Impact of Small Businesses on the UK Economy: A Comprehensive Analysis

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Impact of small businesses on the UK economy

Executive summary
It has been analyzed that small businesses are having a great impact on the local, national and
international economy. Today SME'S have played a significant role in the success of the UK
economy. They have given financial and growth contribution in building the economy of
different areas of the UK. The role played by SME's in the contribution of the national economy
and they have also impacted on the EU countries and different business industries of the UK.
Some potential political and economic factors stimulated or halted the development of Small and
medium businesses in the country.
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Contents
Executive summary.........................................................................................................................1
Introduction......................................................................................................................................3
Concept of the SME's......................................................................................................................4
Evaluation of growth and financial contribution of SME's private organizations on the UK
economy...........................................................................................................................................5
Impact of political and economic factors on the SME'S of the UK.................................................5
Conclusion...................................................................................................................................6
Role of SME's and their contribution in the national economy.......................................................7
Comparing the impact of SME's for two regions........................................................................7
Comparing the impact of two different industries of SMEs in the UK's Economy....................7
Comparison of the Impacts of SMEs on two EU Countries............................................................8
Conclusion...................................................................................................................................8
Conclusion and recommendations...................................................................................................9
References........................................................................................................................................9
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Introduction
SME'S includes micro, small and medium-sized businesses. They are employing 0 to 249
employees in their organizations and they do not generate revenue more than 50 million. Today
SME's are giving their tremendous contribution to the success of the UK economy. They are
accountable for creating and developing more than 99.8% employment for the private sector of
the UK. SME's are responsible for generating revenue for the government and they are reducing
unemployment and poverty by providing jobs and other services to the largest community of the
UK (Hillary, 2017). This report is going to include a discussion on the impact of small
businesses on the UK economy and how they contribute to the development and growth of the
economy. The impact of potential economic and political factors on the economy will also get
discussed in that report.
Further, the role of SME's on the UK economy will get discussed by comparing the impact of
SME'S for two regions and comparing the impact of SME on two different industries as well as
comparing the impact of SME's for two EU countries will get discussed in that report.
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Concept of the SME's
Small businesses are privately owned by individual or group of individuals and there is low or no
involvement of the government in the private sector businesses. The concepts of SME's are
different in each nation as the economy of a country is different from other countries. SME'S
comprises of micro, small and medium organizations under it. The micro, small and medium
businesses can be understood as follows (Storey, 2016):
Microbusiness
Business population report of 2018 stated that micro businesses of the UK are employing 0 to 9
employees under their organizations and they are responsible for giving 21% contribution in
generating annual turnover. Micro businesses are creating 33% job opportunities and their total
contribution in the private sector business is more than 96% (Storey, 2016).
Small businesses
Small businesses are accountable for 15% employment of total private sector and these are
employing more than 10 and less than 49 employees in their organizations. Their total business is
only 4% in the private business sector of the UK and their estimated annual turnover is more
than 15% (Storey, 2016).
Medium businesses
The employment number under the medium businesses includes 50 to 249 employees and they
are creating an annual turnover of more than 14%. The employment generated by the medium
business is 13% and they are limited to 1% of the total private sector business of the UK (Storey,
2016).
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Figure 1 SME's OF THE UK
SOURCE: (MERCHANT, 2018)
Evaluation of growth and financial contribution of SME's private
organizations on the UK economy
SME's are providing their great with an important contribution to the growth of the UK
economy. Today more than 99% of small and medium business is playing a vital role in the
development of the UK economy. They are generating employment and reducing poverty in the
UK economic system and also managing the cash flow of the different countries of the UK. Due
to technical advancement and innovation SME's are boosting their performance and coming up
with their big contribution to economic development. SME's are generating employment and also
generating revenue to the government by high annual turnover (Love and Roper, 2015).
Rapidly growth and expansion of the SME's increased employment and more than 16.3 million
people are employed in the SME organizations. The FDI and tax rate got increased by 10%. The
micro and small businesses are generating higher tax for the economic development of the UK.
More than 99.3% of the organizations are SME's in the total private organizations of the UK.
Total of 60% of the employment in the UK is the result of private sector businesses in which
SME's are giving a big contribution. According to some estimation, SME's have generated half
of the turnover of total private sector businesses and that includes more than £1.7 trillion
(MERCHANT, 2018)
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Impact of political and economic factors on the SME'S of the UK.
The government tax rate, foreign exchange rate and other trade-related policies of a nation affect
the SME's businesses. Government policies providing support to the SME's by satisfying
financial needs and also reducing FDI and other Tax rates to facilitate expansion and growth.
While Brexit negatively affected the UK economy it has reduced the growth of the SME's.
Increased tax and FDI rate halted the growth and development of the SME'S. Economic shortage
in the UK affects the expansion of the SME's (Caridà et al., 2015).
Economic shortage and crises are reducing the growth of the SME's while government business
investment and other financial helps results in the growth and expansion of the SME area of the
UK (Harrison and Baldock, 2015).
