The UK government has set out plans to channel more than £7.4 billion a year directly to small businesses by 2028, in a major push to rebalance public spending and drive economic growth across local communities.
For the first time, individual government departments have been given specific targets for how much they must spend directly with small and medium-sized enterprises (SMEs), marking a significant shift in procurement strategy.
The move forms a central pillar of the government’s Plan for Small Business and is designed to increase access to public contracts for smaller firms, which have historically struggled to compete with larger suppliers.
Under the new system, departments will be required to publish annual progress reports detailing their small business spending, with those falling short expected to outline corrective measures.
Targets vary across departments, with some of the highest commitments including 40% for the Department for Science, Innovation and Technology, 33% for the Department for Culture, Media and Sport, and 30% for the Cabinet Office. Nearly half of all departments have set targets above 20%, meaning that at least one in every five pounds of public spending in those areas will go directly to SMEs.
The initiative is expected to unlock significant opportunities for businesses across sectors such as manufacturing, cyber security, finance and science.
Cabinet Office minister Chris Ward said the policy represents a clear commitment to supporting British enterprise.
“These ambitious spending targets will help ensure more government contracts go to SMEs, keeping more money, jobs and opportunities in local communities,” he said.
The headline £7.4 billion figure relates to direct spending, but officials note that the total benefit to SMEs will be significantly higher when indirect spending through supply chains is taken into account.
In addition, the Ministry of Defence is set to increase its SME spending by a further £2.5 billion, reaching £7.5 billion by May 2028, further boosting the overall impact.
The policy is intended to stimulate regional economies, support job creation and strengthen the UK’s private sector by ensuring that smaller firms can access stable, long-term revenue streams through government contracts.
Small Business Minister Blair McDougall said the changes would open up “lucrative opportunities” for thousands of firms.
“Increasing procurement spend with SMEs is a national priority to drive growth across the UK,” he said.
Business groups have broadly welcomed the announcement, particularly the introduction of clearer transparency and accountability measures.
Federation of Small Businesses policy chair Tina McKenzie said the targets were a necessary step to reverse a decline in SME participation in government contracts since 2022.
“Understanding exactly how much central government spends directly with small businesses is essential for holding departments to account,” she said, adding that the new framework should serve as a foundation for even more ambitious commitments in the future.
Industry leaders also highlighted the broader benefits of engaging SMEs, including increased innovation, flexibility and value for money in public procurement.
Rob Levene, chair of procurement platform Constellia, described the move as a “pivotal moment” for smaller firms that have historically been excluded from government contracts due to complexity and cost barriers.
The spending targets build on a series of recent measures aimed at strengthening the SME ecosystem, including legislation to tackle late payments and a £4 billion funding package to improve access to finance.
Together, these initiatives reflect a more interventionist approach to economic policy, with the government seeking to use procurement as a lever to support growth and rebalance the economy.
For SMEs, the changes could represent a significant expansion of opportunity, provided departments meet their targets and procurement processes become more accessible.
As the policy is rolled out, the key test will be whether increased spending translates into tangible outcomes for businesses on the ground, helping them scale, innovate and contribute to long-term economic resilience.
