7 For many years, government has sought to harness the potential benefits of involving SMEs in the public sector marketplace. The departments we met agreed that SMEs can offer a number of benefits to the public sector, compared with other providers. For example, offering more flexibility, innovative approaches and better value for money due to lower overhead costs. The Cabinet Office told us that SMEs, particularly VCSEs, can offer value in terms of local investment and improved social outcomes. Although government set its first target for spending with SMEs in 2010, the underlying policy is not new. Government has sought to increase its work with SMEs for similar reasons since the 1990s (paragraphs 1.5 to 1.9 and Figure 1).
8 In order to track performance, the CCS has made improvements to the understanding government has about its spending with SMEs. The number of bodies involved and different data systems have made it difficult to develop reliable estimates of government's spending with SMEs in the past. The CCS has worked with departments to improve the quality of government's information about SME spending. For example, it introduced a survey of large suppliers in 2011-12, in order to develop an indicative estimate of the amount government spends with SMEs through the supply chain. It has continued to refine the methodology each year up to 2015 (paragraphs 1.18 to 1.20).
9 In February 2015, government reported that it had met its 2010 SME spending target a year early. The Cabinet Office estimated that 26% of government spending reached SMEs in 2013-14, surpassing its 2010 aspiration of 25%. It estimates that government further increased its spending with SMEs the next year, to 27% of total procurement spending. The CCS reported that departments spent £4.9 billion directly with SMEs in 2014-15 and that a further £7.3 billion reached SMEs through supply chains (paragraphs 1.10 to 1.15 and Figure 2).
10 However, we cannot be certain that the amount government spends with SMEs has increased over the last Parliament. The reported annual increases in spending with SMEs happened in parallel with the CCS' work to improve government's understanding of its spending with SMEs. As a result, we do not know how much of the reported increase is due to the changes in approach and how much is an actual increase in SME activity. For indirect spending, the Cabinet Office has surveyed a larger group of providers each year since 2011-12 so annual figures are not comparable. The CCS' methodology for direct spending has not changed since 2011-12, but we cannot be certain that numbers are directly comparable due to the structure of the underlying data (paragraphs 1.6, 1.16 and Figure 3).
11 Increasing SME spending further by 2020 will be challenging. The government has set a new target for 33% of spending to reach SMEs by 2020. Whether it reaches this will depend heavily on the Ministry of Defence (MoD), which is currently responsible for 44% of central government procurement. In 2014-15, 19% of the MoD's procurement spend reached SMEs. The other 16 departments collectively reported 33% of spending reaching SMEs. The MoD told us it will be challenging to increase its SME spending further by 2020. It has already committed large proportions of its annual spending and is unlikely to be letting many further large contracts during the current parliament (paragraphs 1.21, 1.22 and Figures 2 and 4).