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SMEs and productivity in the Northern Powerhouse: Interim report

Productivity is a measure of how effectively an economy uses the resources at its disposal (including the labour of its workforce, different aspects of capital such as machinery and technology, and other infrastructure investment). Raising the level of output per hour worked offers a route to improved wages and higher living standards. It is no surprise that improving productivity is central to the UK government’s 2018 industrial strategy.

Since the 2008 financial crisis, productivity in the UK has grown at a slower rate than in other developed countries. Within the UK, productivity rates in London and the South East are above the OECD and EU averages. However, productivity is markedly lower in the North and the Midlands, with further sharp divergences between sub-regions.

Raising the productivity of small businesses will play an important role in boosting the northern economy. In the north of England, 99.8 per cent of all businesses have fewer than 250 employees, 21 per cent employ between one and nine people, and 74 per cent are ‘sole traders’. Like small and medium-sized enterprises (SMEs) across the UK, these businesses tend to have lower rates of productivity than larger firms; companies that employ fewer than 10 people lag behind the national average rate of productivity by between 15 and 27 per cent. More productive SMEs are essential if the North is to achieve a dynamic and inclusive economy across the region.
 

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