‘Buy British’ isn’t enough

Why procurement should be used to build productive capacity and dynamic value, and how to do it

Apr 02, 2026

Amidst the US-Israeli war on Iran and ensuing energy crisis, Chancellor Rachel Reeves made two significant announcements last week. Government departments have been instructed, first, to prioritise British suppliers in sectors deemed vital to national security, and second, to ‘insource’ services where possible, with the aim of delivering them publicly rather than contracting private companies. After decades of outsourcing and weak contracts that have infantilised and hollowed out the British public sector, these are important steps. But more must be done to make full strategic use of public budgets to support industrial strategy and inclusive growth, not just short-term defence imperatives.

Public procurement of goods and services from private firms is a colossal global market, estimated at $13 trillion a year in 2020, and around 30% of OECD government expenditures. The UK alone spent £341 billion on procurement in 2023-24. However, for decades, these budgets have been squandered, with contracts awarded to a few ‘mega-firms’ – like Veolia Group, which received £1 billion to provide waste management services for local authorities in 2025. Procurement rules that incentivise contracting authorities to minimise cost and risk — rather than stimulate investment, innovation or employment — have structurally favoured large companies that can deliver at scale but have little interest in supporting public goals. High-profile catastrophes – from the 2018 collapse of Carillion, one of the largest suppliers of construction and building management to the public sector, to the Grenfell fire tragedy caused by cheap and dangerous cladding, to the billions spent on unusable PPE equipment during the Covid-19 pandemic – are all consequences of a system designed to minimise costs rather than maximise public value.

Reeves’ announcement that departments must prioritise ‘vital’ sectors – steel, shipbuilding, AI and energy infrastructure – is a recognition of what the UCL Institute for Innovation and Public Purpose has argued for years: that procurement can be mobilised as a powerful demand-side lever for shaping markets and supporting industrial strategy. Previous legislative changes had been inching in this direction. The 2012 Social Value Act challenged the cost-efficiency paradigm and encouraged public bodies in the UK to consider economic, social and environmental factors when awarding contracts. The 2023 Procurement Act (which filled in holes in the rulebook left by Brexit) added ‘maximising public benefit’ as a key criterion. And the Labour government, in 2024, published a ‘National Procurement Policy Statement’ that took a more explicitly market-shaping approach, instructing contracting authorities to work across policy, delivery and commercial functions to define ‘challenges to solve’ rather than ‘solutions to buy’ and to work with firms to support innovation.

The government’s new announcement was already in process but has been accelerated due to the Iran war, which has once again foregrounded gaps in the UK’s sovereign capabilities and the fragilities of its supply chains. Invoking ‘national security’ helps the UK circumvent WTO rules that would otherwise prevent signatories to its Government Procurement Agreement from favouring domestic industries. However, for procurement to act as a tool of economic resilience and transformation, it cannot simply prioritise British firms. It must be embedded within a proactive government strategy and coordinated with other policy levers — from public finance to skills investment — to develop productive capacity and serve a broader economic vision. For this to be realised, three major shifts are required.

First, procurement must be used to support government ‘missions’, not just sectors. ‘Mission-oriented’ policy defines grand societal goals that catalyse cross-departmental coordination and inter-sectoral investment. Labour's ambitious five-mission agenda has stalled precisely because it was not backed up with the supply and demand-side tools that would generate this whole-of-government and whole-of-economy transformation. But it is not too late. Starmer and Reeves can learn from historic examples, including the American Department of Defense (DoD), NASA, and DARPA, which have made extensive use of a legal instrument called ‘Other Transaction Authority (OTA) Awards’ to link procurement to clear goals, catalyse the innovation and investment required to solve specific problems, provide a clear signal of market demand for new products, and enable the government to share in the rewards of its investments. Labour’s statement on procurement contained the seeds of a mission-oriented approach, and it should not be usurped by a shift towards narrowly defined ‘critical’ sectors.

