Small businesses close productivity gap

More than half (62 per cent) of small businesses have taken steps to improve productivity over the past 12 months and half (50 per cent) expect their output per worker to continue growing over the next two years, according to a new report.


Research launched by Albion Ventures, one of the largest independent venture capital investors in the UK, revealed that following several years of a widening productivity gap between the UK and other developed economies, the report suggests this trend may start to reverse as only 3 per cent predict their output will decline further by 2017 while 36 per cent say it will remain the same.

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Patrick Reeve, Managing Partner at Albion Ventures, said: “Given the majority of the UK workforce is employed by SMEs, improving productivity at this level is key to achieving real wage growth and a better standard of living across the country.

“While the government has pledged more long-term investment in areas like infrastructure, it’s ultimately down to individual businesses to adopt the right measures themselves.  It’s encouraging to see that the majority of firms have tried to addressed output over the past year but the fact that half don’t expect any improvement in their output suggests the productivity gap is a long way from being fully closed.”   

The report shows that productivity improvements have been pursued most aggressively by medium sized businesses, of which 86 per cent have adopted measures to boost output compared to just 56 per cent of small firms. 

The third Albion Growth Report, designed to shed light on the factors that both create and impede growth among over 1,000 SMEs, highlights significant regional differences in tackling the productivity gap: 54 per cent of business owners in the South West said they will increase productivity over the next two years followed by 52 per cent of those in Yorkshire, London and South East. The least confident regions are the North West, East Midlands and West Midlands with only 46 per cent expecting further improvements.

According to the Report, the most common measures taken by firms to boost productivity have been better processes, (30 per cent), technology (24 per cent ), training (18 per cent) and flexible working hours (12 per cent).

When asked how the Government can help SMEs to increase productivity, 42 per cent said that investment in fixed line broadband would deliver the biggest benefits, followed by roads (31 per cent) and affordable housing (25 per cent).

The report underlines the importance of productivity as a key indicator of growth: of those companies that predict increased productivity, the vast majority (89 per cent) also foresee growth, compared to just 61 per cent among all firms. Similarly, of those firms that see their productivity stagnating, only 36 per cent predict they will grow.


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