(Article kindly donated by Newable)

With political and policy attention focused almost entirely on one complex puzzle, it is easy to forget that there are others requiring urgent attention. The recent Business, Energy and Industrial Strategy (BEIS) Select Committee report is a timely reminder that Government action on the ‘productivity puzzle’ is long overdue.

Britain’s growth in productivity lags behind our competitors and impacts small businesses disproportionately. The evidence is striking. The top 1% of UK firms grew on average by 8% per year over the ten years to 2014, whilst the lower 99% experienced annual productivity growth of less than 1% over the same period.

In a sense, why should we care? After all, there is a high correlation between high growth companies and companies benefitting from EIS investment. However, the issues that create such a drag on productivity for the many, will, ultimately stifle the growth opportunities for the few. If we do not act, we may well see the “long tail” eventually wagging the high performing dog.

It was for this reason that Newable was an active participant in the inquiry, presenting evidence directly to the Select Committee at a session held at The Scale Up Institute during the summer.

We are therefore very encouraged to see a number of our ideas included by the Committee as recommendations to Government including a renewed and comprehensive commitment to all forms of Patient Capital to support UK Scale ups.

However, clues to solving the root causes of the productivity puzzle lie in a mix of interconnected issues relating to a lack of access to finance, restricted opportunity to access public and corporate contracts, and unfocussed business support and advice.

Firstly, access to finance must be expanded for small businesses. The British Business Bank reported that banks refused 100,000 business loan applications from SMEs in 2016, creating a funding gap of £4 billion. Expanding Responsible Finance – which seeks to advance funding for small businesses refused by the traditional sector – would be one way to bridge this gap.  Responsible Finance loans, provided by organisations such as Newable, include business mentoring. This is crucial in ensuring that companies put the finance to the most productive use.

The second area is access to opportunity. There is little incentive to innovate and become more productive when small businesses find themselves shut out from the supply chains of large corporates and struggle to navigate the extensive, confusing and costly public sector procurement processes. As an immediate step, the Government should adopt simpler tendering processes and incentivise big business to open up opportunities to the smaller players in town.

Perhaps the quickest win for the Government is to beef up the BEIS Department’s business advice offer. At present, it is too fragmented and inconsistent, but a solution lies across Whitehall at the Department for International Trade – where a “single front door” service exists to support small businesses. In London and the South East, around 15,000 companies benefited from the programmes with their exports growing by an additional £2 billion. Successful ideas need to flow through Government and so collaboration between the respective Secretary of States, Greg Clark and Liam Fox, is called for.

The prize for UK business should not be understated. According to the Bank of England’s chief economist Andy Haldane, reducing the gap between the weakest and strongest firms could alone boost UK productivity by 13% – and raise around £270 billion in GDP.

There are positive signs that the Government is in listening mode on the issue, but the solution will not be found by tinkering at the edges. We need a focus on the causes of productivity problems, bold policies to overcome these, and a plan for implementation. Doing so will enable the Government to send a clear message to business: we are working with enterprise to maximise productivity across the country – supercharging the UK economy, regardless of Brexit.

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