General
17 Oct 2011

SMEs call on Government to ‘get the economy right’ to boost employment

Small and medium-sized companies appear sceptical of Government’s hopes that they will be the engine of job creation which will lift the UK economy, according to the Quarterly Survey of Small Business in Britain, produced by The Open University Business School (www.open.ac.uk/quarterly-survey) with support from ACCA (The Association of Chartered Certified Accountants) and Barclays Business.

Most SMEs (64%) do not report any change in the number of people employed over the past year. Where there have been changes, the numbers recruiting is almost balanced by those reporting reductions, resulting in an employment balance of +1%. However, if medium-sized firms are excluded, the balance is negative, and practically unchanged, at -4%. Employment prospects do not look set to change, with 75% of firms expecting no change in the next quarter, and broadly similar numbers expecting increases (13%) and reductions (11%).

When asked what could be done to help small firms generate additional jobs over the next year, online respondents to the survey overwhelmingly responded with the suggestion of a reduction in red tape, paperwork and legislation related to employment (35%). The next most common suggestion (26%) was some form of reduction in the taxation burden. Over half of those made it clear that they were referring to taxation on employment, while a smaller number mentioned general reductions in National Insurance Contributions or other taxation. Around 5% of firms stated that they felt help with training new employees and, in particular, apprenticeships would be the biggest help in boosting employment prospects. And a further 9% of online respondents suggested the Government “just get the economy right!”

‘Economic climate or demand’ has been the biggest problem facing Britain’s small firms throughout this period of recession and recovery, being the top‑ranked issue since the beginning of 2008. But in the latest survey, more than half (55%) of SMEs see it as a ‘top three’ problem, placing it far ahead of the next ranked issues, Competition (26%), Cashflow, payments or debtors (25%) and Government regulation (25%). Inflation or cost of inputs remains a problem for some (24%), with higher figures reported in some sectors, including wholesale, retail, hotels & restaurants and agriculture.

Professor James Fleck, Dean of The Open University Business School said: “What we’re seeing is an expectation that SMEs are the answer to the UK’s employment problems. This may well be the case but, as the Quarterly Survey of Small Business in Britain shows, there is some way to go in helping UK business to feel confident that they can fulfil this expectation.

“SMEs employ 59% of the UK’s private sector workforce, so it’s right that they are a key focus for policy-makers. This quarter’s survey not only shows the hurdles SMEs face in increasing employment opportunity, but also signals that businesses are still being hit hard by the current economic climate, with retail, wholesale, transport and construction facing some of the biggest challenges.”

The survey also found significant regional differences with firms in the West Midlands and Scotland reporting the most positive sales performance, with net balances of +23% and +21% respectively, while the East Midlands seems to have slipped back, having reported the highest balances in the previous four surveys. Firms in the West Midlands and Scotland were also the most optimistic about their prospects for sales in the following quarter (+26% and +29%), while the North East and North West were had the lowest expected sales balances (+2% and +1% respectively).

Though the very smallest firms generally report poorer sales performance than their medium-sized counterparts, this quarter’s report reveals a particularly striking relationship. The net balance for sales performance over the past year improves with each step up in firm size-band, whether measured by turnover or number of employees. So while firms with no employees report a negative sales balance (-17%), there is a positive balance (+26%) for firms with between 50 and 250 employees.

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