Blog Type, IPT Blog | July 2017

Growth in SMEs Post-Brexit

Words by Professor Mark Hart, Professor of Small Business and Entrepreneurship at Aston University, Deputy Director, Enterprise Research Centre (ERC)

On Monday 10 July the Industry and Parliament Trust (IPT), in partnership with Aston University, hosted a dinner discussion on the topic of ‘Growth in SMEs Post-Brexit’. Held in the House of Commons the event was chaired by Dr Peter Kyle MP, member of the Business, Energy and Industrial Strategy Select Committee and co-founder of an SME production company. Providing their experiences were guest speakers Neil Warwick, chair of the Federation of Small Businesses Brexit Policy Unit, and Professor Mark Hart, Professor of Small Business and Entrepreneurship at Aston University. The dinner discussion was attended by members of both the House of Commons and House of Lords alongside SME representatives from a wide variety of sectors.

As much public consideration is given to Brexit negotiation positions, the event served as an opportunity for Parliamentarians and SMEs to discuss specific challenges faced by small businesses.

Attendees noted that while there have been record levels of business start-ups, SMEs in the United Kingdom faced a number of long standing challenges prior to the referendum, including the productivity puzzle and lack of skills relevant to SMEs available in the labour market.

Enterprise Research Centre (ERC) research shows that 5% of 250,000 of firms surviving the 2008-2015 period managed to significantly increase turnover, jobs and productivity at the same time. This figure equates to 10,000 firms in the United Kingdom. What we now know is that three-quarters of firms which grow their turnover raise their productivity, but that only one in five firms which grow jobs also boost productivity.  So, while there is positive news regarding record performance on job growth, SMEs can often still face productivity challenges. Therefore the ability of UK business, particularly the SME sector, to respond to the potential challenges and opportunities posed by Brexit needs to be understood within that context.

There are a small number of high-performing firms in the United Kingdom led by ambitious business leaders. Typically, over a three year period, high-growth SMEs represent less than 1% of established businesses, but generate 20% of all job growth amongst growing established businesses. Utilising insights into behaviour and strategies adopted by this important group of businesses will be crucial to the post-Brexit economic environment. We know that innovation and an international focus is key to rapid growth. However, too few firms in the UK either innovate or engage in international activity. Redressing these issues in the midst of Brexit negotiations and a lack of clarity regarding policy outcomes is a major variable facing SMEs.

Many of the ambitious business leaders I speak with are playing a waiting game until they see what emerges as the negotiations unfold with access to skilled labour being an immediate concern.  Businesses run by ambitious entrepreneurs are vital to the future growth of the UK economy and further engagement between Government and SMEs to help understand the nature of the future relationship with the European Union is very welcome.