New research into SME productivity in the Northern Powerhouse lays bare the significant challenges involved in closing the North South productivity gap, says Gavin Opperman of Yorkshire Bank.
The group business banking director says SME’s make up over 99.8 per cent of businesses in the North and it is widely acknowledged that they drive future growth and prosperity. This underscores the importance of unlocking the enormous potential of the region’s SMEs, because, as the report shows, their productivity is generally lower than the national average.
An extensive study by the Institute for Public Policy Research (IPPR) North, commissioned by Yorkshire Bank, reveals the most significant challenges our region’s SMEs face in growing their business. The report makes clear the prize at stake – closing the productivity gap between SMEs in the North and South would add £23bn to the northern economy, representing a 7.5 per cent increase in the region’s GVA.
Issues around financial support
The research identifies a number of issues that provide interesting food for thought.
In particular, it suggests that the Government’s financial support for local enterprise partnerships (LEPs) and the Growth Hubs isn’t enough, and there could be a greater focus on smaller scale practical support to help SMEs make vital productivity gains. It is certainly true that Growth Hubs play a crucial role as they bring together existing business support and deliver signposting to help entrepreneurs access information and advice. The report suggests that annual funding of £12m for all hubs should be increased five-fold to £60m a year.
It also cites issues around access to funding for SMEs and suggests that small, flexible loans for immediate priorities are especially hard to access, along with assistance in developing an effective funding application.
At boardroom-level, the research reveals that northern SMEs face challenges to productivity in the areas of management and leadership skills; adopting technology and digital innovation; entering the export market and employee health and wellbeing.
Trading conditions vary
Overall, IPPR North found that firms of a similar size, sector and age in the North were less productive than comparable enterprises in London and the South East. Of course, this may be a product of local trading conditions, levels of support and region-specific opportunities, along with business clustering and the advantages of more efficient infrastructure.
Another issue flagged in the research is business rates – the burden from the current system is a common complaint from SMEs and we will have to wait and see whether Ministers accept the report’s recommendation that the system should be redesigned, together with a review of local government funding.
The report also recommended that the British Business Bank (BBB) should be given greater resources and, again, it will be interesting to see how this is received by Ministers. The BBB currently delivers almost £6bn of finance to around 82,000 smaller businesses, but the report suggests the BBB could generate greater positive change if its ability to invest was enhanced.
Opportunity to debate issues
Mr Opperman said: “Yorkshire Bank is proud to support this report and the insight it provides on the health of our region’s businesses.
“While its recommendations will of course be subject of debate, it’s clear that by pulling on certain available levers, the Government can help remove some of the barriers holding back our region’s SMEs and help drive up productivity, central to the Industrial Strategy and key to the overall growth of the UK.”
This column has been written by Gavin Opperman, group business banking director, Yorkshire Bank.
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