PPN 001: SME and VCSE procurement spend targets · first published 13 February 2025
This Procurement Policy Note (PPN 001, February 2025) requires all central government departments, their executive agencies and non-departmental public bodies (NDPBs) to set formal targets for direct spending with small and medium-sized enterprises (SMEs) and voluntary, community and social enterprises (VCSEs). The SME target must cover three years (to be achieved by March 2028) and be in place from 1 April 2025; the VCSE target must cover two years and be in place by 1 April 2026. Departments must publish their actual direct spend with SMEs and VCSEs by 30 September each year. This matters for small businesses because it means every in-scope buyer now has a minister-backed, publicly visible number to hit — which should translate into deliberate efforts to find and award contracts to SMEs. The rules are binding on central government only; NHS trusts and devolved-nation bodies are excluded, though others may adopt them voluntarily.
WHO THIS APPLIES TO
THE ENKII VIEW
For SMEs, this is a meaningful structural shift: departments are no longer just encouraged to engage small businesses — they must set a target, get it signed off by a minister, and publish how they actually performed against it every year. That accountability loop gives SMEs a concrete hook when engaging buyers ("what is your SME spend target and how are you tracking?"). The transparency requirement for agencies and NDPBs spending over £100m per annum is a bonus — it creates granular, publicly available data that SMEs can use to identify which parts of government are under-performing on their targets and therefore most motivated to find new small-business suppliers.
1. Check that your business genuinely meets the SME definition (fewer than 250 staff AND turnover ≤ £44m or balance sheet ≤ £38m) and keep evidence of this on file — departments will need to count you correctly to hit their targets.
All SMEs bidding for or seeking central government contracts — The PPN sets a precise legal definition from the Procurement Act 2023; if a buyer cannot verify you qualify, you will not be counted against their SME spend target, reducing their incentive to award you work.
2. From September 2025 onwards, look up your target department's published SME and VCSE spend figures (due by 30 September each year). If a department is underperforming against its target, proactively approach their commercial team — they have a minister-backed obligation to close the gap.
All SMEs and VCSEs targeting central government contracts — The PPN requires annual publication of direct spend with SMEs and VCSEs no later than 30 September, creating a public accountability trail that SMEs can use to identify motivated buyers.
3. Monitor the separately published SME/VCSE spend figures for large agencies and NDPBs (those spending over £100m per annum). Use these as intelligence to pinpoint which bodies are furthest from their targets and pitch to them directly.
SMEs and VCSEs targeting large agencies or NDPBs (procurement spend over £100m) — The PPN requires parent departments to publish agency/NDPB spend data separately where the body spends over £100m per annum, giving granular visibility that smaller bodies would otherwise not provide.
4. Prepare now for the VCSE target regime launching 1 April 2026: document how your organisation meets the VCSE definition (value-driven, surpluses reinvested for social/environmental/cultural objectives) and build relationships with target departments during 2025/26 while they are setting their targets.
VCSEs planning to bid for central government contracts — Departments must have VCSE targets in place by 1 April 2026; those setting targets in 2025/26 will be looking to understand the VCSE supplier market — early engagement shapes what is achievable and who gets considered.
5. Remind prime contractors and larger suppliers you work with that 30-day payment terms must now apply throughout the public sector supply chain under the Procurement Act 2023, and insist on contract clauses that reflect this.
All SMEs in central government supply chains (including sub-contractors) — The PPN explicitly references the Procurement Act 2023 requirement for 30-day payment terms throughout the supply chain — this applies to indirect as well as direct spend relationships.
6. When attending pre-market engagement events or early supplier briefings, ask the buyer directly about their SME spend target and how they are tracking — this signals you are aware of their obligations and positions you as a credible, informed supplier.
SMEs engaging with central government buyers at any value — The PPN requires targets to be minister-signed and publicly reported; buyers aware of this scrutiny are more likely to respond positively to suppliers who demonstrate knowledge of the framework.
Every rule below quotes the official document verbatim.
The PPN applies to all central government departments, their executive agencies and non-departmental public bodies (NDPBs); NHS trusts, foundation trusts, and devolved-nation bodies are excluded. (All in-scope central government organisations from 1 April 2025)
“This PPN applies to all central government departments, their executive agencies and non-departmental public bodies. Such bodies are referred to as 'in-scope organisation'… this PPN does not apply to NHS trusts and foundation trusts or to contracting authorities whose functions are devolved or mainly devolved functions of Scotland, Wales or Northern Ireland.”
In-scope organisations must set a three-year SME direct spend target from 1 April 2025, to be achieved by the financial year ending March 2028. (All in-scope central government organisations)
“all central government departments (including executive agencies and non-departmental public bodies (NDPBs)) must set a three year target for direct spend with SMEs (from 1 April 2025)”
In-scope organisations must set a two-year VCSE direct spend target, to be in place by 1 April 2026 and achieved by March 2028. (All in-scope central government organisations)
“a two year target for direct spend with VCSEs (from 1 April 2026)… In-scope organisations should work towards setting a target for direct spend with VCSEs during 2025/26 and this must be in place by 1 April 2026.”
SME spend targets must be signed off by the department's relevant Minister, who must write to the Parliamentary Secretary at the Cabinet Office confirming the target by 31 May 2025. (All in-scope central government departments)
“SME spend targets must be signed off by the department's relevant Minister, who should write to the Parliamentary Secretary at the Cabinet Office confirming their target for direct spend with SMEs by 31 May 2025.”
Departments must publish their direct SME and VCSE spend data annually, no later than 30 September each year for the previous financial year. (All in-scope central government organisations)
“Publication of direct spend with SMEs and direct spend with VCSEs spend data should be no later than 30 September annually for the previous financial year period.”
Agencies and NDPBs with procurement spend over £100m per annum must have their direct SME and VCSE spend published separately by their parent department for transparency. (Executive agencies and NDPBs with annual procurement spend over £100m)
“where the agency or NDPB's procurement spend is over £100m per annum their annual direct spend with SMEs and annual direct spend with VCSEs should be published by the parent department separately for transparency.”
Departments may also voluntarily set targets and report on indirect spend (i.e. SME/VCSE spend via prime contractors) in addition to mandatory direct spend reporting. (All in-scope central government organisations)
“In-scope organisations can voluntarily set targets for, and report on, their indirect spend in addition to direct spend, if they wish.”
An SME is defined as a supplier with fewer than 250 staff AND turnover of £44 million or less, or a balance sheet total of £38 million or less. (All suppliers seeking to be counted as SMEs under this PPN)
“SMEs are defined under section 123 of the Act as suppliers that: a) have fewer than 250 staff, and b) have a turnover of an amount less than or equal to £44 million, or a balance sheet total of an amount less than or equal to £38 million”
A VCSE is defined as a non-governmental organisation that is value-driven and principally reinvests its surpluses to further social, environmental or cultural objectives. (All suppliers seeking to be counted as VCSEs under this PPN)
“VCSEs are defined under section 9 of the Procurement Regulations 2024 as 'a non-governmental organisation that is value-driven and which principally reinvests its surpluses to further social, environmental or cultural objectives'.”
The Procurement Act 2023 introduces a duty on contracting authorities to have regard to SME participation and consider removing barriers to entry. (All contracting authorities under the Procurement Act 2023)
“a new duty on contracting authorities to have regard to their participation and consider whether they can remove barriers to entry”
30-day payment terms will apply throughout the public sector supply chain under the Procurement Act 2023. (All public sector supply chains under the Procurement Act 2023)
“30-day payment terms will apply throughout the public sector supply chain.”
This briefing is enkii's interpretation of the official document — the official text always governs.
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