Rachel Reeves and Mark Pawsey: More must be done to help small businesses thrive
Small and medium-sized enterprises need more help from the Government to thrive, according to Rachel Reeves and Mark Pawsey.
Today we’ve published our report on small and medium-sized enterprises (SMEs) and productivity. SMEs are a critical part of our economy, accounting for 99% of our private businesses, 60% of private sector employment and 52% of private sector turnover. These businesses are vital to the health of our economy and in our inquiry we were determined to explore the measures needed to support them.
One key issue is how our small businesses are being paid. Some large companies are using long payment terms of 75 or 90 days, taking over 60 days to pay an invoice, applying discounts for paying
on time, or paying late. Attempts to tackle bad payment practices have so far, been ineffective. The voluntary Prompt Payment Code aims for signatories to pay within 30 days, but most of the large companies we approached had not signed it and as Carilion demonstrated, those that do often do not live up to the commitment.
The newly created Small Business Commissioner has few powers and while the requirement for large companies to report twice annually on their payment practices is welcome it is applied narrowly and without sanction. Small businesses we spoke to were often fatalistic about poor payment practices in their industries. Some told us they often accept such practices as the price for doing business with big businesses.
These poor payment practices inhibit the ability of SMEs to invest in growth, in recruitment and in business improvements. Late payments are damaging small businesses. Paying within 30 days should be a statutory requirement for medium and large companies, especially those involved in public procurement, and the Small Business Commissioner should have the powers to fine those who pay late. This can serve as a foundation for SMEs to flourish and grow.
For our economy to thrive we need small business to thrive. The Government needs to play its part and ensure that more SMEs are awarded government contracts, which are paid fairly and on time. Currently, there is a very real danger that the Government will miss its own target of 33% of procurement being awarded to small companies by 2022. The percentage of small businesses getting Government contracts is now falling rather than rising – standing now at 22.5%. The Government should look at how it can get back on track for hitting this target and help SMEs to become more productive.
We want our SMEs to have the ambition to succeed and grow. That means helping SMEs to gain easier access to the wide range of help available from Government, ranging from exports and long-
term finance to support for companies to scale-up and grow. Online provision needs to be tailored for different types of SME and Local Enterprise Partnerships (LEPs) and Growth Hubs should be
funded and equipped to do this also. It’s also important that LEPs and Growth Hubs do not suffer from a short fall in funding when EU structural funding is withdrawn after we leave the EU.
Leadership, management and digital capacity could also have a crucial role to play in making SMEs more productive. Many SMEs do not have digital accounting and HR systems or lack management
training. Often, small companies face barriers such as time and money to invest in these areas. We believe the trick is to take what works from intensive and expensive programmes and repackage it in
a cost-effective manner, such as online bite-size learning that is attractive for SMEs. This should be accompanied by financial incentives to encourage SMEs to take up such offers.
SMEs have a vital role to play in rebalancing the UK economy and spreading prosperity and opportunity more widely and to all parts of the country. Taken as a package of measures, our report makes the case to Government for a level playing with big businesses and to access Government contracts. If we do these things, small companies will thrive and be encouraged to be more ambitious, invest and create more jobs and make a greater contribution to the overall productivity of the UK economy.
Rachel Reeves is Labour MP for Leeds West and chair of the Business, Energy and Industrial Strategy Committee. Mark Pawsey is Conservative MP for Rugby and a member of the same committee.
IPSE has responded to this piece saying large companies "must stop exploiting the self-employed and small businesses by treating them as an additional line of credit." Read the full piece here.