One of the most important economic reports that is published annually is also one that is often overlooked by many politicians and policymakers despite its findings being relevant to the vast majority of businesses in the UK.
The State of Small Business Britain report, from the Enterprise Research Centre (ERC), reviews a range of research and analysis to present an annual review of the trends affecting small and medium-sized enterprises (SMEs) in the UK.
For 2021, it is not surprising that the report has focused on the challenges that many small firms have faced in coping with Covid-19, but it also examines the opportunities to strengthen the sector as we finally emerge from the pandemic, especially in terms of what is termed the ‘Triple Transition’ – namely business digitalisation, adoption of net zero practices and the upgrading in productivity.
What does the report tell us?
Not surprisingly, one of the major findings is that SMEs have been in financial difficulties during 2021 with an increase in those reporting that they have no cash reserves, especially among microbusinesses employing less than 10 people (and which account for 95% of all firms), although over half reported that they were highly confident of surviving, which was an increase on 2020 and may reflect the reopening of the economy.
One of the positives from the pandemic is the acceleration towards digital adoption within businesses as a result of an increase in home and hybrid working due to restrictions imposed on employers.
Unfortunately, some studies have shown that firms in the UK have been slower than those in other countries in adopting digital technologies.
In terms of the UK Government achieving its aim of net zero by 2050 by decarbonising all sectors of the economy, most small firms are still at an early stage in supporting this objective although the good news is that research shows that they have taken at least one simple action (such as installing smart meters) to reduce emissions.
More needs to be done in this area over the next few years and whilst the personal motivations of entrepreneurs are important in achieving this, studies show that market and regulatory changes will be the key drivers, including customer demand for low carbon products and services.
One of the ongoing findings of research from the ERC, especially that in studies of high-growth firms, is that management and leadership skills will continue to be important to improving the UK’s productivity position.
Yet there has also been a realisation during the pandemic that all employees have faced considerable mental health and wellbeing challenges due to the nature of lockdown.
And whilst there is evidence of a link between productivity and workplace mental health, employers do need to do more in adopting positive wellbeing practices to maximise the potential of their employees.
Another key factor in boosting productivity is innovation and whilst UK businesses have traditionally under-invested in R&D and innovation, the Covid-19 pandemic has, paradoxically, forced businesses to become more innovative to deal with some of the challenges they faced, especially in adopting digital technologies, changing management practices and introducing new products and services.
Therefore, it would seem that whilst the pandemic has impacted businesses severely especially in terms of their financial performance, the one silver lining from the last two years is the way that many have embraced change at the most difficult of economic times.
However, the ERC review does demonstrate where the focus now needs to be over the next few years in supporting economic growth as the threat of Covid-19 recedes.
Here in Wales, and with the absence of any coherent economic strategy for the future, a focus on the so-called Triple Transition of digitalisation, net zero and productivity upgrading could well be the way in which the Welsh economy can recover quickly.
In terms of digital innovation, there needs to be a more comprehensive approach to ensuring businesses maximise the opportunities available to them, especially as increased digital adoption can also improve both the net zero and productivity transition.
Similarly, government support towards net zero transition needs to be more comprehensive and if the Welsh Government is serious about this agenda, then it must embrace the business community as a partner in achieving this, something it has singularly failed to do during the Covid pandemic.
Finally, and most importantly, improvements in productivity must be at the heart of any serious attempt to improve economic performance although there seems to be little direct focus on this at the Welsh Government level or, more crucially, within the city and growth deals that are driving the regional response to the pandemic.
Whilst it is always easy to spend money on the same sectors such as fintech, cyber, creative or medtech that every region in the UK is targeting, it is also easy to forget that improving productivity and innovation across all sectors can have a massive impact, especially if the actual interventions then reflect what really makes a difference to productivity, such as the improvement of management skills.
As optimism begins to flow back into the economy, we mustn’t forget that many businesses will be facing the hangover of the pandemic for a considerable period of time.
However, the ERC report does highlight where a difference can be made in supporting them to make the changes that will not only improve their performance, but that of the economy as a whole.