UK Government Spend With SMEs – Up Again In 2014/15

This week, the UK government published their data relating to the spend made with SMEs (small and medium-sized enterprises) by central government departments in the financial year 2014/15. And it was good news again for the government, with spend apparently up to 27.1% of total third party spend from 26% in 2013/14, equating to £12.1 billion of government spending.

However, only 10.9% of this was direct spend (10.3% last year); 16.2% was “through the supply chain” (15.7%). So that means money that is spent with large suppliers, but they then pass on a proportion of this income to SME suppliers of their own. As the Cabinet Office said;

“This exceeds the target set in the last Parliament of spending 25% of the central government procurement budget with small businesses by 2015. The government is also in a good position to reach its new target for a third of central government buying to be with small businesses by 2020. Achieving this target will mean an extra £3 billion per year (in 2013 to 2014 terms) going to small firms directly or through the supply chain”.

We will take a look at the detailed Departmental figures more closely and come back to this shortly, but it is worth pointing out as always that the indirect spend figures are estimates.

Indirect spend with SMEs via the supply chain is collected through a Cabinet Office administered survey of the top 500 suppliers, on a department by department basis. Departments then review this data. Because we rely on reported data and not on data supplied by departments, the approach to indirect spend should be regarded as indicative”.

The biggest growth in direct spend with SMEs has come from Ministry of Justice, whilst Department for Transport has seen a huge leap in the indirect spend number, from 14.8% to 29.5% of their total spend. It’s hard to interpret that DfT data as anything other than a measurement issue to be frank; why and how would DfT’s big sub-contractors suddenly double their own spend with SMEs in a single year?

Another interesting point (and one that no-one seems to have picked up on) is that the total procurement spend was £44,871 million in 2014/15, which is up almost 3% from the £43,647 million of 2013/14. At a time of pretty much zero inflation, and supposed austerity in public spending, that raises some questions. Remember the huge “procurement savings” that get claimed every year by government? If you were the CFO of this “organisation” you might look at that data and say “where are these savings that you claim – I just see third-party spend going up 3%”!

Anyway, as we say, more to come on this soon.

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First Voice

  1. Ian R:

    More outsourcing and a greater reliance on the private sector is a possible reason for the increase in overall procurement spend.

    This indirect spend thing has always annoyed me, as it was never the intention or the target (sorry aspiration) to measure spend in this way when it was originally announced.

    Means pretty much nothing as this doesn’t mean that the government is benefitting from the innovation and efficiency that SME’s are suggested to bring, and the SME’s aren’t benefitting from direct experience of working with a public sector client (and probably still have to abide by the prime contractors payment and other terms). So the target could be 80% and we wouldn’t derive any benefit……

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