Why we need to build a level playing field for the UK’s small businesses

A new report has uncovered a 'postcode lottery' of small business productivity. SMEs in the most active local authority, the City of London, are 26 times more productive than the least, West Somerset.

Productivity, as defined in the report as turnover per employee, shows enormous variations across the UK – driven by local factors such as skills availability and connectivity.

So in the City of London, each worker at a small and medium business is worth £1.45million in company turnover. In West Somerset it falls to as little as £56,500. What is it apart from 175 miles that separates the two?

Policymakers in Westminster are in the habit of sometimes overlooking businesses outside the Square Mile – and this has likely contributed to the problem.

While economic supercentres, like the often-discussed Northern Powerhouse, are a move in the right direction, it’s clear that a more wide-ranging approach to nationwide SME productivity is needed to reach outside of urban hubs.

This could be helped if the government worked more closely with Town Halls. When it comes to nurturing the seeds of business, the approach to productivity must be tailored to each region.

Infrastructure also plays a big part here. With the expansion of transport links and improving telecoms, traditionally ‘remote’ regions are becoming more closely tied to economic centres.

It’s also important that financial education and IT skills must be taught from an early age in schools. We must be the world leaders in innovation and to get to this point, small business owners need to be more aware of the financial landscape – education will be a huge driver in this.

Regionally, London has witnessed some of the highest growth in numbers of small businesses, up 41 per cent. According to the report ‘The State of Small Business: Putting UK entrepreneurs on the map’, that is ten times greater than Northern Ireland.

London and the South East share more than one-third of all small and medium businesses in the UK – even accounting for population, these regions still have a significantly higher SME density than other regions.

That’s not to say there aren’t brilliant examples of activity outside of the capital and the home counties – areas such as Mid-Ulster, Newport and Barnsley have seen strong spikes in productivity.

Data also illustrates that areas with low business survival rates tend to have high productivity and vice versa. For instance, Watford has one of the lowest average five-year survival rates but one of the highest measures of productivity. In other words, while failure of individual businesses is dreadful, the dynamism of ‘creative destruction’ is good for the economy.

When it comes to job creation, small businesses are the champions of British industry.

The report found since 2010, small and medium businesses have created 73 per cent of new private sector jobs across the UK.

The report clearly lays bare the vital role that SMEs have to play in the UK economy – but it’s especially important, as we negotiate our way through economic headwinds caused by Brexit, that all small businesses – regardless of region – are afforded the same bite of the cherry.

Policymakers in and outside Westminster can encourage parity by investing in vital infrastructure, but also making small businesses owners aware of the finance that is available to them. With access to the right sort of growth funding, SMEs have the ability to steer the economy through periods of economic uncertainty.

Graham Toy, CEO of the National Association of Commercial Finance Brokers

Further reading on productivity

Owen Gough, SmallBusiness UK

Owen Gough

Owen was a reporter for Bonhill Group plc writing across the Smallbusiness.co.uk and Growthbusiness.co.uk titles before moving on to be a Digital Technology reporter for the Express.co.uk.

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