Small businesses across the UK are set to receive more than £7.4bn a year in direct government spending by 2028 under new procurement targets aimed at supporting growth and job creation.

The measures, published as part of the government’s Plan for Small Business, require individual departments to set and report on their own spending targets with small and medium-sized enterprises. Annual updates will be used to monitor progress, with underperforming departments expected to outline corrective actions.

The targets focus on direct spending, but officials said the total benefit to small businesses is likely to be higher once supply chain activity is taken into account.

Additional spending will come from the Ministry of Defence, which plans to increase its procurement with smaller firms by £2.5bn to reach £7.5bn by May 2028.

Ministers said the policy was designed to channel more public sector spending into local economies and support private sector growth. The initiative builds on earlier measures, including legislation to tackle late payments and a £4bn package aimed at improving access to finance for smaller companies.

Chris Ward, a Cabinet Office minister, said the targets signalled a stronger commitment to smaller firms. “These measures will ensure more government contracts go to SMEs, keeping money, jobs and opportunities within local communities,” he said.

The funding is expected to support businesses across sectors including cyber security, manufacturing, finance and science. Previous recipients of government contracts include Durham-based UMi, which was selected to deliver a business support service, and Logan Construction in the South East.

Blair McDougall, small business minister, said the changes would widen access to public sector opportunities. “These targets will give thousands of smaller businesses a greater chance to win contracts and grow,” he said, adding that increasing SME participation in procurement was a national priority.

Federation of Small Businesses policy chair Tina McKenzie said improved transparency would be critical to success. “Understanding how much government spends directly with small businesses is essential for holding departments to account,” she said.

She added that declining SME procurement since 2022 underlined the need for stronger action and called for more ambitious targets beyond 2028, particularly as overall public spending continues to rise in areas such as health, defence and education.