Public sector spends less than 3 per cent with new businesses

22 August 2015

Less than 3 per cent of the UK public sector's procurement spend is with start-up companies, according to research.

Analysis by Spend Network looked at procurement transactions from central and local government between 2012 and 2014. The research looked at the age and size of companies getting contracts worth more than £500 for local government, and more than £25,000 for central government. The study encompassed 200 central and local government bodies in total.

It found of the £68 billion spent with identifiable suppliers, only £1.8 billion (2.7 per cent) was spent with start-up companies. These were defined as younger than five years old with a turnover of less than £2 million. Medium to large sized businesses got around 9 per cent of spend.

Central government spent considerably more with younger companies on management and business professionals and administrative services than it did on real estate management services.

The analysis showed that almost double was spent with younger companies in the North East than any other regions.

Nesta, a charity which promotes innovation, funded Spend Network's research as part of its work examining the role of government in supporting start-ups. It said the data showed it was still difficult for new companies to do businesses with government, despite efforts to improve access to government work for SMEs.

“Start-ups play a vital role in driving innovation across the economy, as well as creating 42 per cent of all jobs and contributing to economic growth,” said Tom Symons, principal researcher, policy and research at Nesta. “Nesta has argued that government should recognise this contribution and be a lead customer of start-ups, supporting them to scale and to bringing innovation to public services."

"We wanted to support this analysis by Spend Network as a means of gauging the support central and local government give to start-ups. The headline finding that only 2.7 per cent of the value of government contracts goes to start-ups suggests that this is a challenging market for them to work in, and that there is more the government could do to support them.”

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