The UK government will send £7.4bn a year to SMEs under new spending targets

Small businesses across the UK are set to get a big boost in public spending, as the government pledges to send more than £7.4 billion directly to SMEs a year by 2028 as part of a new procurement strategy.

These goals, announced under the government’s Small Business Plan, mark the first time that individual departments have been required to set specific targets for spending on small and emerging businesses, as well as annual reporting requirements to ensure accountability.

Ministers say the move is designed to rebalance procurement away from large international suppliers and small firms, helping to boost regional growth, create jobs and strengthen the local economy.

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

Spending targets vary across departments, with some of the highest commitments including 40% from the Department of Science, Innovation and Technology, 33% from the Department for Culture, Media and Sport, and 30% from the Cabinet Office. Almost 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 much higher.

In addition to the £7.4 billion target, Ministry of Defense SME spending will increase 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 wider commitment to supporting local businesses.

“These low cost spending targets will help ensure that more government contracts go to SMEs, saving more money, jobs and opportunities for local communities,” he said.

Business groups have widely welcomed the announcement, although some have urged the government to go further.

Federation of Small Businesses policy chair Tina McKenzie said the introduction of clear policies is essential to reversing the recent decline in SME purchases.

He described the policy as “the beginning” of a major commitment, especially as overall government spending is expected to increase in sectors such as health, defense and education.

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

“These new targets will ensure that small businesses have a 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 this new approach can help address those challenges. Rob Levene, chairman of Constellia, said these changes could mean a change for small companies that felt excluded from government contracts.

“More cooperation with SMEs will ensure better value, less waste and meaningful benefits to communities,” he said.

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

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

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

As departments begin to implement their goals, the focus will be on delivering basic services, and whether the new system can increase the share of government funds flowing to small businesses.

If successful, the initiative could reshape the UK’s procurement landscape, placing SMEs at the center of public sector supply chains and strengthening their role as the backbone of economic growth.