Small businesses may be central to government ambitions for a more diverse and resilient supply chain – but the latest SME Procurement Tracker suggests that these ambitions remain far from being realised.
The annual tracker, published by the British Chambers of Commerce in partnership with AutogenAI and powered by data from Tussell, offers a yearly look at how well small and medium-sized enterprises (SMEs) are being brought into the fold of public procurement.
The picture is mixed: while there are pockets of progress, SMEs are still struggling to break through.
With a key deadline looming for central government departments to set new SME procurement targets, the report serves as a timely reminder that sustained effort and accountability will be critical to turning policy commitments into meaningful outcomes. Here are the key takeaways.
The headline: £45bn in SME spend, but no real growth in market share
Despite billions in spending, SMEs are still struggling to gain meaningful ground in public procurement.
In 2024, the UK public sector spent £45.4bn directly with small and medium-sized enterprises – up from £27.5bn in 2019. While that marks a healthy increase in cash terms, it tells a different story when viewed as a share of total procurement: SME spend has hovered stubbornly between 18% and 20% for the past six years.
That’s a striking contrast to the size of the SME sector itself. As of early 2024, SMEs accounted for 99.9% of all UK businesses, according to a January 2025 update from the Government Commercial Function. Yet their share of public sector contracts remains stuck at around one-fifth.
The disconnect raises pressing questions about the inclusivity and accessibility of public procurement processes. If almost the entire business population qualifies as SMEs, yet their share of public procurement remains limited, it suggests that the barriers lie less in supply – and more in the structure and accessibility of the system itself.
Falling supplier numbers, flat earnings
Another red flag: the number of SMEs supplying government directly declined in 2024, falling to a 5-year low of 130,000 firms.
At the same time, the median revenue per SME supplier stagnated at £31,000, marking the first time this figure hasn’t grown since 2020.
This ceiling on SME growth is echoed in contract-level data. Previous research by Tussell and Cardiff University shows that the median contract value for small and micro firms declined between FY22/23 and FY23/24, despite rising overall spend. Fewer SMEs are winning work – and when they do, it’s for smaller, less valuable contracts.
Taken together, these trends suggest that barriers to entry and scale remain entrenched.
Outpaced by local authorities: Central government’s SME gap
While local government has steadily increased its share of procurement spend going to SMEs, central government’s performance has remained relatively stagnant.
In 2024, just 11% of central government’s procurement spend was awarded to SMEs, well below the 20% public sector average – and far behind local government’s 35%.
In absolute terms, this equated to approximately £7.2bn in direct SME spend from central government bodies – less than what was spent by the NHS, and less than a quarter of the £28.1bn local authorities spent with SMEs.
There were a few bright spots. The Department for Digital, Culture, Media and Sport allocated 28% of its procurement spend to SMEs – the highest proportion of any ministerial department. Meanwhile, the Department for Education led on absolute value, spending £2.4bn directly with small and medium-sized enterprises.
However, these standouts were the exception rather than the rule. At least eight central departments, including the Department for Work and Pensions and the Department for Energy Security and Net Zero, saw a decline in the proportion of spend going to SMEs between 2020 and 2024.
Further clouding the picture, several major buyers have yet to publish complete invoice data for 2024, including the Ministry of Justice and Department for Science, Innovation and Technology.
With the Procurement Act 2023 now in force, Procurement Policy Note (PPN) 001 requires all central government departments to set and report against direct SME spending targets by the end of May 2025. This year’s tracker provides a crucial baseline – but also underscores the gap between historic policy ambition and current performance.
Whether this renewed legislative drive can catalyse real change remains to be seen.
Moving Forward: What can central government learn from local authorities?
Local government has shown that meaningful progress on SME engagement is possible, when there’s sustained focus and procurement processes are designed with accessibility in mind.
Part of this success is structural. Council contracts tend to be smaller, more locally focused, and better aligned with the capabilities of small and medium-sized firms. This naturally creates more entry points for SMEs across a broad range of service areas.
Central government faces a different set of challenges. Its contracts are often larger, more complex, and procured through long-term frameworks that can be difficult for smaller firms to penetrate. But that doesn’t mean improvement is out of reach.
To shift the dial, central departments must take a more intentional approach – breaking down large contracts where possible, streamlining qualification requirements, and engaging earlier with the SME market. Procurement strategies need to be designed not just for compliance, but for inclusion.
The Procurement Act 2023 offers fresh tools to support this change. Innovations like open frameworks and dynamic markets can help level the playing field, allowing new suppliers to join over time instead of being locked out after a single competition. If used effectively, these mechanisms could offer a more flexible and SME-friendly alternative to the traditional frameworks that often favour incumbents.
Ultimately, if central government is serious about closing the SME gap, it must go beyond ticking the boxes of Procurement Policy Note 001. It must embrace structural change, draw on lessons from local government, and foster a procurement culture that actively enables – not inhibits – diversity in its supplier base.
Ben Pollard is the marketing executive at Tussell. Download the 2025 SME Procurement Tracker