How to help boost the UK economy with a boom in high-productivity businesses

Published on20 FEB 2024

The UK’s 5.5 million small- and medium-size enterprises (SMEs) could be an answer to revving up the UK economy and reversing more than a decade of stalled productivity.

A survey of UK small business owners who participated in the Goldman Sachs 10,000 Small Businesses (10KSB) program helps to lay out their views and asks on government policies, such as upskilling the workforce, which could improve worker efficiency and unlock £106 billion in private sector revenue and 88,000 new jobs. The survey is at the heart of Generation Growth: The Small Business Manifesto, which was produced by Goldman Sachs 10,000 Small Businesses in partnership with the Aston Centre for Growth; Saïd Business School, University of Oxford; and Seven Hills Communications.

The survey of more than 550 alumni of the 10KSB program finds that these companies are, overall, optimistic about doing business in the UK and have embraced advanced technology like generative artificial intelligence surprisingly quickly.

But these business owners also see areas where government support is greatly needed to help them be more efficient. The UK’s growth in productivity, which is critical for boosting wages and prosperity, has long lagged behind its peers. Since 2007, the increase in average annual productivity in the UK has languished at just 0.2%, compared to an average of 3.6% in the three decades following World War II.

Britain’s SMEs can help reverse that trend. Right now, only about 36,000 of them qualify as “Productivity Heroes” — SMEs that are established (more than three years old) and are growing revenues faster than they are expanding their workforces, according to the report. During an average 12-month period, this group of businesses increased revenues by 196% and headcount by 29%.

The country has had bursts of new, high-productivity companies in the past, such as the years just before the financial crisis or in the decades following World War II. Matching that performance again could have a profound impact on the UK economy, potentially increasing the number of “Productivity Heroes” by 22,000, helping to generate an additional £106 billion in revenues and 88,000 jobs.

“Small businesses are the engines of UK growth and have the power to transform communities,” Charlotte Keenan, head of the Office of Corporate Engagement’s international responsibilities, writes in the manifesto. She points out that small businesses make up 99% of all private sector enterprises in the UK, 61% of employees, and 53% of sales turnover.

Many alumni of 10KSB UK, an education and business support program, are already “Productivity Heroes” or are close to being one. That makes this community a rich resource of ideas to improve productivity — 71% of 10KSB UK alumni are increasing their sales turnover, and 73% are increasing their headcount.

What can be done to improve productivity in the UK?

The 10KSB UK respondents in the survey, overall, have a positive outlook: Some 68% say the UK is a good place to run a small business. 90% or more expect to grow revenue and headcount in the next three years.

Even so, more than half (55%)  also say they are unable to find the talent they need, and only 12% believe the education system is equipping young people for the future of work. A large majority – 89% – believe enterprise skills should be embedded within the core secondary school curriculum. Surprisingly, only 5% say they would prioritize coding, natural sciences, and engineering skills; 19% say they are looking for talent with basic IT skills (like proficiency in Microsoft Office) and accounting and presentation skills.

Small business owners also want to see the government work more closely with small businesses to support international recruitment and explore the potential for mutually beneficial visa waivers. They also believe small businesses should be a voice at the table when policymakers are developing any potential changes to employee rights.

Improving SMEs’ access to financing

The second priority of survey respondents for the next government is on improving small businesses’ access to financing. 58% say they would consider taking their companies public, and 44% of those say the UK is an attractive market for an IPO.

But more than a third of those interviewed (37%) say they were unable to access the capital they need to grow their businesses. Small business owners’ recommendations include:  

  • Increasing the range of government-backed and government-supported financing options specifically targeted at small businesses, such as specialized loan schemes and encouraging UK pensions to back SMEs
  • Including a commitment to entrepreneurship as an area for spending in any implementation of a UK sovereign wealth fund
  • Building a national campaign to increase SME leaders’ awareness of the existing financing options that they need to grow, especially for women and ethnic minority business owners who are currently underserved

Other ways the government can support SMEs in the UK

Many respondents (41%) say late payments from other companies have had an impact on their growth, and a majority (89%) say they would support tougher legislation for big businesses on late payments. When it comes to taxes, more than 90% support a discount on businesses rates for meaningful property improvement, and many support the idea of differential business rates depending on business sector (78%) and productivity potential (72%).

When it comes to climate change, small business owners ask the government to view small businesses as key partners to help the UK meet its net-zero objectives. They say the government should investigate new ways of helping SMEs withstand changes in the energy market. And three quarters of respondents think the next government should establish and invest in a new publicly owned power generation company.

In terms of AI, many firms are already familiar with this technology. 80% are either already specifically using generative AI tools such as Chat GPT or plan to start doing so in the next 12 months. Their policy recommendations include support to take advantage of the opportunity AI represents through education and financial incentives, and clear guidance on AI specifically aimed at small businesses.

The survey results and findings of the report underscore that small businesses in the UK are seeking a voice in the government, and these business owners say they would benefit from long-term, stable policies that they can count on (such as a five-year National Small Business Plan). Leaders of these firms desire a clear strategy for upgrading and expanding the UK’s digital capacity as well as improved physical infrastructure. They say SMEs should be at the heart of any new trade deals.

Having the right policies in place to enhance productivity wouldn’t just help smaller companies, but could boost the entire UK economy. “Too often their voices have been overlooked in the corridors of policy making, yet it is these SMEs who have an indispensable role to play in shaping the narrative and sparking UK productivity into life,” Keenan writes.

10,000 Small Businesses UK

Generation Growth: The Small Business Manifesto

Read the Report

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