Small and medium sized enterprises (SMEs) within the UK economy

The role and importance of the small and medium sized enterprises (SMEs) within the UK economy has been subject to an increase in public attention, particularly throughout the 1980s and 1990s. One reason for this attention is the belief that a healthy and vigorous small business sector is considered important to the performance of both the UK economy and the EU. Older small firms invariably prove extremely resilient to fluctuations in the economy over time. The fact that a substantial proportion of the firms which were declining and / or unprofitable during the late 1970s were still in existence in 1989.

One of the reasons for the consistent increase of small firms is due to their ability to respond quickly to economical change. As the pace of technological change has increased in society, so has the ability of the small firms to respond quickly to change, this has given them a greater advantage over larger organisations.

This particular characteristic of small firms is more commonly known as 'flexible specialisation'; this expresses a firms ability to both specialisation and response to change. The UK labour market has changed dramatically, with employment no longer based on long term careers with large organisations in one occupation and in favour of a more 'flexible' labour force, so the structure of the economy has changed overall in the favour of small, flexible and specialised firms 

The small business sector is of major importance to the UK. As a sector it is extremely dynamic, during the last recession there were 400,000 businesses starting up each year, but this was not viewed against a high closure rate also. With large organisations favouring the streamlining process, small businesses are capable of reducing the national unemployment rate as the locally based supplier competes to provide these services. For small businesses to survive and grow in this rapidly changing economy there is a need for continual research; to help policymakers in both Government and businesses better understand the reasons for success and failure in order to assess what training and development needs they have now and for the future.

Small businesses play a vital role in the UK economy, providing new ideas, products, services and most importantly jobs. Britain's 3.7 million small firms have a combined annual turnover of around 300 billion and account for 40 per cent of UK GDP. Around 12 million people are employed by small business representing more than 50 per cent of the private sector workforce.

The number of business start-ups is increasing, but the failure rate is still too high, with as many as two in three new businesses failing within their first three years of trading. Every small business has experienced the difficulties that late payment can cause. At best, withheld payment causes cash-flow problems; at worst it can mean business failure.

The FSB has supported the Government's efforts to clamp down on late payment. The DTI's Better Payment Practice Group – of which the FSB is a member – continues to play a vital role in ensuring that the public and private sector work together to promote good payment practice and speed up payment times. "I am convinced Britain's economic future depends largely on smaller businesses. New jobs, new ideas and new wealth will be created if small firms are thriving.

Enterprise Britain: a modern approach to meeting the enterprise challenge The Pre-Budget Report set out the Government's commitment to boosting enterprise in the UK to help raise productivity and regenerate disadvantaged areas. Enterprise Britain: a modern approach to the enterprise challenge , published jointly by HM Treasury and the Small Business Service sets out the development of the new enterprise economy and the role of enterprise in increasing productivity and regenerating the UK's economy.