The government has issued new guidance instructing public sector buyers to make it easier for small businesses to win a larger share of the £400 billion spent annually on goods and services.
The national procurement policy, which comes into effect on 24 February, encourages 20,000 public agencies to simplify tendering processes for small and medium-sized enterprises (SMEs), as well as voluntary, community, and social enterprises. The move is designed to reduce bureaucracy, drive social change, and help small businesses compete for government contracts.
The Cabinet Office has told buyers to “maximise procurement spend” with SMEs without compromising value for money or quality, as part of broader efforts to boost economic growth.
With SMEs already receiving around 20 per cent of public procurement spending, the reforms could unlock billions of pounds in contracts for smaller firms. The 2023 Procurement Act, set to take effect at the end of the month, will introduce greater transparency, potentially saving over £4 billion a year, according to the National Audit Office.
“Businesses tell me that the current system isn’t working. It is slow, complicated, and too often means small businesses in this country are shut out of public sector contracts. These measures will change that.”
The new rules also require government departments to conduct spot checks to ensure large suppliers are paying subcontractors within 30 days.
A “public interest” test is also being introduced, determining whether government departments and local authorities should outsource contracts or deliver services in-house to improve efficiency and value for money.
The Cabinet Office is also exploring ways to allow local councils to prioritise SMEs in their communities over national suppliers, even when larger firms offer lower prices.
Emma Jones, chief executive of Enterprise Nation, welcomed the changes, saying: “By setting new standards in creating social value and reinforcing 30-day payment terms, this new approach could see many more opportunities opening up for the UK’s small business community to grow.”
Increasing SME contracts to 40% by 2030
A Goldman Sachs report this week urged the government to increase the share of procurement contracts awarded to SMEs to 40 per cent by 2030. The Institute for Government has estimated that SME public sector spending remained at around 20 per cent between 2018 and 2023, highlighting significant room for improvement.
Jones believes that reserving contracts for small businesses will provide a major boost to local economies, ensuring that public sector spending supports innovation, sustainability, and job creation in communities across the UK.
With the government looking to drive growth and support smaller firms, businesses will be watching closely to see if these reforms translate into real opportunities.
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Government urges public sector buyers to award more contracts to small businesses