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UK start-ups are “losing faith” in the government as a technology champion after successive efforts to buy more from domestic businesses have had little effect, according to a new report from the Startup Coalition, which says Andy Burnham’s “Buy British” push must address fundamental problems in the procurement process.
The lobby group, which represents technology start-ups and scale-ups, said: “For British start-ups and scale-ups, this really is the last-chance saloon after successive administrations have delivered warm words but little real action. The result is an ecosystem increasingly losing faith in the UK government as a buyer and champion.”
Successive governments over the past decade have struggled to increase the share of government spending that goes to small businesses. In 2015 David Cameron set a target for one third of central government procurement to go to small and medium-sized enterprises by 2020. The latest estimates from Tussell and the British Chambers of Commerce suggest that 21 per cent went to SMEs last year, a six-year high.
In the technology sector the picture is more concentrated. Tussell found that 84 per cent of UK government tech spending last year went to only 150 businesses, of which the majority were foreign.
Concern about the UK’s reliance on foreign technology, set against an increasingly fractious geopolitical environment, has added urgency to efforts to support domestic alternatives.
In his first speech as prime minister, outside Downing Street on 20 July, Burnham said he would “use public procurement to back British industry”. John Healey, the chancellor, said the government would “buy British not if possible, but by design” in sectors such as technology, defence and artificial intelligence.
The government has already made changes to the “social value” rules used to assess bidders for public contracts. The Cabinet Office has doubled the credit given to companies whose bids provide “social value” through local employment, scrapped rewards for net zero and diversity, and raised the threshold at which social value criteria apply to £1 million, from £139,688 previously.
The Startup Coalition said the early changes on social value could “mark a potential turning tide”, but warned that ministers would need to reshape the procurement process itself.
“Warm words from the top will not be enough to turn a tanker that is inert, risk-averse and slow to seize new opportunities. Instead, systematic change must be made at every point in the public sector buying process to turn strong signals into real change founders can feel,” the group said.
The report found that start-ups faced challenges at every stage of the procurement process, including risk aversion among buyers, lengthy delays and difficulty getting in front of the right people.
“We often spend more time stuck in procurement for public-sector contracts than delivering them,” said Jack Perschke, co-founder and chief executive of Great Wave AI, a business that helps customers build artificial intelligence agents.
Start-ups also argue that they are placed at a disadvantage by framework agreements, the long-term purchasing arrangements through which 26 per cent of public procurement is agreed. The frameworks open only every few years, often carry onerous requirements to bid and can leave companies facing delays while waiting for approval.
“All too often, processes and bureaucracy act as barriers for SMEs,” said Rachael Crook, chief executive and co-founder of Lifted, a health and care platform.
In a statement, the government said it was “committed to making sure every pound of taxpayer money is delivering real benefits for communities, developing skills and creating new jobs in every part of the country”.
It added: “These changes will cut red tape and ensure that every business focuses on delivering British jobs. Our priority is good growth in every postcode and we’re using £90 billion of public contracts to make sure that happens.”
