The Public Pound Should Build Welsh Businesses

Two months on from the Senedd election, the shape of the new Welsh Government’s economic agenda is beginning to emerge. We have seen early commitments around productivity, a new development agency, and the first signals of where ministers want to focus their efforts.

For Wales’ small businesses, one significant manifesto commitment still awaiting detail is the pledge to ensure that 70% of public procurement spend stays in Wales.

It is the right ambition. Public procurement is one of the most powerful economic levers available to government. The Welsh public sector spends around £8 billion a year buying goods and services, so where that money goes matters.

The evidence shows why. Every £1 spent with a local supplier is estimated to generate around £1.76 for the local economy, around five times the value created when that pound is spent outside the area. If more public money reaches smaller Welsh firms, the benefits will be felt well beyond individual businesses. That will strengthen supply chains, support jobs, improve resilience and keep wealth circulating in communities.

That is why the 70% target will succeed or fail on one crucial test: how much contract value lands with Welsh SMEs, not simply how many suppliers have a Welsh postcode.

That distinction matters. The current baseline risks counting suppliers with a Welsh address, including Welsh subsidiaries of large firms headquartered elsewhere. On that definition, Wales could meet a 70% target without significantly increasing the amount of money reaching Welsh-owned small businesses.

The scale of the challenge is clear. In 2024/25, 45p in every £1 of Welsh Government direct procurement spend stayed in Wales, down from 51p the previous year. For SMEs, the picture is tougher still. In 2023/24, only £260 million of the Welsh Government’s £777 million direct procurement spend went to SMEs, around a third of the total.

Welsh SMEs make up 99% of businesses in Wales. They are not getting anything close to a comparable share of public spend.

FSB Wales’ research shows why. Only 14% of respondents to our Big Small Business Survey had won public contracts. A further 12% had tried and been unsuccessful, while 15% were interested but did not know how to access opportunities. Among those who had tendered or wanted to tender, more than a third did not know how to get started.

This is not a lack of ambition among small firms. It is a sign that the procurement system is not working for them.

The barriers are familiar. Complex paperwork, opaque processes, large bundled contracts, inconsistent communication and limited engagement from public bodies. For many smaller businesses, bidding for public work still feels designed for larger firms with dedicated compliance teams.

That can be changed.

The first step is to measure meaningfully. Welsh Government should make the SME share of contract value the headline metric, not simply the number of Welsh suppliers.

Second, contracts should be split into smaller lots by default, with public bodies required to justify decisions not to do so. Large bundled contracts often exclude SMEs before bidding even begins. Smaller lots make contracts more accessible, increase competition and allow more firms to participate.

Third, Wales needs accountability across the whole public sector. The 70% target must not remain a Ministerial aspiration, it has to become a delivery requirement for every major public buyer in Wales. Institutions including local authorities, NHS bodies and universities must publish annual procurement plans, set clear SME contract-value targets, and report openly on progress.

Fourth, practical barriers must be removed. Payment terms should be reliable, tender processes simplified, and businesses should not have to repeat the same basic verification information for every public body.

Fifth, procurement teams need capacity. Too often, under-resourced teams understandably default to the quickest route which is one large contract with one known supplier. If we want more contracts to reach SMEs, buyers need the time, skills and support to design procurement differently.

Finally, support for suppliers matters too. Business Wales, or the proposed new development agency, should run a dedicated supplier development programme for SMEs seeking public contracts, including bid-writing support, financial readiness, help meeting accreditation requirements, and support to form consortia where needed.

The prize is significant. Local spend means local outcomes. It means more jobs, more apprenticeships, stronger supply chains and greater confidence for businesses to invest and grow. For many SMEs, winning public work can also provide a reliable income stream, helping them diversify, build resilience and plan for the future. That is how procurement can move from being a technical process to a real driver of economic development in communities across Wales.

If the public pound is to work harder for Wales, it must reach the businesses rooted in Wales.