Cabinet Office claims that almost half of government digital spend goes to SMEs

Profile picture for user ddpreez By Derek du Preez August 27, 2018
The latest figures from the Digital Marketplace have been made available, with the Cabinet Office claiming £1.35 out of every £3 spent has been with an SME.

The latest figures from the government’s Digital Marketplace have been released, with the Cabinet Office Minister for Implementation Oliver Dowden claiming that almost half of digital spend now goes to SMEs.

However, there has been increased debate in recent years about the authenticity of the Cabinet Office’s figures, as well as data that government spend with SMEs across the board (not just digital) is falling.

The Digital Marketplace figures released this week, however, indicate that over £1.9 billion has been spent with SMEs since 2012, which is the equivalent of £1.35 out of every £3 spent by government.

For approximately six years now, the government has been pushing to introduce a more diverse set of suppliers into the Whitehall supply chain in an attempt to harness greater agility, innovation, and to reduce its reliance on the large SIs, which historically have a chequered past in delivering.

The Digital Marketplace includes a number of digital frameworks, including the G-Cloud, the Digital Specialists and Outcomes framework, and Crown Hosting.

G-Cloud launched back in 2012 and paved the way for new, transparent procurement models, which were aimed at levelling the playing field for new SMEs and the more traditional SIs. In its first year, spend on the G-Cloud framework was just a few million pounds, but has since seen over £3 billion worth of sales, and is considered a huge success for the Cabinet Office and digital government.

It paved the way for other frameworks to be introduced and the launch of the Digital Marketplace.

Minister for Implementation, Oliver Dowden, said:

This is excellent news. It’s great to see small business taking full advantage of the Digital Marketplace to help drive innovation in the public sector.

The Digital Marketplace is enabling small businesses to work in partnership with the public sector to drive the UK’s digital transformation. Small businesses are the backbone of the British economy and this government is committed to help them prosper.

In terms of specifics, 46% of G-Cloud sales by value went to SMEs (69% by volume), with 82% going through central government. Whilst 35% of total sales on the Digital Outcomes and Specialists Framework by value (83% by volume) went to SMEs, with 91% going through central government.

These figures indicate that there is still a huge opportunity for more spend to be pushed through the broader public sector, a problem that has been long documented and debated.

It’s also interesting that whilst SMEs are selling the most on both frameworks by volume, they’re still not selling more on either by value.

Not clear cut

It’s worth noting that the Digital Marketplace and the government’s push to get more money in the hands of SME suppliers has been a success in many ways - some UK SMEs have built entire companies off the back of the G-Cloud launching. Just a short few years ago public sector procurement was such a complex and expensive process that SMEs simply ignored Whitehall as an opportunity. That is no longer true.

That being said, the figures released today should be viewed within the context of a broader, more critical debate.

For example, it was recently revealed that the Cabinet Office’s figures were classing Amazon Web Services’ UK arm as an SME, whilst Amazon Web Services globally was ‘unclassified’, rather than large. This undoubtedly brings the authenticity of the government’s SME figure into question, given that I don’t think many would class AWS as a small to medium sized business.

Furthermore, back in 2016, the National Audit Office released a report questioning whether or not the increases in SME spend by the Cabinet Office are accurate, following closer inspection of the data. It stated:

We cannot be certain that the amount government spends with SMEs has increased over the last Parliament. The reported annual increases in spending with SMEs happened in parallel with the CCS’ (Crown Commercial Service’s) work to improve government’s understanding of its spending with SMEs. As a result, we do not know how much of the reported increase is due to the changes in approach and how much is an actual increase in SME activity.

For indirect spending, the Cabinet Office has surveyed a larger group of providers each year since 2011-12 so annual figures are not comparable. The CCS’ methodology for direct spending has not changed since 2011-12, but we cannot be certain that numbers are directly comparable due to the structure of the underlying data.

Diginomica/government is also aware that complaints have been made to the Office for National Statistics about the Cabinet Office’s methodology and the accuracy of the published spend.

In addition, the government recently released figures looking at its overall procurement spend (not just digital), which showed that spend with SMEs appears to be falling. Large departments, including DWP, the Department of Health and Social Care, and the Ministry of Defence, all saw a drop in total spend with SMEs.

According to the figures, direct spend with SMEs this year fell from 11% in 2015/16 to 10.5% in 2016/17. And indirect spend fell from 13% to 12% for the same period.

Interestingly, it’s also worth noting, that Oliver Dowden also recently announced that each government department has been appointed a minister to champion public spending with small businesses.

My take

Whilst this announcement is interesting in itself, it’s the data that’s been released that will prove valuable over the coming months, whilst people scour of the ins and outs of what’s changed over the years. As I said above, it’s without question that SMEs now have more opportunity in central government than ever before. However, there are still opportunities being missed - particularly within the broader public sector.