A new report warns that unless the UK government overhauls its rigid procurement and funding systems, its ambitious plans for a modern digital government may remain unfulfilled, risking further delays and inefficiencies in public sector digitalisation.
Ministers have pledged to deliver a “modern digital government” through ambitious reform plans and a £100 million public sector reform programme that includes innovation squads trialling small-scale projects across local areas. However, these aspirations risk stalling unless fundamental changes address the way technology procurement and funding operate within Whitehall, according to a detailed report by techUK.
The report, titled ‘Financing the Future,’ critiques the government’s public sector procurement system as overly rigid and fixated on purchasing discrete products, rather than investing in adaptable, long-term digital solutions. Central to the issue is a funding model that channels IT projects primarily through one-off capital budgets (CDEL), which discourages ongoing investment and maintenance that resource budgets (RDEL) could better support. This mismatch drives contracts towards static deliverables rather than dynamic, cloud-based platforms or AI tools that can evolve with user requirements.
Heather Cover-Kus, associate director for central government at techUK, told City A.M., “Government has an ambitious vision for digital transformation, but this will only succeed if procurement and funding keep pace with innovation. We must move beyond one-off, compliance-led procurement models and embrace flexible approaches that focus on outcomes and long-term impact.” The report proposed a series of reforms, including modularising large contracts to foster competition and improve flexibility, boosting in-house digital expertise to reduce over-dependence on large systems integrators, and supporting iterative ‘test and learn’ pilots to minimise risk.
These recommendations coincide with the government’s recently announced ‘test and learn’ funding strategy for AI and digital projects, designed to foster innovation by piloting small-scale initiatives with potential to scale. The UK government’s approach aims to instill a start-up mentality within public services, tackling complex funding processes that have long hindered digital innovation.
Yet, significant barriers remain. The Public Accounts Committee’s report on AI adoption in the public sector underlines prevalent difficulties with outdated technology, poor-quality data access, and a shortage of digital skills. Over 60% of government bodies surveyed cited data challenges, while 70% struggled to recruit skilled professionals, further complicating AI integration. Ethical standards and revamped procurement processes were identified as essential prerequisites for progress.
Moreover, a Unit4 study highlighted that 75% of UK public sector organisations have yet to fully implement digital transformation strategies, with 70% of residents facing difficulties accessing real-time data. The study identified red tape, shifting priorities, and leadership resistance as significant obstacles to change, although a majority of public sector respondents remain hopeful that these challenges will be overcome within the next two years.
The need for urgent investment is clear. The Health Foundation estimates that digitising the UK’s health and adult social care services will require £21 billion over the next five years to deliver comprehensive electronic patient records, cybersecurity enhancements, and infrastructure upgrades. However, it cautions that technology investment alone is insufficient without parallel organisational transformation and proper implementation.
The National Audit Office (NAO) has long criticised government procurement processes for digital programmes, pointing to frequent delays, cost overruns, and ill-defined contract requirements. Its investigations revealed that contracts are often awarded without thorough technical feasibility assessments, which have contributed to cost escalations exceeding £3 billion in recent years. The NAO also warned about “vendor lock-in” risks from the government’s heavy reliance on a few large American cloud providers, potentially reducing competition and bargaining power, while smaller UK tech firms continue to struggle to secure contracts.
Data from the UK government’s ‘State of Digital Government Review’ exposes further systemic weaknesses: less than 20% of the £26 billion spent on public sector digital and data programmes in 2023 funded permanent staff, with over half allocated to contractors and managed services providers. This dependency undermines long-term capability building within departments, with inconsistent data quality and limited interdepartmental data sharing compounding digital integration challenges.
Gavin Freeguard, former digital government lead at the Institute for Government, emphasised the risk of focusing on headline-grabbing technologies like AI without first addressing fundamental infrastructure failures. “Fixing broken IT is never as sexy as AI,” he observed. “There is a danger of thinking AI can just paper over the cracks – when in fact you have to fix the cracks first.”
TechUK’s report concludes that meaningful reform must centre on a procurement culture characterised by competition, flexibility, collaboration, pro-innovation attitudes, and value for money. Matt Evans, techUK’s chief operating officer, summarised the strategic choice confronting government: “It can continue with its current approach, procuring standalone products that risk being left on the shelf, or it can take a proactive step towards outcome-focused delivery that supports growth, innovation and user needs.”
With the new Procurement Act now in force, a Spending Review imminent, and a Digital Exchange marketplace proposed to streamline purchasing decisions, the government faces mounting pressure to convert its rhetoric on efficiency and innovation into tangible results. As the gulf between lofty digital ambitions and the entrenched frustrations of public sector IT remains pronounced, the critical test will be whether reforms like those advocated by techUK can reshape the system before another high-profile failure undermines public trust.
Source: Noah Wire Services
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