Tina McKenzie
Policy Chair, Federation of Small Businesses
As small firms account for 99% of the business population, it’s vital to encourage tech adoption and innovation in the small business community.
The use of technology and innovation is a major force in economic growth. A Federation of Small Businesses (FSB) report — The Tech Tonic — shows that 7 in 10 (69%) small firms have introduced a new form of innovation in the last three years.
Innovation generated by SMEs
This includes the development of an entirely new product/s to their market (25%), significant improvements to existing or new product/s (38%) and better staff and customer experience (25%). The average cost of introducing any type of innovation over a three-year period amounts to over £27,000 for a small firm; and the changes, on average, increase revenue by 15%.
SMEs increasing tech adoption but lack funding
When it comes to tech adoption, the vast majority (83%) of small firms now have a company website, compared to only 51% in 2018. There has also been a significant increase in the number of companies using cloud storage, up from one-third (33%) in 2018 to two-thirds (67%).
One in fifty small firms polled in the FSB report (2%) have adopted machine learning tools, and 4% used enterprise resource planning software. The uptake of online project management tools and ecommerce products is higher — both at 19%.
Innovative and tech-savvy small firms
are facing scarcer government support.
However, innovative and tech-savvy small firms are facing scarcer government support. Since April this year, cuts have been made to the R&D Tax Relief Scheme for SMEs — a scheme that had been very successful in encouraging startups and driving productivity.
In terms of financial incentives, half of the respondents say additional government grants would encourage them to innovate, and 46% say extra tax relief would do so.
Incentivising small businesses
As a first step, the UK Government should spend the equivalent of at least 10% of the overall R&D budget on the diffusion and adoption of innovation and set itself a target of at least half of all direct government R&D funding going to SMEs.
We’d also like to see the Treasury introduce a modernisation and diversification tax relief scheme, based on R&D tax relief, for small businesses that have invested in significantly improving products or processes.
An inclusive, entrepreneur-led approach is key to incentivising small business owners to take risks and develop new solutions from the bottom up. This is what our country needs to drive productivity.