Let’s talk about another M in the business population – Micros
We know that the vast majority of private sector businesses do not grow, and policymakers are always seeking ways to encourage more firms to take the first steps along the growth path, and to sustain it. As such the emphasis has been on fast-growth, high-growth and scaling as the watch-words of business support policy.Too often though this ignores those micro-enterprises and the self-employed that are the economic backbone of every village, town and city across the UK.
So, it is timely, after the recent celebration of the 8th United Nations MSME Day on 27th June, to demonstrate their importance and to remind the new government that they are an integral part of any future business support policy.
One of the most glaring examples of this bias in business support policy was during the pandemic when, for reasons which remain debatable to this day, many hundreds of thousands of the self-employed were excluded from support.
The findings from a study carried out by the Enterprise Research Centre and the Centre for Decent Work and Productivity at Manchester Metropolitan University Business School back in 2020 showed that the proportion of self-employed workers protected under the Chancellor’s Self-Employment Income Support Scheme (SEISS) was significantly lower than the 95 per cent claimed when the programme was announced.
As many as one million self-employed people in the UK missed out on Government support during the coronavirus pandemic. It means that only around two-thirds (66.6%) of self-employed workers qualified for SEISS payments, rather than the 95 per cent claimed by the then Chancellor Rishi Sunak.
Those excluded were from a few groups: the newer self-employed people for whom self-employment is a main job but who didn’t submit a Self-Assessment tax return in 2019-20; the self-employed as a second job, and; the established self-employed who grew their businesses so self-employment became their main job in 2019-20. Furthermore, even established self-employed people were generally excluded from the small business grant scheme announced by the Government, as most don’t have premises or employ staff.
The rationale for revisiting this emotive issue at this time is to present this is as an example of a category error in business support policy which still exists and needs immediate correction with the new government. The exclusion of the self-employed and micro-enterprises employing fewer than five employees from government business support programmes such as the Help to Grow: Management programme – another of the former Chancellor’s initiatives launched in 2021 – is a more recent example of the same bias.
What this illustrates is the continued inability to see these millions of businesses and their owners as a vital component of business dynamism in the economy. Business dynamism is, research shows, crucial for growth and productivity which, for the record, has been in constant decline since 2012. Previous ERC research has shown that we ignore these micro-enterprises at our peril if we are serious about growth in the economy.
For example, a cohort of businesses with 1-4 employees (mean 1.3 employees) that were started in 1998 were tracked over time and while only 11 per cent of the 240,000 original businesses survived until 2014, 2,000 of them grew very fast indeed. In fact, they collectively employed c.110,000 people and generated around £16bn sales, and on average each of the members of this small group of former micro-enterprises employed 55 people and generated sales of £8.5m. This demonstrates how the very smallest firms in a start-up cohort can play a relatively large role in accounting for overall job growth in that cohort over time.
Evidence matters as does the recognition that business support needs to be aligned to create a range of inclusive ‘scaling’ offers across the firm life cycle: from nascent entrepreneurs or start-ups; accelerating the growth of businesses already showing signs of ambition and growth; and getting scaled businesses to scale again and more quickly (there are too many ‘one-off’ growth episodes). The new government needs to embrace these priority areas for action as a matter of urgency in any initial commitments for business support policy.
Mark Hart, Deputy Director , ERC
Please note that the views expressed in this blog belong to the individual blogger and do not represent the official view of the
Enterprise Research Centre, its Funders or Advisory Group
