Procurement Market Sector

Public procurement in the UK affects the lives of all citizens, and is a major driver for economic growth. The requirements of public sector bodies encompass virtually every product and service imaginable. Overall, the public sector spends in the region of £120 billion a year on products and services, of which around £33 billion is spent on construction, £13 billion on social housing, £11 billion on social care and £5 billion on environmental services.

By the end of the 2004 Spending Review period, compared with 1997:

By 2007-08 total spending on the NHS will be nearly 90% higher in real terms than in 1997-98, and public expenditure on education and transport will both be over 60% higher in real terms
As a proportion of GDP total UK health spending is expected to rise from 6.8% in 1996-97 to 9.2% in 2007-08
As a proportion of GDP, total UK education spending will rise from 4.7% in 1996-97 to 5.6% in 2007-08 – from one of the lowest in the industrial world to among the highest
Across the entire public sector, spending on IT is now around £14 billion each year, or 1.2% of GDP

Data in this section has been researched from a number of government sources. While every effort has been made to ensure accuracy, this is not guaranteed.

2006 Pre-Budget Report »

The 2006 Pre-Budget Report showed that the projected Total Managed Government Expenditure (TMGE) for 2006-07 was £555 billion, compared with £433 billion in 2000-01 and £392 billion in 1996-97.

Major areas of TMGE within the 2006-07 figure include:

Defence – £32 billion
Education – £71 billion
Health – £96 billion
Housing & environment – £21 billion
Personal social services – £27 billion
Public order and safety – £32 billion
Social protection – £153 billion
Transport – £21 billion

The 2006 Pre-Budget Report also highlighted that public sector current expenditure is forecast to grow by 2% in real terms in 2008-09 and by 1.9% thereafter until 2011-12.

Net investment is projected to increase from £22.4 billion in 2005-06 to £30 billion in 2007-08 as the Government seeks to address underinvestment in public infrastructure.

Key Facts »

Government spending on the direct delivery of quality services to the public is increasing.
There is a drive towards larger contracts and the appointment of prime contractors and the opening up of sub-contractor opportunities.
The Freedom of Information Act is driving the need for the public sector to be seen to have open and auditable tendering processes.
The European Court of Justice has ruled that all public contracts, no matter what value, should receive appropriate advertising.
The UK Government and European Commission view the process of opening up public tendering opportunities to more small and medium-sized enterprises (SMEs) as a key policy.
The Government has provided a steady increase in public sector net investment from less than 0.75% of GDP in 1997-98 to 2.25% of GDP in 2005-06.
The Government's aim is to deliver world-class public services through sustained investment and ongoing reform.

Comprehensive Spending Review 2007 »

The Government launched its Comprehensive Spending Review 2007 (CSR) in 2005. The Review provides a long-term and fundamental review of government expenditure and covers departmental allocations for 2008-09, 2009-10 and 2010-11.

The Review states that a modern and responsive health service, high-quality education and training, effective, intelligence-led policing and security services and a fast and reliable transport network provide the essential foundations for a society in which economic prosperity is underpinned by fairness, safety and social justice.

The Government took forward a programme of preparatory work over 2006, including:

An assessment of what the sustained increases in spending and reforms to public service delivery have achieved since the first CSR. The assessment will inform the setting of new objectives for the decade ahead.
An examination of the key long-term trends and challenges that will shape the next decade – including demographic and socio-economic change, globalisation, climate and environmental change, global insecurity and technological change – together with an assessment of how public services will need to respond.
Assessment of the resources needed to address these challenges, and to continue to secure maximum value for money from public spending over the CSR period.
A set of zero-based reviews of departments' baseline expenditure to assess their effectiveness in delivering the Government's long-term objectives.
Further development of the efficiency programme, building on the cross-cutting areas identified in the Gershon Review, to embed and extend ongoing efficiency savings into departmental expenditure planning.

Procurement by Sector »

Defence

Defence has one of the largest UK procurement budgets, currently £15 billion each year. Defence requirements range from clothing and catering through to aircraft carriers.
Total defence spending will be in the region of £33 billion for 2007-08.
The Defence budget will increase by £3.7 billion from 2005-06 to 2007-08, representing 1.4% average annual real terms growth.
In his 2006 Pre-Budget Report, Chancellor Gordon Brown announced an additional £600 million would be added to the defence budget, and the budget for counter-terrorism activities would receive an additional £84 million.
In total, planned spending on counter-terrorism and resilience across departments will be more than £2 billion by 2007-08, compared with less than £1 billion prior to 11 September 2001.
The Defence Industrial Strategy, launched by the Ministry of Defence in December 2005, highlighted that the UK market for defence equipment and services is the second largest in the world.

Education

Education has been a key area for government spending in recent years.
Total spending on education in England will be £12 billion higher in 2007-08 than in 2004-05, with an average growth rate of 4.4% per year in real terms over this period. In England, spending on education and skills will be £64 billion in 2007-08.
Education spending will rise to 5.6% of GDP by 2007-08, from 5.4% in 2004-05, while capital spending in education will rise from £8.3 billion in 2007-08 to £10.2 billion in 2010-11 – a total of £36 billion over four years.
All secondary school buildings in England are to be transformed to 21st century standards in the next 10-15 years.
Additional 'transforming' investment in primary schools of £150 million in 2008-09 and £500 million in 2009-2010 has been allocated by government.
Funding on science across the Department for Education and Skills and the Department of Trade and Industry will be £1 billion higher in 2007-08 than it was in 2004-05.

Health

The UK's health service has been through a recent period of radical change and increased investment.
In Budget 2002, the Chancellor announced the biggest ever sustained spending growth in the history of the NHS, with £40 billion of extra resources by 2007-08 compared to 2002-03.
By 2007-08, UK health spending is projected to reach 9.4% of GDP compared with the current European Union average of around 8%.
Total spending on health in 2007-08 is planned to be £104 billion.
The NHS in England and Wales spends around £15 billion each year on products and services.
Spending on social services in England is set to grow at an annual average rate of 6% above inflation.

Other

The public sector commissions around 40% of construction work in the UK each year at a cost of over £33 billion.
Outsourcing is becoming increasingly common as the public sector seeks to reduce headcount. It is estimated that the public sector outsourcing market will be worth £67 billion by 2007, with the fastest growth coming from local government, the NHS and the Ministry of Defence.
Public sector food procurement represents around 7% of the £26 billion total UK market for food and catering services.
The Comprehensive Spending Review 2004 outlined a major programme of investment in affordable housing, with spending in this area set to be £1.3 billion higher in 2007-08 than it was in 2004-05.