This is Government refunding Government - nobody saves any money
This guidance doesn't affect businesses at all.
The article is unclear, but this is talking about whether **government departments** can get a rebate for VAT paid on various purchases. Government "services" are not VATable so they are not able to reclaim VAT on inputs against the VAT they (don't) charge in the same way as businesses. The purpose of the rebate is to ensure that outside suppliers aren't placed at an automatic 20% cost disadvantage over using internal staff for the same job. I.e. it is not so much to encourage outsourcing, as to create a level playing field for it.
As such only outsourced services which substitute for employing internal staff are supposed to be VAT-rebate-able.
Hence bespoke software = Yes, renting Cloud Servers = No. Outsourcing systems administration ought to be Yes, but I haven't read the guidance. Of course cloud servers come with a sysadmin element, so if I was a supplier I would rewrite my contract to break that out as a separate purchase so as to remove the pricing disadvantage as intended by the rules.
(Remember VAT is paid on sales, but reclaimed on VATable inputs. So in net-net it is only actually paid on NON-VATable inputs, which are: Capital costs (i.e. profits/your mums pension), Staff costs (i.e. labour/wages), and Imports (i.e. foreign capital and foreign labour)).