Government sets £7.4bn target to boost SME contracts across UK

In many businesses, leadership is seen as something that happens in boardrooms or during quarterly reviews – a responsibility held by the few. But for small and medium-sized enterprises (SMEs) facing fast-changing markets, staffing pressures and rising customer expectations, that top-down model simply doesn’t hold up.

Small businesses across the UK are set to receive a major boost from public spending, with the government committing to channel more than £7.4 billion a year directly to SMEs by 2028 as part of a new procurement strategy.

The targets, announced under the government’s Plan for Small Business, mark the first time individual departments have been required to set specific goals for how much they spend with small and medium-sized enterprises, alongside annual reporting requirements to ensure accountability.

Ministers say the move is designed to rebalance procurement away from large multinational suppliers and towards smaller firms, helping to drive regional growth, create jobs and strengthen local economies.

Under the new framework, departments will publish yearly updates on their SME spending performance, with those falling short required to outline corrective action plans.

Spending targets vary across departments, with some of the highest commitments including 40% from the Department for Science, Innovation and Technology, 33% from the Department for Culture, Media and Sport, and 30% from the Cabinet Office. Nearly half of government departments have set targets above 20%.

The figures relate to direct spending, but officials note that billions more will flow to SMEs indirectly through supply chains, meaning the overall economic impact is likely to be significantly higher.

In addition to the £7.4 billion target, SME spending by the Ministry of Defence is set to rise by a further £2.5 billion, reaching £7.5 billion by May 2028.

The funding is expected to support businesses across key growth sectors including cyber, manufacturing, finance and science, areas seen as central to the UK’s long-term economic strategy.

Cabinet Office Minister Chris Ward said the policy reflects a broader 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, though some have urged the government to go further.

Federation of Small Businesses policy chair Tina McKenzie said the introduction of clear targets was essential to reversing a 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 rise in areas such as health, defence and education.

Small Business Minister Blair McDougall said the changes would open up new opportunities for thousands of firms.

“These new targets will ensure smaller businesses have greater opportunity to win lucrative government contracts and grow their businesses,” he said.

For many SMEs, access to public procurement has historically been limited by complexity, cost and administrative barriers.

Industry leaders say the new approach could help address those challenges. Rob Levene, chair of Constellia, said the reforms could mark a turning point for smaller firms that have felt excluded from government contracts.

“More collaboration with SMEs will ensure better value, less waste and meaningful returns for communities,” he said.

Nicki Clark, chief executive of UMi, added that enabling SMEs to access publicly funded opportunities is widely recognised as a key driver of economic growth and innovation.

The government argues that increasing SME participation in procurement is one of the most effective ways to stimulate economic activity at a local level, ensuring that public spending translates directly into jobs, investment and business expansion.

The policy builds on earlier measures within the Small Business Plan, including legislation to tackle late payments and a £4 billion finance package aimed at improving access to funding.

As departments begin implementing their targets, the focus will shift to delivery, and whether the new system can meaningfully increase the share of government spending flowing to smaller businesses.

If successful, the initiative could reshape the UK’s procurement landscape, placing SMEs at the centre of public sector supply chains and reinforcing their role as a cornerstone of economic growth.