Nov 09, 2017

UK small business is booming, according to new report

Small and medium businesses are highly valuable to the UK economy. This is highlighted in the most recent report published by Sage and Nesta, “The State of Small Business: Putting UK Entrepreneurs on the Map”. The report can be accessed online and even has an interactive tool that enables you to see how your local area is doing SME-wise.

Below are our key takeaways from the report.

 

desk small business

 

1. Small business is booming

There’s no denying this. The number of SMEs keeps growing every year, and there are 29% more now than in 2007. According to the research, in 2016 SMEs accounted for over 99% of all UK enterprises, employed 15.7 million people and achieved 47% (£1.8 trillion) of total UK business turnover.

2. Local variation in productivity

There are quite big differences in SME productivity in different UK regions. For instance, London, which is the most productive part of the UK, is more than three and a half times as productive as Wales, which is the least productive part of the UK. When compared at a local authority level, the differences are even wider. The City of London is the most productive part of the UK, and it is 26 times more productive than the least, which is West Somerset.

Where it gets paradoxical is that even if London is the most productive, it has experienced the largest decline in SME productivity than any other UK region since 2007. There are also contradictions in different London regions. For instance, Westminster is considered as one of the most “SME intense parts of the UK”, while Lewisham the least.

3. Digital skills and tools are vital

The research reveals that the shortage of digital skills and tools in SMEs is impacting productivity and is estimated at £18.8 annually. It makes sense then that investment in this area could boost SME productivity even more.

Interestingly, the research could not find evidence for broadband connection speeds having an impact on SME activity, growth or productivity, especially in rural areas and devolved regions, where broadband coverage is lower.

4. Failure can be good

One less obvious finding of the research is that in order to secure a strong economy, failure of businesses can be seen as a positive. This relates to the economic concept of “creative destruction”, popularised by Austrian-American economist Joseph Schumpeter as a theory of economic innovation and the business cycle.

Returning to the research in question, it suggests that “creative destruction” is an important factor for productivity growth, because business survival rates are negatively related to productivity. In other words, the strength of the SME landscape should not be measured only by how many companies “survive” because it may not have a positive effect on overall productivity.

 

workspace computers

 

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