The key here is that active industrial strategy that centres welfare, environment and defence goals is good national security strategy. Denmark’s wind energy deployment accelerated when the government mandated the utility sector to purchase wind energy at a preferential price. Leveraging the purchasing power of regulated utilities has enabled Denmark to make progress on its climate goals, reduce its energy dependence on geopolitically volatile states, while simultaneously building world-class manufacturing capabilities and creating new export opportunities. Picking the ‘willing’ by defining the challenge, rather than picking ‘winners’ in the form of specific sectors, is a way of transforming procurement budgets into innovation budgets.

Second, in order to support missions, contracts must be designed to maximise public value. Social value – which aims to capture specific added benefits on jobs, the environment and so on – does not go far enough. Rather, the government should assess the impact on the direction of the wider market, not just the specific value delivered by the supplier to the commissioner, recognising that procurement can generate multiplier effects, generating value that is complex, interconnected and difficult to quantify. As we argue in our recent working paper, "Rethinking the Economics of Public Procurement: Towards a Mission-Oriented Approach," this requires moving from a market-fixing mindset — where social value is treated as an add-on to cost-driven processes — to a market-shaping approach, in which value is understood as directional, dynamic and co-created. It should also value processes and relationships, not just outcomes, and assess this over time.

An excellent illustration is the procurement of school meals. Spending on healthy, tasty and sustainable food for children should be seen as a collective investment, rather than a cost to be minimised. As we detail in our report, "A Mission-Oriented Approach to School Meals," school meals procurement offers a powerful case study of how cross-departmental and multi-sector industrial strategy can work in practice. In rolling out its expansion of free school meals and new breakfast clubs as part of the Department for Education's 'Opportunity Mission', the UK should learn from Brazil's example of creating a nationwide school meals policy with strategic procurement at the centre, with conditions set on sustainability, nutrition, labour practices, and local production. The Brazilian National School Feeding Program requires that at least 30% of the financial resources transferred to states and local governments for school meals is used to procure products sourced from local family farmers, with incentives for sustainable land use practices.

Mazzucato, M. and Doyle, S. (2025). *A Mission-Oriented Approach to School Meals: An opportunity for cross-departmental and multi-sector industrial strategy*. UCL Institute for Innovation and Public Purpose. IIPP Policy Report 2025/04. ISBN: 978-1-917384-38-4

This example illustrates a broader point: public value is generated by a public sector that is willing to take risks and confidently shape contracts that make public money conditional on private firms meeting certain objectives. The Labour government’s National Procurement Policy Statement encouraged contracting authorities to ensure suppliers meet certain conditions — such as fair working conditions and skill development — but it fell short of making these conditions a requirement.

Finally, and perhaps most fundamentally, procurement must be backed by investment in the state capacity and dynamic capabilities needed to direct growth, take risks and handle uncertainty.This is why it’s positive to see Reeves introducing a new ‘Public Interest Test’ that will require departments to assess whether a service can be delivered more effectively in-house before any outsourcing decision, for all contracts of over £1 million (covering 95% of central government spending). In The Big Con, I wrote about how the consulting industry has infiltrated and infantilised the British state, with spending on consulting rising from £6 million in 1979 to £246 million in 1990, and then exploding further with the Blairite ‘Private Finance Initiative’ approach to funding infrastructure projects. During the Covid-19 pandemic, Deloitte earned £1 million a day delivering the government’s ‘Test and Trace’ service. But beyond a commitment to reducing spending on outsourcing, the government needs a comprehensive strategy to build commercial and technical capabilities, and to join up the full range of policy tools and institutions — from procurement and public finance to skills investment and industrial strategy — into a coherent whole-of-government approach.

Starmer and Reeves are right to use procurement to support national security, but this can only succeed if procurement is designed to build domestic productive capacity — not simply 'Buy British' regardless of whether British firms are creating value. This requires a shift from thinking of procurement as a tool for defence to a tool of economic transformation. By focusing on outcomes, mission-oriented procurement can stimulate growth and lead to a more competitive ecosystem of production. It can channel investment and innovation by enterprises of all sizes towards delivering sustainable transport systems, more innovative health systems and stronger education systems — turning procurement from a cost centre into an engine of wellbeing and sustainable economic growth.

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‘Buy British’ isn’t enough

Why procurement should be used to build productive capacity and dynamic value, and how to do it

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