SME Procurement in 2025: Stuck at 20% — and What That Really Means

This piece draws on findings from the BCC SME Procurement Tracker 2025, produced by the British Chambers of Commerce in partnership with Tussell and AutogenAI. It represents Elon Group's analysis and commentary on those findings.

The British Chambers of Commerce, working with procurement data specialists Tussell, has just published its 2025 SME Procurement Tracker — and the headline finding is one the sector has been quietly hoping would change.

It has not.

SMEs now receive £45.4 billion of direct public sector spend. That figure has grown every year for the past six years. And yet their share of overall procurement remains fixed at 20% — the same position it occupied in 2019.

Rising spend without improved access is not progress. It is a more expensive version of the same problem.

The system, not the supplier, is the obstacle

There is no shortage of capable, competitive SMEs. Across digital health, professional services, infrastructure, and beyond, they are delivering innovation at a pace and flexibility that larger incumbents rarely match.

What they cannot compete with is the procurement process itself.

Frameworks built for scale. Tender requirements that reward compliance over capability. Risk appetites calibrated to protect the buyer rather than deliver value. The result is concentrated spend with familiar suppliers, and a revolving door that keeps new entrants out.

The Tracker makes this visible in one stark statistic: the median SME earns £31,000 per year from public sector contracts. That figure has not moved since 2023. For all the policy attention this issue attracts, the commercial reality has not changed. And notably, the number of SMEs directly supplying government has actually fallen — dropping below 130,000 for the first time since 2020.

The gap that should embarrass Central Government

Look at the performance data across the public sector and a clear pattern emerges.

Local Government directs 35% of its procurement spend to SMEs — and has improved year-on-year, with £18.4 billion going to locally-based SME businesses in 2024 alone. That is not an accident. It reflects procurement teams empowered to think commercially and act accordingly.

The NHS sits at 19%. Central Government at just 11% — with some departments, including the Home Office and Ministry of Defence, recording figures as low as 5%.

This is not explained by different rules. Everyone operates under the same legislative framework. The difference is behaviour — and the willingness of leadership to treat procurement as a commercial function rather than an administrative one. As Gus Tugendhat, Founder of Tussell, puts it in the report: Local Government's steady gains highlight "what's possible when ambition is matched with action."

The Procurement Act changes the conversation

The Procurement Act 2023 came into force on 24 February 2025. It brings greater transparency requirements, stronger expectations around SME engagement, and a new accountability framework for Central Government departments — including published targets for direct SME spend, due by the end of May 2025.

This is significant. Procurement performance is no longer a back-office concern. It will be visible, measured, and increasingly difficult to ignore.

The Tracker is explicit that it provides the baseline against which the Act's success will be judged. For public sector leaders, scrutiny increases. For SME suppliers, the conditions for access should improve — but only if the system genuinely changes, not just the language used to describe it.

What better actually looks like

If the intention is real, the execution needs to follow. That means:

Simplifying routes to market. Complexity in tendering is not a quality filter. It is a barrier. Removing unnecessary friction opens the market to the suppliers best placed to deliver.

Shifting from compliance to commercial thinking. Procurement that treats risk avoidance as its primary objective will consistently underperform. The question should always be: what outcome are we trying to achieve?

Investing in market engagement. The best procurement decisions are made by buyers who understand their supply market. Passive procurement produces passive results.

Using data and technology intelligently. Insight drives better decisions — for buyers identifying opportunity and for suppliers navigating complex systems. This is an area where technology, including AI-assisted tools, is already making a material difference for both sides of the process.

The choice is deliberate

The Tracker uses the word "stuck." The BCC's Head of Policy, Jonny Haseldine, describes firms across the UK as "holding their breath for a gear change in the procurement system."

Local Government has demonstrated what the system is capable of when procurement is taken seriously. The question for the NHS and Central Government is not whether change is possible. It plainly is. The question is whether leadership is prepared to prioritise it.

The Procurement Act creates the conditions. It does not deliver the outcome. That remains a leadership responsibility.

How Elon Group can help

We work with public sector organisations that want procurement to perform — not just comply.

Our advisory support covers procurement strategy, commercial capability, SME market engagement, supplier and contract performance, and savings identification. We bring seven years of operational experience inside NHS procurement, which means we understand the system from the inside — its constraints, its pressure points, and where the real opportunities sit.

If you are responding to regulatory change, looking to improve SME participation, or simply want procurement to work harder for your organisation, we would welcome the conversation.

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Source: BCC SME Procurement Tracker 2025, British Chambers of Commerce, Tussell and AutogenAI (published May 2025)