Public sector could save £300m by tackling restrictive cloud licensing

A new report shows that the public sector could save at least £300m that is lost through restrictive software rules over the next 5 years.

Through in-depth interviews with public sector IT professionals, conducted by The Social Market Foundation (SMF), a cross-party think tank, it was learnt that current software licensing rules are making it harder to switch between providers, and thus keeping them locked into pricey deals.

Jake Shepherd, Senior Researcher at SMF, said:

“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.”

According to the research findings, cloud providers were seen as leveraging shares in their legacy software to secure their positions in the cloud market. Software licensing practices often also limited user choice through tie-in arrangements, restricted integration options and proprietary features leading to increased or additional costs, such as higher renewal fees. While many respondents reported experiencing or knowing about restrictive software licensing practices, fewer mentioned encountering outright 'lock-in'.

The SMF’s report comes at a time when the UK cloud services market is being investigated by the Competition and Markets Authority (CMA). This report was sponsored by the Computer & Communications Industry Association. The SMF retains full editorial independence. The report has also been submitted to the CMA’s investigation.

The UK government mandates that central departments adopt cloud services and encourages them among wider public sector organisations to improve technological efficiency and to find savings within public services. From 2012/13 to 2023/24, total government ‘G-Cloud’ spend, which includes spending across multiple entities, including charities, was £17.3 billion.

But restrictive licensing rules raise costs. One IT professional in the public sector that SMF spoke to said that there’s “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 licensing costs and complications also affect the private sector, the overall detriment is likely to be worse in the public sector. Excess costs are ultimately financed by the taxpayer and may entail the diversion of resources from other government objectives or budgets. These practices not only result in direct financial costs but may also prevent the UK from achieving its technological, economic, and security goals.

The SMF estimated the extent of economic harm inflicted on the public sector by unfair licensing practices to be around £60 million a year, amounting to over £300 million over the next parliament term.

The SMF has only accounted for the costs of restrictions to users’ ability to freely use Office 365 and overcharge of using SQL Server on third-party infrastructure. The actual additional costs incurred by all software licensing practices are likely to be much higher.

Matthew Sinclair, Computer & Communications Industry Association Senior Director, UK, said:

"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."