Public procurement represents a pivotal mechanism for fostering innovation, constituting nearly 15% of GDP in OECD countries. In the UK, this accounts for a significant portion of public expenditure, with SMEs playing a vital yet underutilised role. This research publication investigates how public procurement influences SME innovation, with a particular focus on patenting activity from 2016 to 2019.

Key Findings:

• Innovation Amplification: SMEs engaged in public procurement exhibit higher patenting activity compared to their non-supplier counterparts, emphasizing procurement's role as a demand-pull policy tool.
• Incremental and Exploratory Innovation: Government suppliers outperform non-suppliers in both familiar technological areas and novel domains, illustrating the dual role of public contracts in supporting both incremental and exploratory innovation.
• Technological Directions: Central government procurement drives advanced innovation in areas such as Physics and Electricity, while local governments focus on applied fields like Mechanical Engineering and Transportation.

SMEs constitute 99% of UK businesses yet account for only 20% of direct public procurement spending. Despite this, the research highlights procurement's stabilizing influence on innovation, even amidst challenges such as delayed patent data capture and economic disruptions.

Central Government's Strategic Impact: Central procurement supports cutting-edge innovation tied to national priorities, showcasing the potential of large-scale contracts to steer technological advancements.

Local Government's Regional Focus: Local procurement enhances community-level infrastructure and applied technological solutions, aligning regional innovation efforts with broader policy objectives.

To unlock the full potential of SMEs in driving innovation, the following strategies are recommended:

• Streamlining procurement processes to increase accessibility for SMEs.
• Embedding innovation-focused criteria in public contracts.
• Enhancing local government capacity to support regional innovation ecosystems.