“Size Matters: The Importance of Small Firms in London’s Economy”, is published by independent think tank, The Centre for Cities, in association with Workspace Group, a company that provides flexible premises to around 4,000 small businesses. The report highlights the big contribution made by a small number of high growth firms in particular and claims that the current policies of national and local government are too generic and ineffective at supporting their growth.
Small firms have become increasingly important to city economies over the past decade:
- Since 2000, the number of small firms in UK cities has grown by 43 per cent, while the number of medium-sized firms grew by just 4 per cent and the number of large firms declined by 30 per cent
- By 2010, 96 per cent of private sector firms were small firms (employing fewer than 50 people)
- By 2010, small firms accounted for more than half of all private sector jobs in UK cities
- Despite the overall number of private sector jobs declining by 2 per cent over the past decade, the number of jobs provided by small firms grew by 10 per cent.
The report focuses on the experience of smaller firms in London, the most enterprising city in the UK. Since 2000, the number of small firms in London has grown by 50 per cent, but because of the success of the London economy, constraints on space and rising rents mean that there is a real danger that London’s smaller firms will no longer be able to access those locations that provide the vital links to other businesses and transport infrastructure upon which many depend.
Workspace Group’s chief executive, Jamie Hopkins says: “The small business sector is a very large market, within which are the fastest growing companies within the economy. It is these firms which are the major contributors to economic growth. At Workspace, we are right at the heart of this supporting a large number of those firms in the most innovative and dynamic sector in London and the UK.
“It is these businesses that should be the focus of government policy. Local authorities have an important role to play but they must be realistic about what they can achieve alone; public-private partnerships are critical to delivering business growth and local regeneration.”
The report focuses on the experience of smaller firms in London, the most enterprising city in the UK. Since 2000, the number of small firms in London has grown by 50 per cent. But because of the success of the London economy constraints on space and rising rents mean that there is a real danger that London’s smaller firms will no longer be able to access those locations that provide the vital links to other businesses and transport infrastructure upon which many depend.
The report makes recommendations to address this challenge. It calls on the GLA, London Boroughs and Government to work together to enable small, business-facing, firms to continue to locate in London’s core and to the West near Heathrow. This means, for example, ensuring that public sector property assets are reviewed to make sure that prime space in central local authorities can be made available to smaller firms on flexible and affordable terms.
The report advocates that other measures should be introduced to support smaller firms, including targeting a portion of ‘super-connected cities’ funding to deliver the digital infrastructure businesses need to succeed in central London and its fringes.
Small businesses could save themselves nearly £16.5billion a year by taking simple steps to cut costs, without impacting on service or staff, according to new research by Clydesdale and Yorkshire Banks.
Despite rising fuel and energy costs, more than half of all Small and Medium Sized Enterprises (SMEs) admitted to reviewing their day-to-day costs only once in a calendar year. Those same businesses admitted they could probably be getting a better deal if they tried but lack of time, or misplaced loyalty to their current suppliers meant they were unlikely to do so.
Surprisingly, nearly one in seven SMEs admitted to never regularly reviewing the costs for their largest areas of expenditure.
Electricity and gas prices have risen by 69 per cent and 87 per cent respectively since 2005, and the Government predicts prices will rise a further 26 per cent by 2020 compared to today’s prices. The average price of motor fuel has risen 44 per cent in the last seven years.
More than 40 per cent of businesses said that, excluding salaries, materials and supplies represented the most significant cost for them last year. Fuel, IT, rent and energy bills were also significant and, together with materials, represented around nearly half of all SME expenditure.
Earlier this month Clydesdale and Yorkshire Banks introduced a series of measures designed to help businesses grow by lowering some of their costs – introducing fee-free lending for growing businesses and a new switching package with free day-to-day banking for businesses with an annual turnover up to £2m.
Paul Shephard, director for business and private Banking at Clydesdale and Yorkshire Banks, said:
“Keeping a watchful eye on overheads is crucial to ensure business growth and profitability. With difficult trading conditions it can be easy to lose sight of some of the simpler ways of helping your business, but regularly reviewing costs should be top of the to-do list for any SME owner or manager.”
Last year, those SMEs (businesses with less than 250 employees) that reviewed their regular costs saved, on average, £11,385, by adopting straightforward measures such as implementing energy-saving policies or moving to a paperless office. And with the UK’s average yearly salary just over £25,000 – those cost-savings could be ploughed back into the business in the form of new jobs.
Paul Shephard continued: “Small businesses are facing daily cost increases, energy bills alone have risen by more than three quarters. Even relatively simple measures, such as making sure computers are switched off at night, rather than left on standby; all go towards bringing costs down.”
The Forum is urging Osborne to concentrate on measures that will help the small business sector flourish by reducing business costs, boosting employment in the private sector, and laying the foundations for sustainable positive economic growth.
