Small and Medium-Sized Enterprises: Growth and Financial Contribution in the UK Economy

SMALL AND MEDIUM-SIZED ENTERPRISES
a. Define the concept of an SME and evaluate the growth and financial contribution of micro,
small and medium private organizations of the UK Economy. The analysis should include both political
and economic factors affecting the development of SME’s in the country.
The concept of Small and Medium enterprises (SMEs) has varying definitions depending on the
country of application (Mgeni, 2015). Classification of such enterprises depend greatly on their features
such as rate of stock turnover, the number of employees, the value of short and long-term resources owned
by the firm, financial endowment and the size of floor area covered by the plant. The following definitions
are available in the context of the United Kingdom (UK):
Definitions of the various type of businesses Table 1
Business type Micro Business Small business Medium-sized
Number of employees Ten and below Between ten to fifteen Between fifty and two hundred
and fifty
Annual turnover Under € 2 million Above € 2 million but
below € 10 million
Above € 10 but below € 50
The UK Companies Act 2006 defines a small company as that which do not have a turnover of
more than six point five million starling pounds with a balance sheet total of less than three point two six
million pounds and a total employee base of not more than fifty people. In the same vain, the Act defines a
medium-sized as one that has less than two hundred and fifty employees and a turnover of under thirteen
million pounds. The Act finally gives the last class of business called the micro business enterprises-
defined as a venture with less than ten employees and a capital outlay of under two Euros.
Another definition of SMEs comes from the British Bankers Association which regards SMEs as
sole traders, partnerships and limited companies with an annual turnover of under one million pounds.
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Economic and Political factors which have affected the growth of SMEs in the UK.
Most conspicuous was the political decision to leave the European Union (EU) commonly referred
to as Brexit as explained by Bailey and Budd (2017). This move resulted into rewriting of rules governing
how business is to be conducted in the region. As Bisciari (2019) and Crowley, Exton and Han (2019)
postulated, will have devastating effects on the small and medium income enterprises in the United
Kingdom.
Bailey and Tomlinson (2017) describes a plethora of industrial and regional regulations which
support SMEs initiatives since SMEs as a strategically significant contributor to the UK economy.
Research by Minford (2019) showed that the effects of Brexit were so profound that several businesses
affected in the region significantly scaled down their capital investment, innovations expenses as well as
level of exports. Some other challenges which companies were likely to face as a result of post-Brexit
actions include limited access to the EU markets, reduced access to finance (closes avenues hitherto used
by members of the UE through the industrial and funding schemes, limited access to raw materials and
several tariffs with trading barriers.
Conclusion
The above issues can be summarized into; reduced international market share, followed by
increased cost of production in terms of imported raw materials and labour, minimal capital outlays in
firms, skeptical investments in innovation and profoundly unrealistic barriers to trade (Cambridge
Econometrics, 2018).
b. Examine the role of SME’s and analyse how they contribute to the national economy.
The National Endowment for Science, Technology and the Arts (NESTA) report for 2017 revealed
that SMEs form crucial part the UK economy and a critical contributor of job creation initiatives by the
states. SMEs account for 99% of all firms found in the United Kingdom and significantly contribute
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towards employment creation in the private sector with a magnitude of 60%. There were 506 million small
businesses at the start of 2018 which resulted from 0.5% drop in private sector business population
(representing a drop of 27,000 businesses) but still contributing to the job market by a positive deviation of
2% (representing additional 304, 000 new jobs) (NESTA, 2017). The report further indicated that the total
employment in SMEs was 16.3 million in the UK and the private sector contributed over 60% of the total
jobs in the economy. Therefore, it can be concluded that SMEs improve the living standards of people in
the region since the employments are a source of income to the citizens which they can use to obtain
commodities which they cannot produce (Vogel, 2018).
SMEs are a source of government funding. According to the NESTA report 2017, “of the 5.7
million businesses, 45%- representing 2.6 million, were registered VAT or PAYE, hence generating
revenue to the government which can be used to develop other sectors of the economy such as education,
security and infrastructure.
SMEs bring competition among businesses among peers resulting into quality goods to improve the
living standards of the citizens. According to Osgood (2017), continuous supremacy battle among
companies yield the best outcome in terms of commodities. Such actions result into benefits to both
producers and consumers.
A. Comparison of the impact SMEs in different UK regions
The distribution of businesses per person (commonly referred to as the business density) is higher in
the southern England than any other place in the United Kingdom (NESTA, 2016). The SMEs are also
reported as the major agents of most innovations taking place in the United Kingdom (Business Population
Estimates for the UK and Regions in 2018). In this paper, two UK regions are evaluated in term of SMEs
contribution;
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IMPACT OF SMES ON WALES.
Studies by Rhisiart and Jones-Evans (2010) reveal that SMEs are the lifeblood of the Wales
economy accounting for over 99% of the registered business ventures in the country. The main problem
affecting the companies in Wales can be associated with the stringent policies especially the canons of
taxation used by the government. According to Guardian Small Business Network (2017), the Walsh
government does not set different tariffs for small and large businesses as compared to England which has
different multipliers for small and large businesses. The disparity in the tax regime has made the play field
to be so uneven that small firms find it difficult to expand. Several scholars relate the shrinking nature of
the Walsh economy to the regressive policies enacted by the government (Vogel, 2018).
IMPACT OF SMES IN SCOTLAND
The number of SMEs in Scotland were over 360, 000 small and medium-sized enterprises and
account for approximately 1.2 million jobs (Business in Scotland, 2017). The report further indicated that
the importance of small scale businesses was rated at 99% in the private sector enterprise which contributed
55% of the jobs in private sector and another 40% of the turnover in the non-public segment. Finally, the
report by Hine and Mitchel (2017) showed that the most outstanding sector is the “professional, scientific
and technical industries” which comprised 53, 000 companies. The next significant industry was
construction industry which recorded over 45, 000 firms over the same period. A combination of 27% of
the private sector firms in the country.
In Scotland, SMEs are more pronounced in the rural areas than the urban setups and accounts for up
80% of the private employment in areas such as Orkney (Steiner & Targett, 2016). Scotland showed signs
of growth despite the uncertainties in the economic arena as businesses were showing a high degree of
resilience as reported in the Scottish Chambers of Commerce Quarterly Economic Indicator in 2017.
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