‘Britain’s small businesses are ready to meet the prime minister halfway’

Small businesses are the lifeblood of the British economy. From the plumber you call in a panic when the boiler breaks, to the local pubs that are the centre of so many communities, 99 per cent of businesses in the UK are small businesses. Together, they employ 13 million people, close to half of everyone working in the private sector.

The prime minister has begun his premiership by making clear that he wants to be on the side of Britain’s job creators. In his first week in Downing Street, he told business groups he would be a pro-business Labour leader, just as he was a pro-business mayor of Greater Manchester and promised to use the power of government to back British business.

While Parliament has been in recess over the summer, the 2030 Prosperity Alliance, a coalition of business, economists and civic leaders formed to close the gap between Britain’s economic potential and its recent performance, has run a listening exercise with over 100 small businesses across all four nations, including businesses in my own North Durham constituency.

Too often, business is treated as one undifferentiated mass. But there are enormous differences between big corporates and small businesses, and between what different kinds of business need from policymakers. Policies that are well intentioned can often have unintended consequences that bite hardest for small businesses.

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The first thing that came across in their conversations with business owners was agreement that the way government allocates contracts can too often hurt small businesses. Since 2021, businesses bidding for central government contracts have been judged partly on their social value, with at least ten per cent of the marks in every tender reserved for it. This has a very important intention: it seeks to reward businesses not only for the quality and cost of their output, but for the social good they provide.

In practice, the problem is that many small businesses already feel cut out of government projects they would have been well suited to, because of the administrative burden of navigating government frameworks and filling in countless forms. Done wrong, social value frameworks risk rewarding larger businesses that can tick the boxes, rather than those rooted in their local community who can have the most positive impact on the ground.

One example came from a small company in Durham that was trying to tender for a large contract which would have made a real difference to the business. It was exactly the kind of business that forms the lifeblood of a community: helping bring Christmas trees to the local hospice and taking on work experience students whenever it could. But when it came to the tender, it was competing against larger businesses whose scale meant they could answer yes to the sorts of social value questions embedded in government procurement today: questions about whether they had a strategy to reduce their emissions, or to cut their plastic use. Again, important questions for the largest enterprises to answer, but not applicable to a small construction business with fewer than 30 staff. 

This is why the government’s procurement reforms, announced last month, matter so much. From January, the simplified rules will apply to all contracts under £1 million, sparing small firms the heaviest paperwork, and the social value test for the biggest contracts will be refocused on what actually counts: local jobs, fair pay, apprenticeships and work experience. The Federation of Small Businesses has said the higher threshold will enable many more small firms to win contracts.

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The same principle applies to other government processes. It is well known that planning regulations can make life hard for small and large businesses alike. But what came through in the roundtables was how much harder these frictions are for a small business to navigate.

A small manufacturer described trying to build an extension to his factory. The actual build took three weeks. Getting through the planning application took six months, which he described as comparatively quick. Getting approval for a sustainable drainage system has taken a further 18 months and counting. This is a requirement that new buildings manage rainwater on site, rather than connecting to the sewers. Approval is a separate consent from planning, granted by a separate body within the council, and building cannot start until both are secured.

If you are a large national manufacturer, you will have well-staffed legal and compliance teams dedicated to exactly these sorts of problems. It is likely frustrating, but it is not the end of the world. For a small business, these delays are incredibly costly. Businesses, almost invariably manufacturers, were repeatedly frustrated that the build-up of individually justifiable but collectively draining requirements has massively increased the cost and time taken to build anything.

What does this mean more generally? It means policy needs to start by understanding how legislation impacts businesses on the ground in constituencies like North Durham. Small businesses aren’t looking for freebies. They just want rules written by people who understood what it was like for a company with ten workers trying to follow them. That is the test we should now set ourselves. Before any new requirement lands on business, we must ask how it plays out for the small businesses across the country just getting by, not just for a FTSE 100 firm with a compliance department that can absorb it. 

Andy Burnham has rightly promised a partnership with Britain’s job creators. On the evidence this summer, small businesses are ready to meet him. That is a huge opportunity for Labour, and one we must seize.

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