Winning government work has often felt like a big-company game. The paperwork can be heavy, the buying frameworks can look intimidating, and many smaller firms assume Whitehall contracts are meant for larger suppliers with full bid teams. A new announcement from government will not remove all of that overnight, but it does suggest ministers are trying to shift more public spending towards smaller firms.
On 24 March, the government said small businesses across the UK are set to receive more than £7.4 billion a year from direct government spending by 2028. For the first time, departments have each set their own direct SME spending targets and will have to publish yearly progress updates. Ministers say departments that fall behind will need to explain how they plan to improve.
What has actually changed
This matters because the announcement is more specific than the usual general promise to “back small business”. Instead of one broad aspiration, individual departments now have percentage targets for direct spend with SMEs through to the end of the 2027/28 financial year. The Department for Science, Innovation and Technology has set a 40% target, the Department for Culture, Media and Sport 33%, and the Cabinet Office 30%. Nearly half of departments have set a target above 20%.
The Ministry of Defence sits slightly differently. Rather than publishing a percentage target today, it says it will increase total direct and indirect spending with SMEs by £2.5 billion to £7.5 billion by May 2028, with a fuller action plan to follow after the Defence Investment Plan. That could matter for engineering firms, specialist manufacturers, software suppliers and service businesses in defence supply chains.
The wider point is that departments are now being measured more openly. If annual updates are published as promised, SME groups and suppliers should have a clearer way to judge whether this turns into real opportunities or stays as a headline.
Why this matters for smaller firms
For many SMEs, this is not really about landing one giant central-government contract. The more practical opportunity may be in smaller direct contracts and in the wider supply chain around public spending. Think maintenance firms, training providers, local food businesses, cybersecurity specialists, recruitment agencies, construction subcontractors, software developers, office-support suppliers and specialist consultancies. If departments are under pressure to increase SME spend, procurement teams may have a stronger reason to look beyond the same large incumbents.
That said, business owners should stay realistic. A spending target is not the same as guaranteed work, faster decisions or simpler tender documents. Smaller firms can still be blocked by insurance requirements, cashflow strain, slow payment terms, framework complexity or the time it takes to prepare a compliant bid. In that sense, procurement reform works best when it sits alongside other small-business measures. The government has already linked this push to its wider support package, which includes the new late-payment crackdown for SMEs and a broader financing push through the British Business Bank. If you missed that earlier funding angle, our recent piece on the British Business Bank’s planned capacity boost is worth a look.
What SMEs should do now
If you already supply the public sector, this is a good moment to review where you fit. Which departments, arm’s-length bodies or major contractors buy what you sell? Are you only looking at direct contracts when the better route may be as a named subcontractor or framework partner? A lot of smaller firms miss work not because the demand is absent, but because they are watching the wrong buying route.
If you have never bid before, do not assume this is irrelevant. Public-sector work is not only for large national suppliers. Local and specialist firms often have the edge on responsiveness, niche expertise and delivery. The practical next step is to tighten up the basics: case studies, policies, insurance, pricing discipline and clear evidence that you can deliver on time. A rushed bid assembled from old documents usually looks exactly like that.
It is also worth watching payment terms and contract structure, not just contract value. A public contract that pays slowly or shifts too much compliance burden onto the supplier can still squeeze a smaller business. More opportunities are useful only if they are commercially workable.
The practical takeaway
This announcement looks like a real signal, especially because it comes with named departmental targets and yearly reporting rather than vague encouragement alone. For UK SMEs, the most sensible response is neither cynicism nor blind excitement. It is preparation.
If government buyers are genuinely being pushed to spend more with smaller firms, well-prepared SMEs should have a better chance of getting noticed over the next two years. Businesses in construction, maintenance, professional services, manufacturing, tech and local supply chains may be particularly well placed. But the firms that benefit are likely to be the ones that treat procurement as a sales channel they can learn, not as a closed club that will somehow open itself.
Sources
- GOV.UK, Billions to go directly to small businesses across the country as government sets new targets for spending, published 24 March 2026
- GOV.UK, Departmental Small Business Procurement Targets, accessed 24 March 2026
- GOV.UK, Ministry of Defence small and medium-sized enterprise engagement, published 24 March 2026
