Restrictive software licensing means UK public sector bodies are overpaying millions each year

The UK's public sector is set to waste at least £300 million on software licensing over the next five years due to restrictive rules, new research suggests.

A report from the Social Market Foundation (SMF) thinktank shows that current software licensing rules are making it harder to switch between providers, keeping public sector organizations locked into expensive deals.

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

"Software licensing isn’t just a technical issue – there’s an economic and social imperative to ensure it works smoothly and prevents needless wastage of public resources in the future."

The UK government has mandated that central departments adopt cloud services and has encouraged them more widely among public sector organizations, saying this improves efficiency and brings cost savings.

Revenue for the UK public cloud sector was £18.8 billion in 2023, growing by 214% since 2016. This is forecast to rise steadily over the next few years, reaching £26.6 billion in 2028. From 2012/13 to 2023/24, total government ‘G-Cloud’ spend, which includes spending across a number of bodies, including charities, was £17.3 billion.

But restrictive licensing rules raise costs, according to the SMF. The thinktank estimated the economic harm inflicted on the public sector by unfair licensing practices could be as much as £60 million a year, amounting to more than £300 million over the next parliament term.

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

"This report confirms that restrictive licensing terms for legacy software are an expensive and cumbersome imposition on UK public sector organizations, as well as British businesses. If public sector bodies can deploy new technology there is an important opportunity to raise productivity and help workers get on with their jobs," said Matthew Sinclair, senior director of the Computer & Communications Industry Association (CCIA).

"The CMA should ensure that they can do so without licensing terms getting in the way and look for remedies that ensure cloud providers can compete freely without legacy software restrictions tilting the playing field."

The SMF said one way to fix the problem could be to centralize the procurement of cloud contracts, negotiate terms with software suppliers to make things easier for smaller organizations, and circumvent lock-in.

"In the context of worsening public sector efficiency and ever-tightening budgets, there is an economic and social imperative to ensure taxpayers’ money and public resources are not squandered on unnecessary additional costs," the report noted.