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Latest Govt stats highlight how SMEs are critical to the health of the nation.

Business powers our economy, even if Boris Johnson colourfully disagrees, and the Chancellor has a chance to underscore the government’s support for business – especially small business – in his Budget at the end of October.

As we await the budget in just under three weeks, statistics released by the Department for Business today (i) paint an interesting snapshot of the state of the business population in the UK.

The headline stats show that, at the start of this year, there were 5.7million private sector businesses in the UK, slightly less (27,000) than the previous year and the first time there has been in fall in the numbers since 2000., when there were 3.5million.

The stats show just how critical SMEs are to the health of the nation. They account for 99.9% of all private businesses, employ over 16million people, 60% of all private sector employment in the UK. SME turnover was £2.0trillion, of 52% of all private sector turnover.

FTSE 100 and 250 companies may take most of the headlines, but UK Plc’s engine room is SME. Owner-managed businesses are by far in the majority among SMEs, comprising 75% of the total.

Businesses with a single employee have hugely increased since 2000, accounting for 80% of the overall increase in the business population. So many people, having been made redundant, or not wishing for work for larger corporations, have set up on their own. Truly, the UK is a nation of sole-traders.

Construction is the dominant sector for SME, with nearly 20% of the total share (all those builders, decorators and tradespeople), while other key sectors include Professional, Scientific and Technical (15%), Wholesale and Retail trades (10%) (including mechanics) and Administration and Support Services (8.0%).

However, this year’s numbers indicate that the growth in single-employee firms has reached a plateau. The number of companies has increased in the last year by 31,000 (+2%) whilst the number of sole proprietorships partnerships fell by 49,000 (-1%).

So what are the messages from these latest stats. We underestimate the importance of SMEs at our peril. Big companies hog the headlines, of course, but policymakers must ensure that they are listening to SMEs, and supporting them through the tax system.

That especially applies to innovative businesses that invest in R&D, or who develop their own intellectual property. At GovGrant, we help innovators and entrepreneurs benefit from their R&D through tax credits, and many of those business choose to plough back those credits into further investment, and/or hire new talent. Every £1 awarded to innovative businesses via R&D tax credits stimulates between £1.53 and £2.35 in additional R&D expenditure.

The government spends 0.6% of the total tax take on R&D tax credits, and delivers £8.1bn of R&D spend as a result. This is a stellar return on investment for the UK, and I hope the Chancellor will do more to stimulate this area of the economy in the Budget.

It is early days, but the decline in the number of people setting up their own firm has fallen for the first time in nearly twenty years. The government must investigate the factors behind this decline and ensure that the economics of starting a small business continue to make sense.

(i) Department for Business; Statistical Release 2018

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