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Mike Cherry: Small firms: the engine house of a more productive economy

Wednesday 24 June 2015

The UK's 5.2 million small businesses are essential to driving productivity growth, both through the supply of entrepreneurship and innovation. So what part can they play in helping the UK turn the corner?

Mike Cherry

Mike Cherry is Policy Director for the Federation of Small Businesses. Mike leads the policy team to make sure small business issues are understood and represented in Westminster, Whitehall and Brussels..

Mike Cherry

The big picture

The All-Party Parliamentary Group for small businesses - to which the FSB provides the Secretariat - recently investigated small business productivity. The final report identifies how the private sector can boost its own productivity, but also highlights the critical role Government policy has to play in improving the productivity performance of small businesses by:

  • incentivising business investment, through simplifying the business tax system.
  • ensuring universal access to high quality, affordable broadband.
  • supporting innovative businesses, through simplifying the application process for tax credits for research and development.

Inside the workplace

Within the workplace, there are fundamental barriers to higher productivity. Skills shortages often lead the debate, but the under-usage of skills, training and management also require attention.

Within many businesses, there's a widespread under usage of skills. Whatever their size employers need to identify and use existing skills effectively, and take appropriate steps to up-skill their staff.

Small firms should be supported in annually reviewing their development needs to help them identify training opportunities and maximise the productivity of their staff.

It is not just harnessing the skills of the workforce that matters for business productivity. There are also structural weaknesses in the running of many firms. Better management practices are strongly associated with higher levels of competitiveness and effective workforce planning can help mitigate the effects of skills shortages. The UK has a long-standing weakness in this regard, with studies showing that many British companies lack adequate leadership and management capabilities.

Providing the right support

What can policymakers do to help? To some extent, it is about promoting and strengthening the support that already exists. For instance, finance providers are well placed to provide management advice and expertise to firms. Mentoring services such as the 'Mentorsme' scheme can be invaluable in helping to develop management skills too.

Mentors are not the only solution however: and must be part of a wider package of business support. There are currently a plethora of business support schemes, particularly at the local level, but a more joined up approach is required.

At a regional level, LEPs accountability mechanisms should be strengthened. At the national level a US-style Small Business Administration could provide the structure for a more coherent business support offer, and would provide much greater co-ordination in the management of schemes.

Small and medium sized businesses today employ 60 per cent of the private sector workforce and generate 33 per cent of turnover. This in itself explains why it is so important for policymakers to focus on steps to boost small business productivity, and why small firms need to be at the heart of the productivity debate.

Read the FSB's full article in Acas' new report on 'pdf icon Building Productivity in the UK [644kb]'.

Read other blogs in our productivity series

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