Why councils ‘spent just 10% of budgets on SMBs’

Councils should have policies to spend more money with SMBs, it is claimed, after figures suggest SMBs netted just 12.5% of local authority spending over the last three years.

Think tank Centre for Entrepreneurs (CfE) has called on councils to create champions for SMB procurement in order to up their spend on smaller firms – currently just half Whitehall’s stated 25% target.

The recommendation comes after its study, ‘Spend Small: the Local Authority Spend Index’, found that of £89bn spent with companies between April 2011 and March 2014, just £11.1bn went to small businesses.

That was divided up between 78,128 SMBs, but the 20 largest suppliers accrued £9.9bn between them.

Each SMB earned an average £50,000 each, compared to the top 20 suppliers’ average £165m per year.

The largest earning IT firm, Capita, took in an average £232m per year over the period.

That is more than the average £220.6m spent annually on all SMBs providing business support to local authorities.

CfE chairman, Luke Johnson, said: "Sadly, many entrepreneurs struggle to win business from government, finding the process to be complex, bureaucratic and tilted in favour of large incumbents.

"Although central government has an explicit strategy to do more business with small firms, the same cannot be said for local authorities, so performance varies widely.

"Given the opportunity, small, entrepreneurial firms are proving they can cut costs and drive innovation in the public sector, while boosting their local economies."

However, the data demonstrated that Monmouthshire County Council topped the SMB spending list at 25.6% of total expenditure, followed closely by the Council of the Isles of Scilly.

In contrast, Westminster City Council spent just 7% of its budget on small companies, while Barnsley Metropolitan Borough Council came bottom with 4.17%.

CfE chairman Matt Smith said: "While the performance of some councils should be celebrated, there is much more to do to ensure small, entrepreneur-led firms can win business from local government".

The data was collated on CfE’s behalf by Spend Network, which analysed more than 42 million transactions.

It hopes that the data can be used to understand the benefits of spending with SMBs.

The study comes after think tank Institute for Government published figures suggesting the Government spent £4.3bn in each of the last two years with Big IT suppliers.