Want to crack the productivity puzzle? Backing small businesses is step one

It’s easier than ever to start a company, but much harder to grow it; the government must act to support small businesses, writes Charlotte Keenan

With the Spring Budget only two weeks away, the economy has tipped into recession, according to the latest ONS reporting. Restoring economic growth is top of the national agenda, and for any government – present or future – the answer will be tied to the strength and success of our small business community.

While the UK has experienced a small business boom in the past 15 years – with approximately 400,000 more established small businesses today than there were at the time of the 2007-2008 financial crisis – the percentage and number of those businesses achieving productive growth has fallen in the same timeframe.

This is according to a new report published today by the Goldman Sachs’ 10,000 Small Businesses Programme (10KSB) UK, in partnership with Saïd Business School, University of Oxford and the Aston Centre for Growth.

The report also shows that ‘productivity heroes’ – defined by the programme as companies that are growing revenue per employee while also expanding headcount over a sustained 12-month period – are in short supply. But this small group of companies (just three per cent of the 1.2m small businesses over three-years-old) has an outsized economic impact compared to the rest of the SME ecosystem, contributing £268bn to the UK economy in 2022.

What’s most striking is that despite a near 50 per cent rise in established small businesses since 2008, there are 3,000 fewer ‘productivity heroes’ today than there were 15 years ago.

Put simply, it’s easier to start a small business today than it was nearly two decades ago, but it is much harder to grow it.

It means the UK desperately needs to unlock the productivity puzzle and build on the strong business creation we’ve seen in the past decade to generate sustained growth. Doing so could add over £100bn and 88,000 jobs to the economy, and that may just be the start.

So, how do we get there, and what are the policy reforms small business owners say we need to see to deliver on the ambition?

Funding finance, top talent and improving infrastructure

According to our programme’s survey of high growth potential businesses, clear priorities were access to finance, talent discovery and retention, as well as addressing late payments, business rates reform and digital infrastructure.

This survey helped to shape key policy asks of small business owners into the manifesto being launched today featuring a number of recommendations, including hosting a series of missions to establish why G7 peers are better at scaling businesses than the UK, and the creation of a five-year National Small Business Plan, with binding measurable public targets.

This plan should be part of a longer-term commitment that delivers growth-led SME policy in a joined-up way and raises awareness of existing support and educational programmes for small business.

These recommendations also included the introduction of a greater range of SME-focused funding products – such as offering differential interest rates and loan schemes, and a further reform of UK pension schemes – and helping businesses access talent with smarter recruitment schemes and visa waivers.

Lastly, with one in four (26 per cent) highlighting digital capacity as a key infrastructure priority,  a small business review of the UK’s production and logistical infrastructure capacity is suggested, as well as stricter vendor diversity quotas for local and national infrastructure projects.

By removing the barriers our 10KSB UK alumni have identified to their own growth, we can set more companies on the path towards becoming ‘productivity heroes’, and generate long-term economic outputs.

It’s clear that the UK has a vibrant SME ecosystem – perhaps stronger than ever before – but for too long we have been unable to transform this generation of small businesses into Generation Growth.

As we look toward a brighter future and setting the UK on a more positive economic trajectory, the voice of small businesses must be at the forefront of the policy discussion.

Charlotte Keenan is head of Goldman Sachs 10,000 Small Businesses in the UK, a programme which provides entrepreneurs with access to education and support to create jobs and economic opportunity. The information and statistics in this article are drawn from a report linked here.