One third of government's spending is with contractors

Government spends £284bn – almost one-third of its total expenditure – with external suppliers, finds a new report by the Institute for Government. Given its scale, government procurement could not easily be abandoned even if politicians wanted.

Published today, Government procurement: the scale and nature of contracting in the UK says that four departments - the Ministry of Justice (MoJ), the Department for Transport (DfT), the Department for International Trade (DIT) and the Department for Environment, Food and Rural Affairs (Defra) spent more than half of their entire budgets with external suppliers last year.

The money is spent on a vast spectrum of things, from goods such as stationery and medicine to the construction of schools and roads, and from back office functions such as IT and HR to frontline services such as probation and social care.

The report finds that the largest suppliers are winning more and more government business. Last year, roughly a fifth of all central government procurement spending was spent with ‘strategic suppliers’ - companies that receive over £100m in revenue a year from government – up from around an eighth in 2013. This is risky for government, given that its top three suppliers have all experienced financial difficulties in recent years. 

Despite the scale of spending on procurement and outsourcing – and increasing financial problems in parts of the sector - the data available on procurement and outsourcing is poor. Every day, public bodies procure hundreds of millions of pounds’ worth of goods, works and services. With a clearer picture of how much is spent, on what and with which suppliers, government could make better-informed spending decisions and make significant savings.

Emma Norris, IfG Director of Research, said:

“Government is spending hundreds of billions of pounds every year with external suppliers – but there are signs that some players involved in outsourcing are struggling, most recently Interserve. Government does not have the data it needs on its own outsourcing and procurement. It needs to look hard at the experience of the past 30 years of outsourcing, develop a much stronger sense of what has worked well and what has not, and urgently review the health of its procurement markets.”


Notes to editors

  1. The full report is available online here. For more information, please contact / 0785 031 3791.
  2. The Institute for Government is an independent think tank that works to make government more effective.
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