Digital and tech-enabled B2G opportunities under Labour

The UK Labour government is likely to amplify the digital transformation (DX) delivery trajectory set in train by the previous government, creating opportunities for digital firms and providers of tech-enabled public services – especially those that can provide a business case of efficiency savings and improved public services at a time of heightened VFM scrutiny.   

Further DX and tech adoption within the public sector, including Artificial Intelligence (AI) is an under-appreciated key element of Labour’s focus on growth.

Senior ministers understand the potential of DX to transform citizens’ experience of public services, drive wider organisational and service delivery reform, improve productivity and cut long-term costs (by, for example, reducing administrative burden).

This is not a new ambition. Every recent UK government has claimed that creating a more digital state is a priority, yet action has fallen short of the stated ambition. However, circumstances this time are – to an extent – different:  

• There is genuine political championing from the Cabinet Ministers most important to delivering this ambition: Darren Jones, who as Chief Secretary at the Treasury will decide the investment envelope for digital transformation; Pat McFadden, who is driving delivery of the government’s Missions which will depend, in part, on reformation of the state; and Peter Kyle, the DSIT Secretary of State who has committed to creating a new “digital centre of government” to drive the change needed over the long term. 
• This is a generation of politicians that have grown up with technology and see it as the primary route for public service delivery. There are also stronger foundations within the civil service, including a clearer understanding of the need to expand the overall addressable public sector digital estate (i.e. the amount of public services that are tech-enabled) by bringing legacy assets and other back-end systems into a modern state that can support interoperability and adoption of new technologies, like AI. 
• Perhaps most importantly, there is an imperative for action – the quality of public services has declined while becoming more expensive to deliver, most recognisably in healthcare. With a tight fiscal backdrop and a historically high tax burden that will be further increased in the upcoming Budget, the long-term, political answer to better public services cannot be higher core spending; a new, technology-driven approach that reduces the cost of running the state in the medium term is needed. 

Labour’s focus on efficiency should keep overall digital spending resilient, although more discretionary projects will be at risk from a cost-cutting drive seeking to take billions out of department budgets. Labour’s focus on efficiency savings will likely protect projects that align with these goals and deliver new opportunities, particularly in areas such as healthcare, where the recent Darzi investigation recognised further digital transformation could deliver both improved outcomes and cost reductions. There is a secondary focus on improving user experience, which aligns with Labour’s broader goals of improving how citizens engage with public services, making investments in customer-facing digital solutions a potential growth area.  

Labour’s desire to reduce consultancy spending presents a challenge for some digital service providers, but companies offering specialised expertise in digital transformation will remain in demand as the government continues to struggle with recruitment and retention in key digital roles. This creates opportunities for firms with niche expertise, particularly in areas like legacy system modernisation, cyber security and data/AI. The possibility of greater, centralised and coordinated procurement of digital services intended to leverage government’s spending power in support of squeezing savings from the largest contractors will also, inevitably, be explored. 

Despite the political imperative of bringing public sector spending down, there is the prospect of new spend where it is a critical enabler for a more digitised public sector. One of the most commercially significant areas of focus is the potential for the government to spend-to-save, in modernising the outdated technology systems that currently hinder more comprehensive digitalisation – in line with the Chancellor’s broader mantra of balancing the need to invest while stabilising the public finances in the medium term. In 2021, the Cabinet Office (CO) reported that nearly half of government technology expenditure in 2019 was dedicated to keeping legacy systems operational. The National Audit Office identified these outdated systems as “a key source of inefficiency and create[s] a major constraint to improving and modernising government services.” To address this, the government is reportedly exploring the creation of a dedicated fund, led by the Treasury, that can update core, cross-government systems as well as data infrastructure. 

The October Budget will be a pivotal moment for understanding the immediate direction of digital transformation spending. Although a one-year spending settlement is expected, the government’s focus on digital transformation could still prioritise key political goals, such as dedicated funding for further digital transformation of the health sector and the foundational work needed to deliver new political priorities like a National Data Library.  

A significant factor in how much new spend is funded in the Budget will be how ready the civil service is to execute more ambitious digital transformation plans. The short window between the election and this October fiscal event provided little opportunity for the most significant investment proposals to be designed and to get through bureaucratic approval processes. Flint understands much of the more transformative thinking remains in the discovery phase. However, pilots and development projects funded in the Budget will provide a signal as to whether more substantial spend may come online through next year’s Comprehensive Spending Review (CSR), which we expect will be critical for determining the long-term fiscal framework for digital transformation from 2026 onwards.  

Understanding the shifts in political focus and what that means for upstream digital transformation spend will require an active shift in engagement and relationship-building within central government. Labour has moved the responsibility for digital transformation under the Department for Science, Innovation, and Technology (DSIT), consolidating its efforts to create a more centralised and coordinated digital government. With the Central Digital and Data Office, Government Digital Service, and the Incubator for AI, all now housed within DSIT. Kyle aims to create a "modern digital government," centralising public service digitalisation efforts. The officials in these teams will be key in setting the investment strategy for digital transformation and, if more digital procurement is centralised, could become significant decision-makers on spend in their own right.  

However, in the near term, individual departments and the ministers in charge will continue to be the main drivers of ambitious digital transformation within their departments. Several key ministers have shown enthusiasm for digital transformation and are likely to use it as a means of achieving wider public sector reform. Ministers’ appetite for really investing in digital transformation will also reflect how confident they can be that digital projects will not fail and will deliver tangible benefits within cost and time constraints. Trusted advisors to commercial strategy and delivery teams can help provide the evidence and expertise needed to get new investments green-lit. 

In conclusion, while fiscal constraints may delay or scale back certain capital-intensive digital projects, Labour’s commitment to modernising public services—particularly through legacy system upgrades and improved citizen engagement—will drive ongoing opportunities in the sector.  

Investors can optimise business development and preserve the resilience of public sector spend by building investment cases around the delivery of long-term savings through modernised infrastructure, as well as enhancing customer-facing services. A refreshed business development strategy, prioritised against where political demand for digital transformation will be highest, and getting in front of the new centralised organisations intended to coordinate digital transformation across government, can help companies maximally position themselves to influence and successfully compete for spend.  

Flint’s Public Sector Digital team operates at the intersection between investment, politics, policy and regulation globally and have real experience as senior decision makers across the issues that shape the public sector digital transformation market. Our team's blend of strategic expertise and practical experience enables us to support clients in capitalising on emerging opportunities and managing commercial risk in this rapidly evolving sector. 

This article reflects Flint’s collaboration with  Armstrong's tech practice, who have helped inform our commercial understanding of digital transformation and tech-enabled services.