The UK Government has set a target that by 2020 one-third of all its purchases will be with small business suppliers, defined as those with less than 250 employees.

Minister for the Cabinet Office Matt Hancock said that last year the UK’s central government spent £11.4 billion with small and medium-sized businesses. “This is equivalent to 26 per cent of central government spend, but we want to increase the proportion to one third by 2020.

“This would mean an extra £3 billion per year (in 2013 to 2014 terms) going to small and medium-sized firms directly or through the supply chain.”

Mr Hancock pointed to previous moves the government had made, including the requirement that government agencies pay their bills within 30 days. The government has also abolished pre-qualification questionnaires for low value public sector contracts.

John Allan, National Chairman for the UK Federation of Small Businesses (FSB), said: “The government has much to gain from opening up public procurement to smaller businesses, but it will need to focus on robust monitoring and challenge of poor practices wherever they are found.”

The initiative will almost certainly favour well established SMEs. Recent analysis from UK consultancy Spend Network found that all levels of government in the UK are reluctant to do business with small start-up companies.

The analysis examined three years of procurement transactions from central and local government, finding a total spend of £68 billion with identifiable suppliers. Just £1.8 billion – 2.7  per cent – went to new startup companies, defined as companies less than five years old and a turnover of less than £2 million.

In the US, major Federal Government agencies are required to spend at least 3 per cent of their budget on the SBIR (Small Business Innovation Research) program, which has been credited with getting many successful businesses off the ground.

In Australia, government data shows that more than one-third (34.4 per cent) of the value and more than half (55.2 per cent) of the number of Commonwealth procurement contracts went to SMEs in 2013-14 (in Australia an SME is defined as having less than 200 employees). The highest type of purchase by proportion awarded to SMEs was education and training (63.6 per cent).