Big tech dominates as government AI procurement surges

UK public sector AI procurement has reached a record £1.41 billion so far this year, as new figures highlight the continued dominance of major suppliers in the government technology market.

Public bodies awarded 453 AI-related contracts worth £1.41 billion between the start of 2026 and 3 August, according to the latest Tussell AI Procurement Tracker. That has already surpassed the £1.18 billion awarded across 521 contracts during the whole of 2025.

Since the beginning of 2018, Tussell has identified 2,129 AI-related public sector contracts worth a combined £5 billion.

But its analysis also shows that much of that contract value has been captured by large, established suppliers, including Microsoft, Palantir, KPMG and IBM.

The findings come as the Startup Coalition has warned that UK start-ups are “losing faith” in government as a buyer and tech champion, according to reporting by The Times.

AI procurement hits record high

The value of AI-related public sector contracts has accelerated sharply over the past three years.

Tussell recorded £424 million of contracts in 2023, rising to £582 million in 2024 and £1.18 billion in 2025. With more than a quarter of 2026 still to go, this year’s £1.41 billion total is already the highest on record.

The number of contracts is also on course to surpass the 521 awarded last year.

However, Tussell cautioned against overstating the scale of AI procurement. The £5 billion of AI-related contracts it has identified since 2018 represents roughly four percent of the £123 billion of IT services and software contracts awarded by the public sector between January 2018 and January 2026.

The historic figures have also been affected by several particularly large awards. The spike to £1.15 billion in 2021, for example, was largely driven by a single £1 billion Met Office Supercomputing 2020+ contract awarded to Microsoft.

Nevertheless, the more recent growth suggests AI is becoming an increasingly significant part of public sector tech procurement.

Big suppliers take the biggest share

Microsoft is the largest supplier identified by Tussell since 2018, with £1.03 billion of AI-related contract value. Palantir follows with £628 million, while KPMG has secured £320 million.

Other leading suppliers include Hochtief at £300 million, Laboratory of the Government Chemist at £284 million, Init at £259 million and IBM at £247 million.

Hewlett Packard Enterprise (HPE), EY and FutureLearn complete Tussell’s top ten.

The figures are based on cumulative contract value since 2018 and don’t mean those companies have necessarily captured the largest share of the £1.41 billion awarded specifically during 2026. But the concentration among major suppliers is significant against the backdrop of government’s ambition to use its purchasing power to support British tech and develop domestic AI capability.

Tussell found UK-based suppliers have won just under £2.19 billion of AI-related contracts since 2018, compared with £2.28 billion awarded to US-based firms. That gap has narrowed considerably. In June, US suppliers were ahead by almost £1 billion. By August, their lead had fallen to just over £80 million.

One factor was a £456 million Cabinet Office contract awarded to KPMG and EY to establish a new National School of Government and Public Service, covering civil service training in areas including digital and AI.

Start-ups struggle to break through

Across public procurement more widely, the latest estimates from Tussell and the British Chambers of Commerce suggest 21 percent of contracts went to SMEs last year. While that represented a six-year high, it remained well below a previous government target for one third of central government procurement to go to SMEs.

According to The Times, the Startup Coalition said start-ups faced barriers including risk aversion, procurement delays and difficulties accessing government buyers. It warned that government commitments to back domestic tech companies would need to be accompanied by more fundamental changes to how the public sector buys.

“For British start-ups and scale-ups, this really is the last-chance saloon after successive administrations have delivered warm words but little real action. The result is an ecosystem increasingly losing faith in the UK government as a buyer and champion,” said the Startup Coalition.

Tussell found that just over a third of the AI contracts identified since January 2018 were awarded through a framework agreement. Across the wider public sector, roughly one in four contracts is awarded this way.

But startups argue that frameworks can create particular problems for younger companies. They may only reopen periodically, while bidding requirements and approval processes can create further barriers to entry.

Who benefits from the AI boom?

Tussell identified contracts covering compute and infrastructure, AI adoption and deployment, data management, governance, skills and workforce development and public trust.

Examples include NHS England’s £182 million Federated Data Platform contract with Palantir, a £13.5 million DWP contract with IBM for GenAI Lighthouse Projects and a £7.4 million Ministry of Defence contract with Kainos to develop AI skills.

The government has meanwhile pledged to use public procurement more actively to support British suppliers and jobs.