Inside UK's £14bn Digital Spend as NAO Calls for Overhaul

The UK government spends £14bn (US$17.1bn) annually on digital programmes, but risks wasting money and missing opportunities if it does not overhaul its approach to technology suppliers.

A National Audit Office (NAO) report has highlighted flaws in procurement, capability and strategy, urging significant changes to maximise the value of this investment.

The UK public sector’s annual digital spend, estimated at a minimum of £14bn (US$17.1bn), highlights the importance of getting procurement and delivery right.

However, the NAO has identified a long-standing issue: a generalist model within procurement teams, more suited to traditional outsourcing than the complexities of modern digital transformation.

The report warns that this approach has resulted in wasted taxpayer money and slow progress on critical programmes aimed at modernising government operations.

Many departments, it says, rush to award contracts before fully understanding what they need because they are under pressure to deliver quickly. This, coupled with a lack of technical expertise, has hampered the government’s ability to act as an "intelligent client" when dealing with suppliers.

The reliance on "big tech" companies, particularly for cloud services and artificial intelligence, adds further complexity. These services are subscription-based and ultimately outside the government’s direct control, making it essential to adapt procurement processes to this evolving reality.

The NAO stresses the need for a cross-government sourcing strategy to better navigate relationships with these major technology providers.

Challenges and skills shortfalls

One of the core issues identified is the government’s lack of digital and procurement skills.

While the commercial function employs 6,000 people, only 120 in the Crown Commercial Service (CCS) focus on digital procurement. Similarly, the Central Digital and Data Office (CDDO) has only four individuals dedicated to digital commercial activity. These numbers highlight a critical shortfall in expertise to manage the UK’s growing reliance on digital suppliers effectively.

Gareth Davies, Head of the NAO, emphasises the need for systemic change: "The government needs to rethink how it procures digitally, including how to deal with ‘big tech’ and global cloud providers that are bigger than governments themselves.

"The creation of the new digital centre of government provides an opportunity to make the systemic changes that are needed."

One area in which improvement is urgently required is cross-departmental data sharing. Better sharing and analysis of data can help departments take a more strategic approach to procurement, ensuring they get the best value from suppliers and avoid duplication.

The government’s inability to align responsibilities, skills and resources across departments has led to major programmes being delayed or going over budget.

Building stronger foundations

Experts have pointed out that strategic investment in people and data is crucial to creating a solid foundation for digital transformation.

Oliver Nelson-Smith, Technology Policy Manager at the Institute of Chartered Accountants in England and Wales (ICAEW), highlights this point: "Data and people are assets that need long-term strategic investment over individual projects.

"Without these secure foundations, any additional spending will be the equivalent of attempting to build a home on sand – likely to end up over budget and not fit for purpose."

The report also identifies lessons from previous failed projects. Over the past decade, government efforts to strengthen commercial and digital expertise at the centre have not translated into successful outcomes in major transformation programmes.

For instance, poor planning has resulted in £3bn (US$3.6bn) of additional costs to reset programmes or maintain legacy systems longer than expected.

NAO recommendations include creating a sourcing strategy to negotiate better with "big tech," addressing recruitment gaps and ensuring decision-makers receive training in digital commercial issues.

Departments are also encouraged to establish stronger internal teams to oversee supplier engagement and ensure that digital specialists play a leading role in procurement.

Geoffrey Clifton-Brown MP, Chair of the Public Accounts Committee, sums up the challenge: "The government spends at least £14bn (US$17.1bn) a year procuring digital services, but its woeful handling of major digital programmes has led to delays and costs to the taxpayer.

"Without a more strategic approach, the government risks wasting more money and squandering the opportunity to modernise the public sector."

Looking ahead

The NAO’s recommendations offer a roadmap for change, but action is required to ensure future investments are not wasted.

Alison Ring, Director of Public Sector and Taxation at ICAEW, stresses this point: "The government must invest in big digital programmes in a coordinated way to save money and to enable public services to be delivered more efficiently and effectively.

"A good start on this investment journey would be to implement the recommendations in the NAO’s latest report."

As the NAO report concludes: "The effective use of technology suppliers is essential to the success of government’s ambitions to improve and digitally transform its services and operations. But repeated delays and cost overruns in digital delivery undermine government’s ability to achieve its policy objectives."

It remains to be seen whether the government will take the necessary steps to address these challenges, but with £14bn (US$17.1bn) at stake annually, the cost of inaction is far too high.

Explore the latest edition of Procurement Magazine and be part of the conversation at our global conference series, Procurement & Supply Chain LIVE.

Discover all our upcoming events and secure your tickets today.

Procurement Magazine is a BizClik brand.