SMEs win £1bn less government business in FY17 as proportion of spending drops for second year in succession
But Cabinet Office said government ‘remains committed to our aspiration’ of awarding £1 in every £3 to smaller firms by 2022
Newly published figures show that the proportion of central government spending that went to SMEs dropped for the second year in a row in the 2017 fiscal year.
The financial value of the deals awarded – or subcontracted – to smaller firms also declined by more than £1bn when compared with the prior year.
In the 2014/15 year, 27.1% of Whitehall procurement spend went to SMEs. This dropped to 24% in 2015/16 and further still, to 22.5%, in 2016/17, according to new figures from the Cabinet Office.
In FY17 just 10.5% of spending went directly to SMEs – down from 11% in the previous year. A further 12% of spending went to SMEs via subcontracting arrangements with larger firms during 2016/17.
The government’s stated goal is for 33% of its procurement spend to go to SMEs by 2022. And, despite moving further away from the target in each of the last two years, a Cabinet Office spokesperson said that this ultimate ambition remains the same.
Annual government SME spending by value and proportion
22.5% - £11.14bn
24% - £12.24bn
27.1% - £12.14bn
26% - £11.33bn
Source: Cabinet Office
The spokesperson added: “Small businesses are the backbone of the UK economy and this year we have introduced a range of tough new measures to level the playing field for small firms who want to supply to government. We remain committed to our aspiration of spending 33% with small businesses by 2022 and intend to keep up the momentum with further measures in due course.”
The decline in the percentage and value of deals won by smaller companies last year can, in large part, be attributed to the spending habits of the Ministry of Defence – which has by far the largest procurement budget of any department.
In 2015/16, SMEs were the recipients of 18.1% of the MoD’s £19.4bn procurement outlay. This equated to a little over £3.5bn in contracts.
In FY17, when the MoD spent £19.1bn, the percentage of money that went to SMEs plummeted by five points to 13.1%. The financial value of the ministry’s engagement with small firms was reduced by £1bn to £2.5bn.
In the 2016/17 year, central government procurement was worth a total of £49.44bn, compared with £50.93bn in the previous year.
A number of departments increased their percentage of SME spending during FY17, including the Department for International Development, which spent 46.4% of its procurement budget with SMEs during the year – higher than any other department.
Two other departments – the Department for Digital, Culture, Media and Sport on 43.9% and the Ministry of Justice on 36.6% – are already ahead of the government’s 2022 target. The Department for Education (32.7%) and the Department for Business, Energy and Industrial Strategy (30%) are not far off, and both made progress during the year.
SME spending leaders and laggards in 2016/17
DFID – 46.4%
DCMS – 43.9%
MoJ – 36.6%
DfE – 32.7%
BEIS – 30%
Treasury – 12.9%
MoD – 13.1%
DWP – 14.4%
FCO – 16.9%
Cabinet Office – 17%
Source: Cabinet Office
At the other end of the scale, HM Treasury is the only department to lag the MoD’s SME spending rate, having directly or indirectly awarded just 12.9% of contracts to smaller firms in 2016/17. Although this does represent an increase on the prior year’s figure of just 7.5%.
Other laggards during 2016/17 include the Department for Work and Pensions on 14.4%, the Foreign and Commonwealth Office on 16.9%, and the Cabinet Office itself on 17%. All three of these witnessed a reduction in the proportion of procurement spending that went to SMEs during the year.
The Cabinet Office indicated that it has recently put in place a number of initiatives designed to improve SME spending figures, including the appointment by the prime minister of a specified small business champion in each department. Other measures include asking bidders for government work to demonstrate social value, and barring any providers whose payment practices do not meet defined standards.
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