Chapter 43. United Kingdom

Figure 43.1. Structure and performance of the SME sector in the United Kingdom
Figure 43.1. Structure and performance of the SME sector in the United Kingdom

Sources: Charts A, C, D: OECD Structural and Demographic Business Statistics Database 2018, http://dx.doi.org/10.1787/sdbs-data-en; Chart B: OECD Timely Indicators of Entrepreneurship Database 2018; Chart E: OECD Structural and Demographic Business Statistics Database 2018, Employer Business Demography dataset.

 StatLink http://dx.doi.org/10.1787/888933925616

SME business conditions and access to strategic resources

Institutional and regulatory framework

Despite developing an agile approach to regulation that is generally favourable to businesses and enables innovation, the UK ranks below the OECD average for administrative burden on start-ups, the simplification of regulatory procedures and strength of insolvency framework. Measures are being taken to address some of these points. To reduce regulatory complexity, the UK pioneered the ‘One-in, One-Out’ test, which imposes to assess the net cost of complying with any proposed regulation and find a deregulatory measure which relieves business of the same net cost. Moreover, the UK launched a Regulators’ Pioneer Fund in Budget 2017 to invest in innovative projects.

Market conditions

UK SMEs can benefit from the opportunities created by a strong e-procurement system, which is among the most advanced in terms of announcing tenders online, accepting electronic submissions, and managing communications and invoicing online. In 2017, the Crown Commercial Service announced a trial project that enables information to be supplied once and saved for future procurement processes, saving time for SMEs.

Infrastructure

The proportion of UK R&D cross-funded by the higher education and the business sector is below the OECD median. The government has created Science and Innovation Audits (SIAs) to identify strengths in science and innovation in places, and make recommendations, including where industry-science linkages could be strengthened. The SIA process is co-ordinated by the Department for Business, Energy and Industrial Strategy but undertaken by multi-stakeholder groups that include local businesses, universities and local enterprise partnerships (LEPs). The data and analysis generated help LEPs and authorities to develop Local Industrial Strategies and consortia members produce stronger strategies and funding applications.

Access to finance

The share of new bank lending to SMEs is among the bottom five OECD countries. However, SME access to alternative sources of finance grew in recent years, including asset-based finance and peer-to-peer (P2P) lending. Recent measures have been introduced to improve SME access to credit, including the creation of British Patient Capital, a subsidiary of the British Business Bank. Building on the 5-year experience of the Bank’s Venture Capital Catalyst (VCC) programme, this GBP 2.5 billion programme supports SMEs with high growth potential to access the long-term financing they need to scale up. Launched in 2018, the programme invests alongside the private sector to drive a total of GBP 7.5 billion investment, and is an important element of the Government’s Industrial Strategy.

Access to skills

The UK is a leader among OECD countries in workplace training. This is expected to be further bolstered by a new payroll levy scheme that was implemented in April 2017 to enhance the apprenticeship system; as the levy only applies to employers with annual payrolls over GBP 3 million, most SMEs will be excluded from paying. SMEs stand to benefit from the new scheme with Government funding the costs of training 16 to 18 year-old apprentices in firms with fewer than 50 employees. Those employing older apprentices and other non-levy paying SMEs can also benefit from government funding of 90% for the cost of training, which will increase to 95% in 2019. This new scheme has a target of 3 million apprenticeship starts by 2020.

Access to innovation assets

The innovation performance of small firms is strong relative to other OECD countries. To boost innovation in SMEs, the government has launched a wide range of programmes, including “Innovation Loans” in 2017. This GBP 50 million pilot initiative seeks to provide affordable and flexible finance for later-stage innovation projects, particularly aimed at innovative SMEs. The loans are delivered through Innovate UK, which is part of UK Research and Innovation, a non-departmental public body funded by a UK government grant-in-aid. This is the first time Innovate UK will have offered an alternative form of innovation finance.

The full country profile is available at https://doi.org/10.1787/34907e9c-en

References

British Patient Capital (2018), About, https://www.britishpatientcapital.co.uk/about/ (accessed on 08 October 2018).

EC (2018), 2017 Small Business Act Fact Sheet: United Kingdom, European Commission, https://ec.europa.eu/docsroom/documents/29489/attachments/29/translations (accessed on 08 October 2018).

OECD (2017), OECD Economic Surveys: United Kingdom 2017, OECD Publishing, Paris, http://dx.doi.org/10.1787/eco_surveys-gbr-2017-en (accessed on 08 October 2018).

OECD/European Commission (2018), “Innovation loans”, in STIP Compass: International Database on STI Policies, https://stip.oecd.org/stip/policy-initiatives/2017%2Fdata%2FpolicyInitiatives%2F15937 (accessed on 08 October 2018).

Office for National Statistics (2019), Dataset: EMP13: Employment by Industry, https://www.ons.gov.uk/employmentandlabourmarket/peopleinwork/employmentandemployeetypes/datasets/employmentbyindustryemp13.

Office for National Statistics (2018), Business Demography, UK: 2017, https://www.ons.gov.uk/businessindustryandtrade/business/activitysizeandlocation/bulletins/businessdemography/2017.

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