Conclusion
Hence, it can be said that SME's are contributing to the success of the UK economy by creating
employment opportunity and financial support to the government. The growth and development
of the UK economy are largely depending upon the SME's.
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Role of SME's and their contribution in the national economy
SME's are playing a great role in the development of the national economy of the UK and giving
their big contribution in the growth and development of the economy of the UK by generating
employment, increasing annual turnover, and contribution to the GDP, contribution in the total
export. This can be understood as follows (Caridà et al., 2015):
Comparing the impact of SME's for two regions
London and Southeast England are the two top regions of the UK. SME's have created 527000
jobs in London which is 26% of total employment while in south-east England SME's have
contributed 304,000 jobs. SME's startup rate is more than 71% in London while Southeast
England is lower than the national average rate. Southeast England and North Ireland are
accountable for 70 per cent jobs of the private sector (Apanasovich et al., 2016). It is estimated
that there would be an increment of £11.6 billion in GVA in south-east England by 2023
compared to about £11.4 billion in London has 1563 SME'S in different areas while south-east
England is also above the national average. There are more than 20% small and micro-businesses
in London. SME's of London is generating more than 47% annual turnover while in Southeast
England they are generating more than 48%. Hence London and south-east England are the areas
of the UK where SME's have given their big contribution to the employment and growth of the
nation (Jones et al., 2016.).
Comparing the impact of two different industries of SMEs in the UK's Economy
Retail businesses of the UK are generating the highest profit for the UK by providing £12000
contribution and manufacturing SME's generating profit of £10000. The manufacturing industry
is responsible for creating 10 % employment and 14% annual turnover while the retail industry is
creating 20% of employment and 34% annual turnover for the development of the UK economy
(MERCHANT, 2018).
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Figure 2 EMPLOYEMENT AND TURNOVER GENERATED BY DIFFERENT
INDUSTRIES
SOURCE: (MERCHANT, 2018)
Comparison of the Impacts of SMEs on two EU Countries
SME's are contributing to the growth of the EU countries. In Bulgaria, almost 7025 billion
enterprises are SME's includes under 249 employees and they are generating an annual turnover
of 9.8% and employing more than 95192 employees in their organizations while in Denmark
46344 billion enterprises are SME's and providing an annual turnover of 36.3%. They are
creating 37.9% of employment in Denmark. In 2017 the SME's of Denmark were accountable
for creating 99.7% small sector business and provided 66.4% employment of the total private
sector while Bulgaria was accountable for giving 99.8% share to the private sector enterprises
and generated 66.6% employment. The GVA is generated by Bulgaria was 56.8% of the total
share (Eurostat, 2018).
Conclusion
It can be said the contribution of the SME's in the national economy is very significant. They are
responsible for the growth and development of different regional economy and they also have an
impact on the different industries. The importance of SME's also can be seen in the EU countries
where SME's are growing very fast and leading to the success of the economy.
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Conclusion and recommendations
This report has analyzed that SME's have given their important contribution to the growth,
expansion and development of the economy. It is recommended that for continues progress and
growth of the SME's the government should provide immense financial support. Small
businesses startup programs should be developed by the government to encourage the people for
starting a business. Large businesses can also provide their contribution to the growth of the
SME's by purchasing their offerings (Loader, 2018).
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References
Hillary, R., 2017. Small and medium-sized enterprises and the environment: business
imperatives. Routledge.
Caridà, A., Colurcio, M. and Melia, M., 2015. Designing a collaborative business model for
SMEs. Sinergie, 98(Sep-Dec).
MERCHANT SAVVY, 2018, UK SME Data, Stats & Charts, Online available at
https://www.merchantsavvy.co.uk/uk-sme-data-stats-charts/ last accessed on 25 July 2019
Storey, D.J., 2016. Understanding the small business sector. Routledge.
Love, J.H. and Roper, S., 2015. SME innovation, exporting and growth: A review of existing
evidence. International small business journal, 33(1), pp.28-48.
Apanasovich, N., Heras, H.A. and Parrilli, M.D., 2016. The impact of business innovation modes
on SME innovation performance in post-Soviet transition economies: The case of Belarus.
Technovation, 57, pp.30-40.
Jones-Evans, D., Gkikas, A., Rhisiart, M. and MacKenzie, N., 2016, June. Open Innovation,
SMEs and Regional Development: Evidence from the UK. In ISPIM Innovation Symposium (p.
1). The International Society for Professional Innovation Management (ISPIM).
Loader, K., 2018. Small-and medium-sized enterprises and public procurement: A review of the
UK coalition government's policies and their impact. Environment and Planning C: Politics and
Space, 36(1), pp.47-66.
Eurostat, 2018, Statistics on small and medium-sized enterprises, Online available at
https://ec.europa.eu/eurostat/statistics-explained/index.php/Statistics_on_small_and_medium-
sized_enterprises#Country_by_country_analysis last accessed on 25 July 2019
Harrison, R.T. and Baldock, R., 2015. Financing SME growth in the UK: meeting the challenges
after the global financial crisis.
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