SME report finds "postcode lottery" of productivity

A major new report on small and medium-sized businesses has revealed startling differences in productivity levels in different parts of the UK.

The new study by Sage and Nesta, The State of Small Business: Putting UK entrepreneurs on the map, has found that SMEs in some local authorities are up to 26 times more productive than others - with local initiatives, business death rates and education all playing a part.

In the most productive local authority in the UK (the City of London), the report finds that each worker at an SME is worth £1.45 million in company turnover compared to just £56,500 in the least productive (West Somerset). However, there are hotspots of productivity to be found across the UK - including Mid-Ulster, Newport and Barnsley.

Interestingly, it is the areas with high business survival rates that tend to have low productivity - and vice versa. Watford, for instance, has one of the lowest average five-year business survival rates but one of the highest measures of productivity. The authors of the report say this shows that whilst failure of individual businesses may be painful, the dynamism of "creative destruction" is good for the economy.

The findings also show that SMEs are punching above their weight in terms of job creation - since 2010, small and medium-sized businesses have created 73% of new private sector jobs across the UK, despite accounting for just 60% of private sector employment.

The number of UK SMEs has risen by 23% since 2010 and technology continues to be the stand-out sector. The number of tech enterprises has grown 42%. Also thriving are SMEs in the education sector, which has more than doubled in size since 2010.

Stephen Kelly, chief executive at Sage, said: "The huge variation [on productivity] at a local authority level - revealed in this report for the first time - is a real wake-up call. We can no longer afford to sleep-walk through the productivity problem by following a one-size-fits-all approach. Entrepreneurs have been forced to drive with the handbrake on for the past seven years and it's up to Government to help release it if our entrepreneurs are going to fulfil their full potential for the economy."

Kelly has called for better standards in education and digital skills training as well as digital tools, productivity metrics and targeted business support for entrepreneurs.

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