Limited software licensing means UK public sector bodies overpay for millions of dollars a year

The UK public sector will waste at least £300 million on software licensing over the next five years due to restrictive regulations, new research has revealed.

A report by think tank Social Market Foundation (SMF) shows that current software licensing rules make it difficult to switch suppliers, leaving public sector organisations dependent on expensive contracts.

“Our research shows that restrictive software licensing practices are wasting millions of pounds – taxpayers’ money that could be used to fund vital public services and boost national productivity – while interviews with public sector IT professionals reveal the ‘real’ day-to-day operating costs,” said Jake Shepherd, senior researcher at the SMF.

“Software licensing is not just a technical issue – there is an economic and social imperative to ensure that it operates efficiently and to prevent unnecessary waste of public resources in the future.”

The UK government has mandated central government agencies to implement cloud services and has more broadly encouraged public sector organisations to do the same, arguing that it improves efficiency and delivers cost savings.

UK public cloud sector revenues were £18.8bn in 2023, growing by 214% since 2016. This is forecast to continue to grow over the next few years, reaching £26.6bn in 2028. From 2012/13 to 2023/24, total government spend on ‘G-Cloud’, which includes spending across a range of entities including charities, was £17.3bn.

But restrictive licensing rules are driving up costs, according to the SMF. The thinktank has estimated that the economic damage to the public sector from unfair licensing practices could be as much as £60m a year, or more than £300m over the next parliament.

The report comes as the UK cloud services market is under investigation by the Competition and Markets Authority (CMA) and formal complaints have been lodged with the European Commission and consumer protection authorities in France and the Netherlands.

“This report confirms that restrictive licensing terms for legacy software are a costly and burdensome imposition on UK public sector organisations, as well as UK businesses. If public sector bodies can adopt new technology, there is a significant opportunity to increase productivity and help employees do their jobs,” said Matthew Sinclair, Senior Director, Computer & Communications Industry Association (CCIA).

“The CMA should ensure they can do so without being hindered by licensing terms and seek remedies that ensure cloud providers can compete freely without legacy software restrictions tipping the balance.”

The SMF said one way to solve the problem could be to centralize the cloud services contracting process, negotiating terms with software vendors to make life easier for smaller organizations, and bypassing the restrictions.

“In a context of deteriorating public sector efficiency and increasingly tight budgets, there is an economic and social imperative to ensure that taxpayers’ money and public resources are not wasted on unnecessary additional costs,” the report noted.