The Role of Government Buyers in Shaping Firm Productivity

Public procurement is a major economic force in the UK, accounting for £385 billion annually. While procurement is widely recognised for its ability to stimulate innovation, create market opportunities, and drive social value, its direct impact on firm productivity remains underexplored. This research brief examines how government contracts influence business performance, analysing trends in procurement income, supplier composition, and the effect of different government buyers—central government, local government, and the NHS—on firm productivity.

Using data from 26,411 UK suppliers between 2016 and 2019, this study uncovers key trends in supplier distribution, sectoral participation, and the non-linear relationship between public procurement and firm productivity. By understanding the dynamics of government purchasing power, both businesses and policymakers can refine their strategies to maximise economic impact and efficiency.

Key Findings

• Supplier Distribution: Local government engages the largest number of suppliers, but central government’s supplier base is expanding the fastest.
• Industry Participation: UK government suppliers are concentrated in low-R&D intensive industries, with high-tech firms significantly underrepresented.
• Procurement Income and Productivity: The relationship follows a U-shaped curve—firms earning either low or high levels of government contracts achieve greater productivity gains than those in the mid-range.
• Government Buyer Influence: Suppliers serving central government and the NHS show stronger productivity growth, whereas local government-only suppliers experience weaker effects.

Implications

For firms, winning contracts is about more than just volume—it is crucial to consider the type of government buyer. Diversifying across multiple government entities can reduce risks, stabilise revenue streams, and improve productivity outcomes.

For policymakers, procurement strategies should move beyond just awarding contracts and instead focus on reducing inefficiencies, supporting diverse supplier participation, and fostering a more innovation-friendly procurement ecosystem.

This research offers data-driven insights for businesses and policymakers navigating public procurement, exploring who supplies the government, how procurement influences firm performance, and which government buyers provide the best opportunities.