In his first speech as Prime Minister, Rishi Sunak referred to economic growth as a ‘noble aim’ – and indeed it is. But the biggest obstacle to turning that lofty ambition into a reality is Britain’s woeful productivity rates.
CapX readers will no strangers to the sorry state of UK productivity – but its familiarity should make it no less shocking. From the 1970s to the 2008 Financial Crisis, labour productivity grew at an average rate of around 2.7% per annum. Since then, however, it has plateaued – growing at barely 0.5% a year.
📈 Recent productivity growth has been dismal in the UK.
From the 1970s to the 2008 Financial Crisis, labour productivity grew at 2.7% per annum.
In the years since, it has slowed to 0.5% per annum. 3/ pic.twitter.com/1M9ff6L1tC
— APPG Entrepreneurs (@appg_e) December 7, 2022
To its credit, the government has been trying to address the malaise. Central to current efforts are the two ‘Help to Grow’ schemes, ushered in by Rishi Sunak when he was Chancellor. These interventions aim to boost the productivity of small businesses in the UK by improving leaders’ management skills and increasing the adoption of digital technologies.
Both schemes rest on a bedrock of robust evidence, and many businesses taking advantage of them seem convinced of the benefits. But new research, published today by the APPG for Entrepreneurship and The Entrepreneurs Network, documents how they are falling short of their full potential.
Let’s begin with Help to Grow: Digital. This gives SMEs 50% discounts (up to £5,000) off the cost of various digital technologies – such as software for customer relationship management, e-commerce, or digital accounting. Evidence from the Enterprise Research Centre has found that, three years after adoption, these can boost the productivity of small businesses by an average of 18.4%, 7.5%, and 11.8% respectively.
Many entrepreneurs we spoke to responded positively about Help to Grow: Digital. Perhaps this shouldn’t be surprising – what business owner would object to the government going halves on the cost of technologies known to increase sales?
But it wasn’t entirely free from criticism. We heard how some technologies – also known to boost productivity – were not included in the scheme. Related to this, software developers have bemoaned the fact that getting their technologies accredited was often an overly bureaucratic process.
The Business Department, which oversees Help to Grow, should consider how the digital scheme could work more collaboratively with the most innovative and entrepreneurial software providers, so that as many as possible are coming forward to provide digital technologies for SMEs. This would inject an element of extra competition into the whole scheme, which would expand choice and bring further benefits for the SMEs looking to make use of it.
While the other initiative – Help to Grow: Management – still received warm praise from many of the entrepreneurs who had participated in it, we found it generally came in for more scrutiny.
Help to Grow: Management is a 12-week programme of courses which aims to teach different skills to boost productivity – from marketing, to employee management, to financial planning. SMEs pay £750 to enrol, and the government picks up the tab for the remaining £6,750.
By far and away, the main criticism of Help to Grow: Management was the time commitments required of SME owners to complete the courses. Indeed, we often heard from entrepreneurs who would in theory like to undertake them, but simply couldn’t find the time in their understandably busy schedules to do so.
It would be churlish to think that a rigorous programme of learning could be delivered at the drop of a hat, but even so, we believe it could be worth experimenting with more diversity when it comes to teaching the courses. Could some, for example, be completed over a longer time frame? Could some be done on a more intensive schedule? Could some be taught entirely online?
By making the Help to Grow: Management courses more flexible in how they are delivered, we might find that more businesses end up enrolling. Data on uptake proved hard to come by during our research, but reports from the Financial Times earlier in the year found that the number of businesses signing up to the courses had been less than a tenth of what had been anticipated and budgeted for.
In the UK’s bid for stronger economic growth, the government appears to understand the fundamentals of where that will come from – namely, better productivity. But while the Help to Grow schemes show promise, they’re far from perfect. A few small tweaks could pay big dividends for Britain’s entrepreneurs, and the economy at large.
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