Start-ups are “losing faith” in the government as a buyer and technology champion, the Startup Coalition has said in a report calling for changes to the way the public sector buys, as figures from Tussell show 84 per cent of last year’s government technology spending went to 150 businesses, most of them foreign.
The lobby group, which represents technology start-ups and scale-ups, said Andy Burnham’s “Buy British” push must tackle fundamental problems in the procurement process.
One change has already reached smaller bidders. On 5 August the Cabinet Office raised the threshold at which social value criteria apply to public contracts to £1m, from £139,688, and said the rules had been simplified “so they don’t typically apply to the work smaller firms and local social enterprises are bidding for”, according to the government’s announcement. The same package doubled the credit given to bids that create local jobs and scrapped rewards for net zero and diversity.
Craig Beaumont, executive director at the Federation of Small Businesses, said in the announcement: “Lifting the threshold to £1 million ought to see many more small firms winning contracts, as small businesses deliver huge intrinsic social value but they can often struggle to demonstrate this in procurement processes.”
How much reaches small firms
The public sector spent £45.2bn with small and medium-sized enterprises in 2025, or 21 per cent of all direct procurement, a six-year high, according to the SME Procurement Tracker published by Tussell and the British Chambers of Commerce in May. The tracker covers central government, the NHS and local councils.
Successive governments have set targets for spending with small firms. In 2015 David Cameron said a third of central government procurement should go to SMEs by 2020.
Tussell found the money more concentrated in technology, where 150 businesses received 84 per cent of the UK government’s tech spending last year.
Why the Startup Coalition says change is needed
“For British start-ups and scale-ups, this really is the last-chance saloon after successive administrations have delivered warm words but little real action,” the group said. “The result is an ecosystem increasingly losing faith in the UK government as a buyer and champion.”
The report found that start-up founders hit obstacles at every stage of the buying process, from risk-averse buyers to long delays and difficulty getting in front of the right people.
Jack Perschke, who co-founded Great Wave AI, a business that helps customers build artificial intelligence agents, and is its chief executive, said: “We often spend more time stuck in procurement for public-sector contracts than delivering them.”
Start-ups also say framework agreements put them at a disadvantage. These long-term purchasing arrangements account for 26 per cent of public procurement, open only every few years, often carry onerous bidding requirements and can leave companies waiting for approval.
Rachael Crook, who co-founded the health and care platform Lifted and is its chief executive, said: “All too often, processes and bureaucracy act as barriers for SMEs.”
The Startup Coalition said the social value changes could “mark a potential turning tide” but that ministers would need to reshape the buying process. “Warm words from the top will not be enough to turn a tanker that is inert, risk-averse and slow to seize new opportunities. Instead, systematic change must be made at every point in the public sector buying process to turn strong signals into real change founders can feel,” the group said.
Burnham, speaking outside Downing Street on 20 July in his first speech as prime minister, said he would “use public procurement to back British industry”. The chancellor, John Healey, said ministers would “buy British not if possible, but by design” in technology, defence and artificial intelligence.
In a statement, the government said it was “committed to making sure every pound of taxpayer money is delivering real benefits for communities, developing skills and creating new jobs in every part of the country”. It added: “These changes will cut red tape and ensure that every business focuses on delivering British jobs. Our priority is good growth in every postcode and we’re using £90 billion of public contracts to make sure that happens.”
