Public procurement and SMEs’ innovation in the UK

Public procurement, which accounts for nearly 15% of GDP in OECD countries and constitutes a third of total UK public spending (£385billion), is increasingly recognised as a strategic policy tool for fostering innovation. As a demand-pull policy, public contracts for products and services signal market needs for new processes, products, or technologies, thereby driving innovation in targeted areas. This research brief examines UK SMEs' patenting behaviour in public procurement. Analysing 28,806 observations from 9,712 patenting SMEs (2016 - 2019), we find that:
• Government suppliers engage in both incremental innovation (patents in familiar technological areas) and exploratory innovation (patents in new domains), outperforming non-suppliers in both categories.
• Government suppliers file patents at higher rates than non-suppliers and show more resilience in maintaining patent activity over time, with a lower patent rate decline during 2016-2019.
• Central government suppliers demonstrate particular strength in advanced technology domains (Physics and Electricity), while local government suppliers focus more on applied fields (Mechanical Engineering and Transportation), suggesting procurement influences technological direction