Government spend with SMEs on the rise again - but still not back at 2016/17 levels

Profile picture for user ddpreez By Derek du Preez February 3, 2020
Summary:
The Cabinet Office has released its annual figures on how much Whitehall departments are spending with SMEs - both directly and indirectly.

Image of money

Government spend with SMEs - both direct and indirect - is again on the rise, now accounting for 25.7% of total procurement spend. Whilst spending increased last year too, in previous years we saw a decline, bringing into question whether or not Whitehall will hit its long-time ambition of £1 in every £3 being spent with small and medium sized businesses. 

However, the amount being spent with SMEs still hasn’t recovered from the highs we saw in 2014/15 of 27.1%. During this earlier period it felt like there was more of a concerted effort across government to change the way that procurement teams spend money.

The agenda had backing from senior Ministers and officials, and there was a huge publicity drive around new procurement tools, such as the G-Cloud framework. 

It has been said in recent years that these ambitions are waning. For example, influential think tank Institute for Government said back in 2018 that government spend with its largest suppliers was increasing, whilst SME spend was shrinking. Equally, during the recent digital government inquiry MPs were told that ‘oligopolies still dominate and SME spend is going in the wrong direction’. 

However, for the year 2018/19 total spend with SMEs was up 2% from 23.7% the previous year. Direct spend increased 1.1% and indirect spend increased 0.9% - which will be welcomed by those in the SME community that would rather not work as part of an extended supply chain. 

The total figure spent last year with small and medium businesses totals £14.2 billion, nearly £2 billion more than the previous year. 

The Cabinet Office also released transparency data that shows that it pays 99% of its bills within 30 days. 

Cabinet Office Minister, Oliver Dowden, said that Brexit could help boost the spending figures further: 

We’re committed to using the power of government spending to support small businesses across the country and this is something I’ve championed in my time as a Minister - so it’s great to see these figures heading in the right direction.

As we leave the EU we can create more opportunities for small businesses to win government business - boosting growth, employment and innovation.

The Cabinet Office said that the amount of money the government spent with small businesses in 2018/19 was the highest since government records began in 2013 - but failed to mention that the proportion of spend was still less than earlier years. 

Also missing from the Cabinet Office’s media release was any mention of the previously stated commitment to reach £1 in every £3 going to SMEs. 

How did departments perform? 

Valuably, the transparency data released this week continues to break down the spend by individual Whitehall department. 

Whilst it’s not possible to determine meaning behind the figures, it’s still interesting to see that certain departments continue to boost their spend year-on-year in a significant way. 

For example, BEIS increased its direct spend with SMEs from 27.3% in 2017/18 to 30.6% in 2018/19. Similarly, the Department for Education increased its direct spend from 16.8% last year to 35.5% for the current period. Another strong performer is the Ministry of Justice, which has spent approximately 27% with SMEs for the past two periods. 

However, some departments have seen a decline in direct spend over the past couple of years. For example, the Cabinet Office reduced its spend from 7.3% to 6.3% (although it’s indirect spend did jump from 13.9% to 20.9%). DWP saw both its direct and indirect spend fall by more than a percentage point in each case and the Ministry of Defence’s direct spend fell from 4.1% to 3.8%. 

I’d recommend a look at the full table of spend figures here

Mike Cherry, the National Chairman of the Federation of Small Businesses, supported the findings and said:

Making better use of small businesses in government procurement is good for public services, good for the economy and good for taxpayers. The Cabinet Office is showing real leadership to drive further progress on this issue and it is good to see this progress begin to be reflected in today’s figures.

Letting a greater proportion of public sector contracts to small businesses will increase competition, value for money and innovation, not to mention boost jobs across the UK. We will continue to work with government as it seeks to reach its welcome commitment for one third of public procurement to be with SMEs by 2022.

My take

It’s good news that overall figures are on the rise, but it’s clear from the departmental breakdown that it’s a mixed bag - some departments are flying, whilst others continue to suppress spend with SMEs. 

It’s also worth noting that whilst the figures indicate an improvement in the current conditions in Whitehall for SMEs, that isn’t necessarily the general feeling amongst  the small and medium businesses community. I’ve had a number of complaints over the past 12-24 months that there’s just no momentum behind the agenda. 

There’s also the question of Brexit and the trade deal negotiations that will run with the EU until December this year. What impact will that have? It’s too soon to tell. On the one hand, the government may have to look inward to UK talent, on the other hand it may look to ‘hand off’ responsibility to the large SIs and outsourcers.