Restrictive cloud licensing could save UK public sector £300 million, claims report

A Social Market Foundation (SMF) report indicates that the UK public sector, including state schools, could save £300 million over the next five years by reforming restrictive software licensing practices. 

The report sheds light on how current licensing rules are financially detrimental and limit flexibility for public sector organisations.

The SMF's research arrives at a critical juncture as the Competition and Markets Authority (CMA) scrutinises the UK's cloud services market. 

The CMA, an independent non-ministerial government department, is responsible for ensuring that markets work well for consumers, businesses, and the economy. They are investigating the cloud services market to address potential anti-competitive practices and ensure fair competition, which is essential for innovation and consumer choice.

Sponsored by the Computer & Communications Industry Association, the report maintains SMF's editorial independence and has been submitted as part of the CMA’s investigation.

The UK government has mandated the use of cloud services within central departments and encourages wider adoption among public sector organisations, including state schools, to enhance efficiency and cut costs. 

From 2012/13 to 2023/24, total expenditure on the 'G-Cloud' framework has reached £17.3 billion, encompassing various entities including charities.

The UK government has mandated the use of cloud services within central departments and encourages wider adoption among public sector organisations, including state schools, to enhance efficiency and cut costs. From 2012/13 to 2023/24, total expenditure on the 'G-Cloud' framework has reached £17.3 billion.

The G-Cloud framework is a government initiative aimed at easing procurement processes for public sector bodies by providing a digital marketplace where they can purchase cloud computing services. This framework includes a wide range of entities such as government departments, local authorities, and charities.

However, the SMF report highlights that restrictive software licensing significantly inflates costs and hinders the ability to switch providers. An IT professional from the public sector, interviewed by the SMF, remarked, “There are positives to having one provider with a suite of things that work together very well, but the challenge of that is you’re tied in.”

While affecting both the public and private sectors, these licensing restrictions pose a greater burden on the public sector due to taxpayer funding. The report suggests that such practices cause direct financial waste and obstruct the UK's technological and economic progress.

Jake Shepherd, Senior Researcher at the Social Market Foundation, emphasised the broader implications: 

“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. 

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 SMF estimates that restrictive licensing practices cost the public sector around £60 million annually, potentially exceeding £300 million over the next parliamentary term. This figure primarily accounts for Office 365 and SQL Server usage limitations on third-party infrastructure, implying that the total additional costs could be much higher when considering all licensing practices.

Matthew Sinclair, Senior Director for the UK at the Computer & Communications Industry Association, added:

“This report confirms that restrictive licensing terms for legacy software are an expensive and cumbersome imposition on UK public sector organisations, 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. 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.”