1% annual improvement in UK SME productivity would grow economy by £94bn in 5 years

Date: 19 July 2023

Be the Business is calling on government, industry and SME leaders to act to address the urgent issue of lagging productivity

London, 19 July 2023: According to a new report by Be the Business, an independent charity that inspires greater SME productivity, maintaining a 1% annual improvement in SME productivity over five years would grow the UK economy by £94bn, equivalent to over half the annual budget of the NHS. This improvement would also add an extra £65,000 in additional profit annually for every small business1.

The G7 Productive Business Index, compares the productivity of SMEs in G7 countries and places the UK well behind its counterparts in sixth place. The report found that UK businesses are under-indexing on performance, and investment and improvement in capabilities linked to productivity. The UK ranks fifth and sixth out of seven on performance and capabilities respectively.

However, small business leaders in the UK showed high confidence and a positive outlook, ranking fourth on confidence overall, despite a lack of investment and planned improvements across key capability areas including management skills, HR and operational efficiency.

For example, only one quarter (26%) of UK businesses are planning to increase investment in initiatives to measure staff and business performance compared to two out of five (42%) in the US which is the G7 leader. This gap between confidence and capabilities is evident across the data set, signalling that the UK is not doing enough to act to tackle lagging productivity.

Through analysing data and examining key indicators, the report uncovered five areas where the UK can learn from the strengths of other G7 countries:

• Management and leadership: The UK rates highly its abilities in leadership and management but commits far less to developing it, ranking sixth or seventh on all questions regarding investment in management capabilities. For example, only one third (33%) of UK businesses have improved their skills in this area over last 12 months, compared to over half (54%) of US businesses.

• Technology adoption: UK business leaders believe in the importance of technology and digitisation. However, only 28% of UK businesses said operational software increased their digital readiness over the past 12 months compared to almost half (47%) of Italian firms.

• Innovation: UK businesses are confident in their ability to innovate, but fewer than a quarter (24%) seek to form relationships with external parties to drive innovation in the next 12 months, half as many as the US (48%).

• Training, development and HR: Businesses in the UK are the least likely to invest in HR systems and processes, with just 23% of respondents doing so in the last 12 months, compared to 37% of French firms.

• Operational efficiency:  UK firms consider their operations to be as efficient as competitors but are the least likely to have introduced any new initiatives to measure and improve efficiency and productivity, sitting at the back of the G7 alongside Japan.

Anthony Impey MBE, CEO of Be the Business said:

“The UK’s small businesses are run by some of the country’s most impressive and resilient people. We see the huge contribution they make to the economy and their communities every day. But our productivity is lagging behind our G7 counterparts – this is impacting earnings and preventing growth, which is keenly felt in the cost-of-living crisis.

“We want our business leaders to feel confident and positive about their businesses because that spirit can drive their potential. But it’s critical this confidence is matched with the necessary action to invest and make improvements that deliver a tangible difference to increase productivity.

“Making small changes such as investing in measurement, improving management capabilities and receiving regular advice can make a difference. But business leaders can’t do this alone, it is critical that the government and big businesses play a role in making support and expertise available to help them close the productivity gap.”

The report findings highlight that making small, incremental changes in targeted areas can help UK businesses unlock their potential. Be the Business is calling on the government, big business and business leaders themselves to take action now:

1. Business leaders should dedicate time to making 1% improvements, spending 1 hour a month working on their business (for example by talking to a mentor, measuring performance or investing in management training).

2. Corporate Britain should leverage its expertise to convene and inspire productivity in supply chains, distribution channels, and among its customers. If every large business (250+ employees, approximately 7.7K companies) mentored just 40 SMEs a year over a five-year period, this would reach every SME employer in the country.

3. The Government should consolidate and connect all the work it does to address the productivity gap, making available resources highly visible and easily accessible.

ENDS 

Notes to editor 

1 The G7 Productive Business Index report can be read here

2 Calculation based on Be the Business analysis of business turnover and population estimates of UK SMEs with 1-249 employees sourced from Business population estimates for the UK and regions, 2022, accessed at https://www.gov.uk/government/statistics/business-population-estimates-2022

About Be the Business

Be the Business is an independent charity that inspires greater productivity, by connecting leadership teams to the curated expertise needed to answer today’s challenges. By combining peer-to-peer networks, the employee expertise found within pioneering corporate partners, independent business experts and our research and insights, we inspire leadership teams to create and deliver sustainable business change. Collectively we’re transforming the UK’s productivity, raising the value of businesses in our communities, safeguarding jobs and improving standards of living.