SMEs’ share of government direct spend drops in FY20 – although overall percentage rises

Written by Sam Trendall on 11 May 2021 in News

Departments spent an additional £1.3bn with smaller firms overall

Credit: PA

SME’s cumulative share of government procurement spending rose in the 2019/20 year – despite a drop in the proportion spent directly with smaller firms.

Newly published annual figures that departments spent a total of £15.54bn with SME firms in the 12-month period to 31 March 2020. This represents a rise of £1.3bn on the previous year.

The value of the work delivered by SMEs during the year represents 26.7% of the total of £58.24bn government spent with external providers. This marks a rise of one percentage point on the 2018/19 figure – the third year in a row the proportion of SME spend has grown. However, it remains a little way short of the 27.1% high reached in 2014/15. This was then followed by a sharp drop-off over the next two years.

The growth of FY20 comes despite the fact that the proportion of overall spending that went direct from departments to smaller firms dropped from 11.6% in FY19 to 11.3% this time out. This reversal was counteracted by a rise in the amount of money the government claims was spent indirectly with SMEs during the year, which increased from 14.1% to 15.4%. This includes any money spent further down the supply chain, such as through subcontracting agreements with larger firms.

Departments’ direct spend with SMEs

1. DCMS – 44.1%              10. DfID – 15.5%
2. DfE – 36.3%                   11. Treasury – 13.8%
3. DIT – 36%                      12. DfT – 9.8%
4. BEIS – 28.6%                 13. Cabinet Office – 9.3%
5. MoJ – 26.6%                  14. HMRC – 8.9%
6. MHCLG – 23.7%            15. MoD – 5.1%
7. DHSC – 18.5%               16. FCO – 5%
8. Defra – 18.3%                17. DWP – 3.5%
9. Home Office – 15.9%     Total – 11.3%


This equates to an extra £1.2bn of spending, which grew from £7.8bn to £9bn.

While the overall picture is one of an increase in SME-friendliness – albeit indirectly so – there is huge variance between departments.

At one end of the spectrum is the DWP, which spent just 3.5% of its procurement outlay in FY20 directly with SMEs. Its overall figure of 12.2% was some way behind the next worst performers: HM Treasury on 16.1%; and the then Foreign and Commonwealth Office on 16.4%.

At the other end of the scale is the Department for Digital, Culture, Media and Sport, which has an SME spend of 47.1%. What is more, the vast majority of this – 44.1% – was spent directly with smaller firms.
The Department for Education, with 36.3% spent directly and 44.5% overall, was next on the list, ahead of the Department for International Trade, on 36% and 41.4%, respectively.

The other departments to exceed the government’s stated target for 2022 of spending one pound in three with SMEs were: the then Department for International Development (40.2% overall); and the Department for Transport (34.2%).

The figures cover only the first couple of weeks of the coronavirus crisis. In light of the huge volumes of outsourcing and supplies contracts awarded during the pandemic – and the scrutiny and criticism that has followed – close attention will surely be paid to the next annual spending figures, and any demonstrable impact on government’s relationship with small businesses.


About the author

Sam Trendall is editor of PublicTechnology

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