Proportion of money spent with small firms continues to rebound

Credit: Litepix from Pixabay

The proportion of government spending going to SMEs exceeded 25% for the first time in four years last year, as smaller firms won an extra £2bn in Whitehall contracts.

The government’s long-held ambition of spending one pound in every three with SMEs has stuttered a little in recent years; after hitting a high of 27.1% in 2014/15, the proportion of money going to smaller firms dropped to 24% the following year, then again to 22.5% in FY17.

Having rebounded to 23.7% in the 2018 fiscal year, SME spending saw an even greater rise in FY19,  coming in at 25.7%.

Smaller firms won a cumulative £14.19bn of government business during the year – the highest since data was first collected in 2013. The FY19 total was close to £2bn ahead of the £12.39bn posted in the prior 12 months. 

During FY19, there was a rise in the amount of SME spending through both direct and indirect channels. 

The £6.41n of contracts awarded directly to small companies equates to 11.6% of total spending – up from 10.5% in the previous year. 

A further £7.78bn was spent indirectly with SMEs. This equated to 14.1% of the £55.29bn spent during the year overall – compared with 13.2% during FY18.

Cabinet Office minister Oliver Dowden said: “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.”

DFID leads the way
In the 12 months to the end of March 2019, six departments met or exceeded the 33% SME spending rate target. This is double the three that did so in the previous year.

In each of the last two years, the Department for Digital, Culture, Media and Sport and the Department for International Development have comfortably led the way. In FY19 DFID was top of the pile on 45.4%, just ahead of DCMS on 45.2%. 

The Department for Education and the Ministry of Housing, Communities and Local Government both posted massive increases in the proportion of spending awarded to smaller firms. 

During FY19, the DfE dedicated 39% of its external spending to SMEs – the vast majority of which, 35.5%, came via directly awarded contracts. This compares with 23.6% of spending in the prior year, of which 16.8% was direct-award deals.

MHCLG’s overall SME spending figure, meanwhile, rose from 22.9% in FY18 to 37.3% last year.

The other departments to exceed the target of one pound in three were the Department for International Trade on 38.2%, and the Department for Business, Energy and Industrial Strategy on 35.1%.

The Department for Transport was very slightly shy of the one-third target, having spent 32.6% of its procurement budget with SMEs last year. With a total of £4.38bn awarded to small businesses, the DfT spent more money with SMEs than any other department.

The Ministry of Defence, which grew its proportion of SME spend from 16.5% to 19.3%, awarded contracts worth a total of £3.94bn in FY19.

The only other department to spend over £1bn with smaller firms was the Ministry of Justice, where the overall proportion of SME spend was more-or-less static at 31.2%.

The worst performers in proportional terms were the Department for Work and Pensions on 11.9% and, bottom of the pile, the Foreign and Commonwealth Office, on 11.3%.

Both saw a marked drop in the proportion of money they awarded to SMEs; the respective figures in FY18 stood at 15.4% and 15.6%.