Small Businesses at risk as impact of stagnating growth continues to be felt

In cities across the country, small to medium sized enterprises are feeling the impact of stagnating growth, as the poor performance of the national economy hits their local markets.

This is a critical issue for growth and jobs across the UK. Small to medium sized enterprises (SMEs) make up over 99 percent of businesses in UK cities and provide roughly half of all private sector jobs.

But the performance of the economy has a big impact on the health of SMEs – on average 45 percent of firms in cities operate mainly within the local market and 60 percent within the regional market – making local economies particularly important. This is particularly true in cities such as Blackburn and Luton, where up to 75 percent of firms operate within the local or regional market.

Centre for Cities’ new report, Business Outlook 2013, shows clearly that SMEs in cities with lower levels of wages and skills, where the economy is less sectorally diverse, and where there is a greater reliance on public sector spending, have been particularly hit during the recession and are likely to be more vulnerable to contraction or closure in the years ahead.

The report also highlights that SMEs in different cities vary enormously in their ability to generate jobs and value.

London and cities in the South East tend to have the highest levels of entrepreneurship, the highest number of SMEs per 10,000 people, and the highest growth of SMEs. Yet this is not about a North-South divide, with Aberdeen and Warrington amongst the top performing cities and Luton having amongst the lowest SME growth rates nationally.

The recession has tended to reinforce existing differences, so the cities with the highest business start-ups before the recession tended to have the highest start-up rate in 2011 too. Despite the recession, Aberdeen, Cambridge, Reading and Edinburgh all increased start-ups by more than 4 percent, while Belfast and Sunderland – which began with low levels of business start-ups – have seen significant falls since 2008.

So what can be done? Clearly, many different issues affect the success or failure of a new business, with performance largely down to how a business is managed and run. But external factors such as your sector, customer demand, workers’ skills, the right kind of business space, transport, broadband connections and access to finance, can have a significant impact on whether or not SMEs thrive.

With these factors in mind, we need a national government that recognises there is a place dimension to SME success and failure. In order to encourage and support businesses to diversify and grow, Government should look to continue to devolve more funding and powers around skills, transport, housing and business support through Local Growth Deals and other mechanisms in the years ahead.

Government also needs to simplify business support infrastructure. There are currently around 900 local and national, public and private, business support schemes in the UK, but the current offer is not well structured. The complexity of the system means that SMEs are often either unaware of the support available, or are unable to access it.

At a local level, every city and Local Enterprise Partnership (LEP) should ensure they’re getting the basics right: education and training provision, transport connections and improvements to the planning system can have a strong bearing on SME resilience and performance.

Together, cities and LEPs should also ensure they understand their SME base, where its comparative advantage lies and what the barriers to growth are. Working with UKTI to help SMEs diversify their customer base beyond the local market, as well as improving public sector procurement, would also help.

Ultimately it is the people working in businesses that determine success or failure, but a more place-based approach to SME support, as well as some concerted attention to removing barriers to growth, could help SMEs weather the unsettled economic climate and support a national economic recovery over the long term.

Ben Harrison is Director of Partnerships at Centre for Cities – find out more at www.centreforcities.org