Guide
Government SME spend targets explained
For the first time, every government department has a published target for how much it spends directly with small and medium-sized firms. Here is what the rule says, every department's target and its own latest result, and what it means if you are a small firm deciding where to bid.
Last checked: 15 October 2026
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What the rule says
A Procurement Policy Note published in February 2025, PPN 001, requires every central government department, including its executive agencies and non-departmental public bodies, to:
- set a three-year target for direct spend with SMEs, from 1 April 2025 to 31 March 2028, signed off by a minister;
- report its results every year, and set out how it will improve if it falls behind;
- from April 2026, set a two-year target for spend with voluntary, community and social enterprises (VCSEs).
Targets for indirect spend, the money that reaches small firms as subcontractors, are optional. Each department has also published an SME action plan explaining how it intends to get there, all collected on the government's Small and Medium Business Hub.
The note does not cover NHS trusts, councils or the devolved governments. For how those buyers compare, see why councils lead on buying from small firms and local spend in Scotland, Wales and Northern Ireland.
Every department's target
Direct SME spend targets, and each department's own latest reported result, as published in its SME action plan. Both are shares of spending.
The Ministry of Defence set cash targets rather than a percentage: £2bn a year direct and £5.5bn through its suppliers by 2027/28, part of its commitment to spend £7.5bn a year with SMEs by 2028. Together the other departments' targets come to more than £7.4bn a year of direct spend by 2027/28.
Targets are spend; contracts are chances
A target is a share of money. A department can give a third of its contracts to small firms and still spend most of its budget with a few large ones. Tender Radar's free SME tracker shows, month by month, the share of each department's contracts that small firms actually win, beside its target.
How departments are doing
The first yearly results are arriving. Some departments are on course: the Department for Culture, Media and Sport reported 49% against a 33% target in 2025/26, and the Ministry of Housing, Communities and Local Government 28.3% against 27.5%. Others have further to go: the Home Office reported 4% in 2025/26 against a 10% target. Each figure above links to the department's own plan.
There has been no official audit yet. The National Audit Office last examined government spending with SMEs in 2016, when it found the earlier 25% target reported as met but warned that a change in how the data was gathered made the rise hard to verify. Independently, the British Chambers of Commerce and Tussell found in May 2026 that departments were on average 8.4 percentage points below their targets on 2024/25 spend.
What it means if you are a small firm
- Departments are now measured on you. A department behind its target has a reason to split work into smaller lots, use shorter contracts and run market engagement that small firms can attend.
- Start with the high targets. The Department for Science, Innovation and Technology (40%), Culture, Media and Sport (33%) and the Cabinet Office (30%) have set themselves the most to deliver; see selling to the departments with the highest SME targets.
- Read the action plans. Each says how that department will buy differently: pipelines published early, supplier days, simpler questions, prompt payment. They are a guide to where and how to approach it.
- Subcontracting counts too. Several departments track indirect spend, so prime contractors are being asked to bring small firms into their supply chains.
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Common questions
Government SME spend targets
What are the government's SME spend targets?
Since February 2025 every central government department, with its agencies and arm's-length bodies, must set a three-year target for the share of its direct procurement spend that goes to small and medium-sized enterprises, running to 31 March 2028, and report progress every year. The published targets run from 5.75% at the Department for Transport to 40% at the Department for Science, Innovation and Technology.
Do the SME targets apply to councils and the NHS?
No. The policy note (PPN 001) covers central government only. It does not apply to NHS trusts and foundation trusts, or to bodies whose work is devolved to Scotland, Wales or Northern Ireland. Other public bodies may choose to follow it. Councils already give small firms a large share of their work.
What is the difference between direct and indirect SME spend?
Direct spend is money a department pays straight to an SME supplier. Indirect spend is money that reaches SMEs further down the supply chain, as subcontractors to a larger prime contractor. Every department must set a direct target; indirect targets are optional and must be reported separately.
Is anyone checking whether departments hit their SME targets?
Departments must publish yearly progress updates and a recovery plan if they fall behind. There has been no official audit of the new targets: the National Audit Office last reported on government spending with SMEs in 2016. The British Chambers of Commerce and Tussell publish an annual tracker, and Tender Radar's free SME tracker is updated monthly.
What counts as an SME for these targets?
An organisation with fewer than 250 staff and either a turnover of £44 million or less or a balance sheet total of £38 million or less, as set out in PPN 001.