 34% of the total spend in that sector.
However, the overall picture for SMEs remains concerning. Despite Government initiatives aimed at increasing SME involvement in public procurement, the average value of contracts awarded to SMEs was just £32,000, and the number of SME suppliers has only risen by 20% since 2018.
New procurement rules aim to support SMEs
The introduction of the Procurement Act 2023, which comes into force on 28 October, aims to address some of the barriers SMEs face in accessing public sector contracts. The Act will require contracting authorities to assess and mitigate SMEs’ challenges throughout the procurement process. This includes simplifying the system and removing some of the insurance requirements that currently prevent smaller businesses from competing for contracts.
The Act also introduces greater flexibility for local councils, allowing them to consider factors such as supplier location and social value when awarding contracts. This change is expected to provide further opportunities for SMEs, particularly at the local government level, where there has already been a higher rate of SME engagement.
While the new legislation has the potential to improve access for SMEs, it remains to be seen whether it will lead to a significant increase in the share of government contracts awarded to smaller businesses. The disparity between central and local government spending on SMEs is stark, and there is hope that the new rules will encourage greater participation across all levels of Government.
Jonny Haseldine, policy manager at the British Chambers of Commerce, said:
“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 SMEs deals. We’d welcome further devolution of decision-making to allow more procurement contracts to be awarded at a local level.”
As the public sector continues to be a critical area of opportunity for SMEs, the impact of these new regulations will be closely monitored. Businesses should stay informed about the changes and consider how they might position themselves to benefit from the new procurement environment
