The UK Government has made a significant commitment to directing public money towards small and medium-sized enterprises, publishing procurement targets that will channel more than £7.4 billion annually to SMEs by 2028. The announcement, which forms a central plank of the Government’s Plan for Small Business, is designed to fuel growth at a local level, create jobs and ensure that public spending generates returns across British communities rather than flowing predominantly to large international contractors.

By 2028, government departments will collectively channel more than £7.4 billion annually to small and medium-sized enterprises. The Ministry of Defence has committed to a further £7.5 billion by May 2028, having increased its SME allocation by £2.5 billion. These are direct spending figures; the full economic benefit, once supply chain activity is factored in, is expected to be considerably higher.

The policy sits within the Government’s broader Plan for Small Business, which has already introduced the most substantive legislation on late payments in over 25 years and unlocked a £4 billion finance package to improve access to funding. Taken together, these measures address three of the most persistent barriers smaller businesses face: cash flow, capital and access to contracts. For businesses that have historically struggled to compete at the public sector level, the landscape is shifting in their favour.

Getting on the front foot

Government contracts offer a form of revenue stability that private sector work rarely matches. Payment is predictable, relationships tend to be long-term and a track record of public sector delivery carries real weight when bidding for further work, both inside and outside government. For businesses operating in sectors including cyber security, manufacturing, finance and science, all of which are explicitly named in the new framework, the question is less whether to pursue public contracts and more how quickly to build the capability to win them.

The new Procurement Act, which sits alongside these spending targets, has been widely welcomed by industry as a genuine simplification of the tendering process. The administrative burden that previously deterred many smaller businesses from competing for government work is being reduced. Businesses that begin positioning themselves now, developing relevant case studies, understanding departmental priorities and building relationships with procurement teams, will be better placed than those who wait for the contracts to appear.

“The momentum and practical change that is being created in achieving that through the new procurement act is really encouraging to see.”

Nicki Clark, Chief Executive, UMi

Where is the money going?

Understanding which departments have set the most ambitious targets is useful context for businesses evaluating where to focus their efforts. The Department for Science, Innovation and Technology has committed to directing 40% of its procurement spend to SMEs, the Department for Culture, Media and Sport 33%, and the Cabinet Office 30%. Across government, nearly half of all departments have set targets above 20%, meaning at least one pound in every five will go directly to a smaller business.

Departments that fall short of their targets will be required to publish plans for recovery, a provision with real teeth. Annual reporting makes performance publicly visible, which creates both reputational incentive and political pressure to deliver. For businesses engaged in sectors aligned with high-target departments, that accountability works in their favour.

“These ambitious spending targets will help ensure more Government contracts go to SMEs, keeping more money, jobs and opportunities in local communities. This will make a real difference, and is a statement of intent that this Government will pull every lever to support SMEs and drive growth.”

Chris Ward, Cabinet Office Minister, UK Government

The proof is in the pipeline

The argument for SME involvement in public procurement is no longer theoretical. UMi, based in Durham, was selected to lead the Government’s Business Support Service. Logan Construction, headquartered in the South East, has built a consistent record of winning government construction contracts. Both are now positioned as credible, repeat partners to the public sector, with the reputational and commercial advantages that brings.

These examples matter beyond the headline. They demonstrate that smaller businesses can not only win government contracts but deliver on them at scale. For businesses considering whether public sector work is realistic, the evidence suggests it is, provided the groundwork is in place. The new framework makes that groundwork easier to lay.

“These new targets will ensure thousands of smaller businesses have greater opportunity to win lucrative government contracts and grow their businesses. Increasing procurement spend with SMEs is a national priority to drive growth across the UK, and through today’s changes we are delivering on that.”

Blair McDougall, Small Business Minister, UK Government

The agility dividend

One of the most consistent arguments made in favour of SME procurement is that smaller businesses deliver better value. They tend to be more responsive, more willing to adapt and less constrained by internal processes that slow delivery in larger organisations. For government departments under pressure to reduce waste and demonstrate efficiency, that agility carries genuine appeal.

The commercial benefit runs both ways. SMEs that work with government tend to strengthen their operational systems, reporting capabilities and governance structures in ways that make them more competitive across all their work. Public sector contracts can, in this respect, act as an accelerant for business maturity as much as a source of revenue.

“More collaboration with SMEs will ensure better value, less waste and meaningful returns for communities, ensuring Government Departments reap the multitude of benefits offered by agile and innovative SMEs.”

Rob Levene, Chair, Constellia

The early mover advantage

The Federation of Small Businesses has welcomed the targets while framing them as a starting point. Policy Chair Tina McKenzie noted that direct SME spending had been in decline since 2022, making the scale of the ambition ahead clear. Her expectation, shared by many across the sector, is that 2028 targets will be followed by progressively more challenging commitments as overall departmental spending in areas such as health, defence and education continues to rise.

“It’s important that this announcement is a starting point for more ambitious future spending commitments for 2028 and beyond, particularly as overall spend among the biggest government departments like health, defence and education, is set to rise.”

Tina McKenzie, Policy Chair, Federation of Small Businesses

What that means in practice is that the window of competitive advantage for early movers is real but finite. Businesses that establish themselves as credible government suppliers over the next two to three years will build a track record that compounds over time. The targets create a structural incentive for departments to seek out smaller suppliers actively, rather than defaulting to established relationships with large contractors. For businesses with the capability and the appetite, the conditions have rarely been more favourable.