Importance of SME to the UK economy

In 2019, there were 5.9 million private sector businesses in the UK, up by 200,000 compared to 2018. In 2019, there were 2.4 million more businesses than in 2000, an increase of 69% over the whole period. The proportion of businesses with employees has fallen since 2000 from around a third, to around a quarter. This decline in the number of employers as a proportion of all businesses is due to the growth in self- employment.

The usual definition of small and medium sized enterprises (SMEs) is any business with fewer than 250 employees. There were 5.9 million SMEs in the UK in 2019, which was over 99% of all businesses. Micro-businesses have 0-9 employees. There were 5.6 million micro- businesses in the UK in 2019, accounting for 96% of all businesses. Although the vast majority of businesses in the UK employ fewer than 10 people, this sort of business only accounts for 33% of employment and 22% of turnover.

In 2019 there 4.4 million businesses in the services industries, three quarters of all businesses in the UK. The biggest of the service industries in terms of the number of businesses was the professional, scientific and technical sector which accounted for 15% of businesses. The retail sector and the administrative and support services sector each accounted for 9% of all businesses.

Overall, businesses in the service industries accounted for 79% of employment and 71% of total turnover. Businesses in the retail sector alone accounted for 18% of employment and 34% of all turnover in 2019. Construction sector businesses accounted for 17% of all businesses, but only 8% of employment and 9% of turnover. A large number of construction workers are self-employed, which increases the number of enterprises, but not the number employed in the sector. Manufacturing firms accounted for 5% of businesses, 10% of employment and 15% of turnover.

It is acknowledged that developed economies have a high proportion of small businesses and that such entities are particularly susceptible to failure. Given that the small business sector is both economically and socially significant, the relatively high rate of small firm failure must be damaging to the economy as a whole.

The U.K. government has sought to address this problem through shifting the emphasis away from “blanket coverage to help start-ups” to policies directed towards assisting existing small and relatively new firms. It is predicted that the number of small firms will continue to grow, due to the decline in manufacturing and the growth of service industries, changes in government policy, private sector initiatives, technological developments and their impact on economies of scale, and contracting out of public sector services.

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