Headlining its wish list, the Forum is calling for the Chancellor to make a serious and credible announcement on fuel duty, and for Government to commit to the concept of a fuel duty stabiliser by the end of the current Parliament.
It is also calling for a cap on business rates of two per cent. It says with high street retailers across the country never having been under more pressure due to increased competition from online traders and supermarkets, the Chancellor must act on the issue of rates to prevent a full-blown crisis in the retailing sector, while all businesses would benefit from a cap on rates to reduce their outgoings.
The Forum is also calling for a reduction in the costs of employment for business by amending the current National Insurance holiday scheme, and also sets out a case for the Chancellor to abandon plans that would mandate flexible working on all employers, regardless of their size.
In its fifth and final point, the Forum asks for further incentives for private lenders through alternative sources of finance. This would encourage less reliance on mainstream lending, thereby reducing SME addiction to shrinking levels of traditional lending streams, and give businesses the credit required to drive their own growth or even just stay afloat.
The Forum’s head of policy, Alex Jackman, said: “This Autumn Statement is a chance for the Chancellor to make amends for the disappointment that was the March Budget, and really show he understands the challenges the economy faces.
“Much of that will be real acknowledgement that Government is doing everything in its power to reduce the cost of doing business for small business.
“While the Government can do little about a stubbornly volatile Eurozone, it does have the capacity to act on a range of issues, primarily fuel duty. Of all the costs to business, fuel hits the largest number of our members. We want to see the Chancellor freezing fuel duty for at least a further six months, and commit to a fair fuel stabiliser before the end of this Parliament.
“It also makes sense to see what January’s OFT report says on its investigation into price fixing in the fuel sector.”
Analysis of industry data by Cambridge & Counties bank, which launched in June this year targeting established small to medium sized enterprises (SMEs), reveals that businesses across Britain had 27,300 overdraft and loan applications worth as much as £1.264 billion rejected in Q1 2012.
The analysis by Cambridge & Counties also revealed that 300 applications are turned down every day, equating to 13 an hour. The average credit facility turned down was £46,300.
Gary Wilkinson, chief executive, Cambridge & Counties Bank said: “The UK relies heavily on the SME sector which is essential in leading our economic recovery. To grow and be successful, a large number of organisations are looking to raise capital, but it has become harder to raise funds from the big banks.
“We focus on a local and personalised relationship approach consisting of business development managers focusing primarily on Leicestershire, Cambridgeshire and Northamptonshire, coupled with a national broker coverage model.”
Cambridge & Counties Bank provides SMEs with loans secured against commercial property as well as a highly competitive deposit account. In addition, it also offers secured pension scheme lending, and has plans to launch professional firm financing, as well as other competitive savings accounts into both the retail and non-retail sectors.
Cambridge & Counties Bank has a unique structure being jointly owned by Cambridgeshire Local Government Pension Fund and Trinity Hall, a College of the University of Cambridge. They each own 50 per cent of the bank.
It will aim to attract private sector funding so that when fully operational, it could support up to £10 billion of new and additional business lending.
The Government will build a single institution that will address long-standing, structural gaps in the supply of finance, identified in Tim Breedon’s report on non-bank finance. It will bring together in one place Government finance support for small and mid-sized businesses. It will also control the Government’s interests in a new wholesale funding mechanism, which will be developed to unlock institutional investment to benefit small businesses.
Vince Cable said: “For decades British industry has lacked the sort of diverse, long-term finance that is quite normal elsewhere. We need a British business bank with a clean balance sheet and a mandate to expand lending rapidly and we are now going to get it.
“Alongside the private sector, the bank will get the market lending to manufacturers, exporters and growth companies that so desperately need support. It will be a lasting monument to our determination to reshape finance so it can finally serve industry the way it should. Its success will not be the scale of its own direct interventions but how far it shakes up the market in business finance and helps to ease constraints for high-growth firms.
“Having a functioning, diverse supply of finance is an integral part of the Government’s industrial strategy. It is all about making the right decisions now to secure our long-term industrial success.”
The bank will operate at arms-length from Government. It will be professionally run and commercially focused. It will facilitate the provision of loans, including long-term capital, to UK firms through banks and other financial institutions. By harnessing the power of capital markets, it has the potential to transform business finance in the UK.
The new institution will operate through the wholesale markets, it will not have any retail presence and will not displace or subsidise banks. Its role is to encourage the development of private sector solutions and enable the market to work properly, not compete with it. More detail on the design of the bank and the types of interventions it will support will be provided in the autumn.
TUC general secretary Brendan Barber said: “The new state investment bank should provide much needed support for businesses to grow and create jobs. It’s a shame that so many businesses have gone to the wall in the two years it’s taken the government to agree to the scheme.”