Thursday, 22nd June 2023
Whether it’s the war in the Ukraine, cost of living crisis, recession, Brexit, inflation, energy and food costs, or rising interest rates, the state of the U.K. economy is a hot topic across the country right now. And while nearly everyone is feeling the effects of this economic downturn, most of us are unclear about the steps forward to recovery. According to gov.uk, small businesses are the engine of our economy, fuelling growth and employing millions, and will be a vital part of our economic recovery.
Per Bionic (bionic), small and medium enterprises grow economies in three key ways:
Growth
SMEs in the UK had a combined turnover of £2.3 trillion in 2021. Micro businesses - those with fewer than10 employees - comprised the largest segment at £953 billion which amounts to a whopping 52% of the private sector’s overall sales.
Employment
SMEs make up around 99% of all the businesses currently operating in the UK, employing over 16.3 million people, which accounts for 60% of all private sector employment.
Innovation
SMEs are disproportionately responsible for driving innovation and opening new markets. Netflix, Deliveroo and Uber are all examples of disrupter SMEs. AirB&B, Amazon and Red Bull are SMEs that opened and expanded into new markets.
First, the good news. According to the World Economic Forum, the U.K. topped the list of countries with the fastest new SME formation in 2020 at 101%. This is an important and promising development because the collective successes and failures of SMEs have an enormous impact on the UK economy. However it’s not all good news for SMEs. Brunel University research suggests that the number of companies in financial distress has spiked in parts of the UK to the highest level since the 2007-8 global financial crisis, and more than one in ten UK businesses have reported a moderate-to-severe risk of insolvency. Nearly a quarter of these companies say energy prices are their main concern. Statistics compiled and maintained by Registry Trust also illustrate financial difficulties of SMEs across several areas of the UK in the form of CCJs, a reliable early indicator of insolvency. Furthermore, our recent analysis including the Consumer Confidence Index suggests continuing struggles for SMEs as consumer spending decreases alongside falling real household income.
The survival of SMEs will likely require a variety of measures originating in both private and government support structures. According to Startups, access to funding, business rate reviews, apprenticeship programs, grants, VAT support/deferral, and broadening employment support are on the current wish lists of many small businesses. Granting those wishes may go a long way towards our economic recovery.