Statistics on UK government SME spend – the whole truth or nothing but?

Each year, we see similar headlines that criticise HM Government for not meeting its obligations to spend more on contracts with small and medium enterprises (SMEs), and this year was no exception. Same story, different year, but is there more to this than meets the eye?

This time we learnt from multiple sources that, in 2021/22, government spending with SMEs dropped 0.4% vs the year before to 26.5% of total procurement expenditure, despite higher overall public sector spending, and the government missed the target it set itself in 2015 of 33% of procurement spend to SMEs.

But what factors influence a departments decision to select an SME versus a large corporation to fulfil its contracts? And should HM Government be concerned that SMEs are getting a smaller slice of the pie?

Firstly, for public services, it is critical that procurement teams meet their own obligations to undertake supplier due diligence to ensure the continuity of those services. This means ensuring any supplier is financially sound and compliant with relevant regulations, including checking for sanctions, appropriate certifications, controlling ownership and much more. Departments have processes to follow when onboarding suppliers to assess risk, and then each contract is continually monitored for potential challenges during its term i.e. financial failure indicators. Given recent events including Covid, the Russia/Ukraine crisis and an economic downturn, it is not so simple to meet SME spend targets when many smaller businesses are struggling to meet and maintain these basic financial stability checks.

Furthermore, these rigorous, upfront compliance checks required by Government departments can be laborious for any organisation, let alone an SME with minimal resources. It’s a topic for another day, but the government has work to do to make it easier for SMEs to pass through the process.

With the help of public sector sales platform, Stotles, Dun & Bradstreet has identified active contracts for a particular UK Government Department and surfaced all the prime contracted partners. Dun & Bradstreet ran these partners through the D&B Risk Analytics engine to understand the breakdown between the number of SMEs and larger businesses, as well as the financial risk of their suppliers. Though there is some nuance between sizes of contracts, the outputs below provide a flavour of the current condition of the department’s supply chain:

 

• The department has 161 suppliers with active contracts.
  • 101 are classified as large businesses.
  • 60 are classified as either Micro, Small or Medium-sized businesses (SMEs)
• Out of the 161 suppliers:
  • 10 are at a high risk of financial failure,
  • and 6 of those are at a very high risk of imminent financial failure.
• A high proportion are ranked ‘medium’ or above when looking at their Environmental, Social and Governance (ESG) metrics.

 

To put this in context, the vast majority of suppliers are at a low risk of financial failure, and performing well from an ESG standpoint, which is excellent news.

Should we be concerned that SME spend % is down? Possibly not, given current market conditions.

However, there is certainly work to be done between the government and financial sector to help SMEs better understand the financial and non-financial risks they pose, and how they can improve their risk profiles. In addition to this, the requirements of the public sector bodies need to be more transparent and easier to understand and that is being dealt with somewhat by the recent changes in procurement policy via the Procurement Act 2023. Whilst much of the finer detail is still to be laid out, the principles are there to support a greater depth of engagement with SMEs These changes combined would allow SMEs to better position themselves for public sector contracts and supportive grants.

There is always more to statistics than meets the eye, but when it comes to public services the key is ensuring supply chain resilience. The government needs to stay wary of compromising on due diligence or supplier stability just to meet SME contract targets. For this, data that surfaces the risk SMEs pose when selecting them, and monitoring on an ongoing basis, can be a key foundation.

To analyse the impact and risk of SME’s on your department, request your free trial of Dun & Bradstreet’s Risk Analytics engine here.

To learn more about the Stotles platform and track SME spend across the public sector, visit the Stotles website.