Small businesses might be the solution to UK’s productivity woes

Britain’s productivity is lagging far behind other G8 nations. But new research has revealed that turning its SMEs into innovative exporters may just be the shot in the arm the UK needs

Small businesses might be the solution to UK’s productivity woes

No small amount of attention is paid to making the UK as competitive as possible on the international stage. And yet despite no end of government initiatives, corporate support programmes and plucky entrepreneurs starting their own businesses, over the last few years UK productivity has dropped far below that of its contemporaries, falling 6% behind the rest of the G8. Fortunately it seems we’re a step closer to finding a meaningful solution, with new research suggesting that small businesses will be the key to bolstering Britain’s productivity.

According to Unlocking UK Productivity, a report co-authored by Goldman Sachs, the Enterprise Research Centre and the British Business Bank, with the right support 110,000 SMEs could become regular exporters, something that would potentially add an additional £1.15bn in gross value added (GVA) to the UK economy. In 2014, just 18% of SMEs were exporting, down from 24% pre-recession, with just 17% regularly selling their services abroad.

Additionally it seems insufficient numbers of British SMEs are introducing new products and services to market. The UK currently innovates less than the average for an EU country, with just 28% of SMEs innovating compared to a European average of 30% and falling far short of nations such as Luxembourg, Germany, Belgium, Netherlands and Finland, all of whom have at least 40% of their SMEs innovating. It’s hard to overstate the impact this has, with the report revealing that small businesses that produce new goods or services are 7% more likely to export than those that don’t and that exporters grow twice as fast as non-exporters.

Professor Mark Hart, deputy director of the Enterprise Research Centre, said: “Although economic growth has returned, UK productivity since 2008 has been almost flat. This means we’re producing less per worker than our international competitors and taking longer to create the same amount of economic value. Our research shows that there is huge untapped potential out there and that if we could build the confidence of innovative businesses that have high growth ambitions to start exporting regularly, we could generate an enormous boost to our economy.”

Clearly this throws down the gauntlet for the UK’s SMEs: it’s time to get innovating and get exporting. 

Josh Russell
Josh Russell

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