Small businesses across the UK are set to receive a significant boost from public spending, with the Government committing to channeling more than £7.4 billion a year directly to SMEs by 2028 as part of a new procurement strategy.
The targets announced as part of the Government’s Small Business Plan represent the first time that individual departments have been required to set specific targets for the amount they spend on small and medium-sized businesses, alongside annual reporting requirements to ensure accountability.
Ministers say the move aims to shift procurement from large multinational suppliers to smaller companies, helping to boost regional growth, create jobs and strengthen the local economy.
Under the new framework, departments will publish annual updates on their SME spending performance, with those falling short of this spending required to draw up corrective action plans.
Spending targets vary by ministry, with some of the highest commitments including 40% from the Department of Science, Innovation and Technology, 33% from the Department of Culture, Media and Sport and 30% from the Cabinet Office. Almost half of the ministries have set targets above 20%.
The figures reflect direct spending, but officials point out that billions more will flow indirectly to SMEs through supply chains, meaning the overall economic impact is likely to be significantly higher.
In addition to the £7.4 billion target, the MoD’s SME spending is set to increase by a further £2.5 billion, reaching £7.5 billion by May 2028.
The funding is intended to support businesses in key growth sectors including cyber, manufacturing, finance and science, areas considered central to the UK’s long-term economic strategy.
Cabinet minister Chris Ward said the policy reflected a wider commitment to supporting domestic businesses.
“These ambitious spending targets will help ensure more government contracts go to SMEs, keeping more money, jobs and opportunities in local communities,” he said.
Business groups have broadly welcomed the announcement, but some have called on the government to go further.
Federation of Small Businesses policy chair Tina McKenzie said introducing clear targets was crucial to reversing the recent decline in SME procurement.
She described the policy as a “starting point” for more ambitious commitments, particularly as overall government spending is expected to increase in areas such as health, defense and education.
Small Business Minister Blair McDougall said the changes would create new opportunities for thousands of businesses.
“These new targets will ensure smaller companies have greater opportunities to win lucrative government contracts and grow their businesses,” he said.
For many SMEs, access to public procurement has historically been limited by complexity, costs and administrative hurdles.
Industry leaders say the new approach could help address these challenges. Rob Levene, chairman of Constellia, said the reforms could be a game-changer for smaller companies that have felt left out of government contracts.
“Greater collaboration with SMEs will ensure better value, less waste and meaningful returns for communities,” he said.
Nicki Clark, chief executive of UMi, added that providing SMEs with access to publicly funded opportunities is widely seen as a key enabler of economic growth and innovation.
The government argues that greater participation of SMEs in procurement is one of the most effective ways to stimulate economic activity at the local level and ensure that public spending is directly translated into jobs, investment and business expansion.
The policy builds on previous measures under the Small Business Plan, including legislation to tackle late payments and a £4bn financial package to improve access to finance.
As departments begin to implement their goals, the focus will shift to implementation and whether the new system can meaningfully increase the share of government spending that goes to smaller businesses.
If successful, the initiative could reshape the UK procurement landscape, placing SMEs at the heart of public sector supply chains and strengthening their role as a cornerstone of economic growth.
