Government sets £7.4 billion procurement target with small businesses

Small businesses across the UK are expected to receive more than £7.4 billion a year in direct government spending by 2028 under new procurement targets published by ministers. For the first time, individual government departments have been given specific targets for the proportion of spending that should go directly to small and medium sized enterprises. Departments will also be required to publish annual progress updates, with those falling short expected to outline how they will improve performance.

The measures form part of the government’s Plan for Small Business, which aims to increase the role of smaller firms in public sector supply chains and support wider economic growth. Alongside direct spending, additional funding is expected to reach smaller firms indirectly through supply chains, potentially increasing the overall impact.

The Ministry of Defence has also set out separate plans to increase its spending with small businesses by a further £2.5 billion, taking the total to £7.5 billion by May 2028.

Targets vary across departments. The Department for Science, Innovation and Technology has set a target of 40 percent of procurement spending going directly to SMEs, while the Department for Culture, Media and Sport has set a target of 33 percent. The Cabinet Office has committed to 30 percent. Around half of all departments have set targets above 20 percent.

The government argues that increasing procurement opportunities for SMEs will help distribute economic activity more evenly across regions and support job creation. Sectors expected to benefit include cyber, manufacturing, finance and science.

Recent policy measures have also focused on improving access to finance and addressing late payments, which have long been cited as barriers to growth for smaller firms. The Plan for Small Business included legislation aimed at tackling payment delays and a £4 billion package intended to improve access to funding.

Industry groups have highlighted the importance of transparency in tracking progress. The Federation of Small Businesses has noted that direct spending with SMEs has declined in recent years, underlining the significance of setting clear targets and monitoring outcomes.

Examples of SMEs already working with government include Durham-based UMi, which supports business services, and Logan Construction in the South East, which has secured public sector contracts.

The introduction of departmental targets reflects a shift in procurement policy towards greater inclusion of smaller firms, alongside efforts to simplify bidding processes and reduce barriers to entry for public contracts.