UK startups are pressing the government to overhaul public-sector technology buying, arguing that procurement remains concentrated among large suppliers despite a renewed political commitment to direct more state spending towards British businesses.
Startup Coalition says procurement needs to become a more effective route for emerging technology companies to win reference customers, scale revenue, and compete with established suppliers.
The intervention comes as Prime Minister Andy Burnham’s government develops a Buy British approach covering strategically important sectors including technology, defence, and artificial intelligence.
Research cited by the coalition shows SMEs won 21% of direct UK public procurement spending last year, a six-year high. In technology, however, 84% of government spending went to only 150 businesses, with the majority of those suppliers foreign-owned.
Government technology procurement represents a particularly large market because departments, NHS bodies, councils, and other public agencies continue to invest in cloud computing, cybersecurity, data systems, artificial intelligence, automation, and the replacement of legacy infrastructure.
Startup advocates argue that smaller suppliers struggle to convert that demand into contracts. Long trading-history requirements, insurance levels, complex accreditation, restrictive frameworks, lengthy tender processes, and demands for evidence of previous public-sector delivery can all favour incumbents.
Startup Coalition said British startups and scaleups were increasingly “losing faith” in government as a buyer and technology champion after successive attempts to improve access produced limited structural change.
The government has already altered parts of the procurement system. Changes to social-value rules are designed to increase credit for local employment, while ministers have pledged to reduce bureaucracy and use public spending more deliberately to support domestic industry.
Framework reforms can widen access, but admission to a framework does not generate revenue by itself. Smaller suppliers still have to persuade individual public bodies to select them for work.
Risk aversion is a persistent obstacle. An established multinational can offer a large balance sheet, extensive support teams, security certifications, and a record of delivery across many government organisations. A startup may offer newer technology but carry greater perceived operational or financial risk.
Public-sector buyers are accountable for service failures as well as procurement outcomes. A failed experimental technology project can attract intense scrutiny, encouraging officials to favour suppliers already considered safe even where a smaller competitor offers a stronger product.
Changing buyer incentives may therefore prove as important as altering tender documents. Smaller pilot contracts, standardised security requirements, faster payment, clearer routes from proof-of-concept projects into deployment, and greater use of outcome-based procurement can reduce the cost of working with newer suppliers.
Defence presents a particularly important test. Smaller technology companies are attracting increasing private investment in drones, autonomy, cyber, sensors, communications, and artificial intelligence, while the government is simultaneously raising defence expenditure.
If procurement remains difficult to penetrate, public support for defence innovation can become disconnected from the contracts companies need to scale. That weakens the domestic commercial pathway even where British technology has been funded successfully through research or venture capital.
The objective cannot simply be to maximise the percentage of spending allocated to SMEs. Some projects require scale, integration capability, financial resilience, and long-term support that favour larger suppliers. Fragmenting every large contract would create its own costs and operational risks.
A stronger test is whether credible smaller businesses can compete for contracts in markets historically dominated by a limited group of incumbents and whether successful pilots can develop into recurring commercial relationships.
For technology startups, government can be a particularly influential customer. A public-sector deployment supplies revenue, validation, security credentials, and a reference that can support sales into other regulated markets and overseas.
The Startup Coalition challenge therefore puts procurement alongside funding and regulation as a constraint on company growth. The government’s Buy British commitment will be judged partly on whether domestic technology businesses gain a more realistic path from innovation funding into substantial public-sector revenue.
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