Small firms, giant leaps: Small businesses and the road to full employment

Small and medium-sized enterprises (SMEs) are disproportionately driving the UK's recent labour market recovery, and in supporting individuals from worklessness into employment. Between 2008 and 2011, 88 per cent of individuals moving from unemployment into employment found work in either an SME or self-employment. A relatively high share of workers in SMEs and self-employment come from groups that face labour market disadvantage, such as the disabled, younger and older workers and those with low levels of educational attainment and formalised skills. SMEs are therefore vital to efforts to tackle labour market disadvantage and promote full employment.

This report sets out the role that employers, and SMEs in particular, can play in meeting the long-term challenge that worklessness presents to the UK economy, and highlights a public policy approach that can support small businesses in doing this. It sets out practical steps that can be taken to increase the overall scale of job creation by making it easier for small businesses to take on workers, tackle barriers to hiring people who are further from the labour market, and support high-quality employment in SMEs, including the following recommendations.

• Greater business support for new employers and existing micro and small businesses, to help them meet the costs involved in taking on their first employees and navigate through an often complex system of employment law and labour market regulation.
• Reforming the system of statutory sick pay recovery to reduce the potential liabilities that small firms face by taking on employees with work-limiting health conditions or disabilities.
• Embedding intermediate labour markets in welfare-to-work policy, having service providers broker and administer temporary work placements to support employers' role in generating employment outcomes for participants who are at a disadvantage in the labour market.
• Supporting job quality through the introduction of a business-led insurance scheme for SMEs, offering occupational benefits such as maternity and sick pay in return for regular contributions.