As part of its commitment to being a purpose-led bank that removes barriers to enterprise, NatWest has today published the findings of its 2021 Small Business Report, an industry wide review into UK SME recovery, conducted in consultation with the British Chambers of Commerce (BCC), and the Federation of Small Businesses (FSB).
Wales’ SMEs face a big productivity and sustainability challenge. To better understand this, NatWest conducted research with over 1,000 UK SMEs, and analysed over 100 reports and support programmes globally to identify the barriers to SMEs reaching their potential.
The report, which will be shared with the UK Government as it develops the Help to Grow initiative, identifies that SMEs often struggle to find a support programme that is tailored to their needs. Only 1 in 5 SMEs find the right programme and decide to enrol on it and worryingly just 1 in 20 SMEs receive a significant productivity boost by changing their business after taking part in a programme.
Better targeted and personalised support for SMEs could unlock a £140bn prize equivalent to c.400,000 new SMEs in the UK economy and can be achieved by:
1.Finally achieving the step-change in SME productivity: UK productivity lags US by 17% and Germany by 12%.
- Wales’ 55,549 SMEs (firms with 1-249 employees) are responsible for 51% of the Wales’s turnover and 54% of its private sector employment, but productivity lags that of larger firms by 15%;
- Despite the existence of numerous entrepreneurial programmes in the UK, an aggregated impact on SME productivity has not materialised;
- Lifting ~900k SMEs to the next decile of productivity will unlock ~£35bn GVA
2.Transforming a greater share of SMEs into ‘scaleups’ – Scaleups are enterprises that grow by more than 20% year-on-year (YoY) in turnover and/or employment for at least three years and are 50% more productive than other SMEs and employ 30% of the SME workforce in the UK; however only 2.5 percent of UK’s SMEs are scaleups today.
- There are 55,549 highly ambitious SMEs across Wales but many of these businesses struggle to scale up, with particularly disparity by location, gender and ethnicity: only 3% are female led, and across the UK only 13% of employees are from Black, Asian and Minority Ethnic groups;
- Helping ~1700 more SMEs across the UK become scaleups and assisting ~33,000 existing scale ups continue their growth journey post COVID unlocks £35bn GVA
3.Increased female entrepreneurship and productivity of women-led businesses: As set out in the Rose Review, in the UK, the ratio of female to male entrepreneurs is 30 percent lower than the US.
- More than doubling female entrepreneurship rates and increasing productivity of women-led businesses by ~40% (equivalent to closing 1/3 of the gap to male-led SMEs) drives ~£50bn GVA. This means ~50k new female entrepreneurs and 260,000 more women-led businesses across the country
4.Improving Black, Asian and Minority Ethnic workforce participation and career progression: could result in £20 billion in GVA, around 310,000 new Black, Asian and Minority workers in the SME workforce and ~950,000 workers receiving fair pay in line with in line with non-Black, Asian and Minority Ethnic workers with similar qualifications.
5.Driving SME shift toward sustainability: The UK currently emits ~1.1% of global emissions, with SMEs driving ~50% of these emissions.
- To remain on the UK’s net zero pathway, SMEs need to reduce their carbon footprint by 80-85 MtCO2e by 2030 through shifting toward sustainable business / operating models, of which Wales can contribute up to six million tonnes.
In response to the report’s findings, the bank has today announced a series of interventions focused on scaling up micro businesses, unlocking the untapped potential outside London, and boosting skills and technology adoption, including:
- Funding commitment of £6bn to support SMEs to scale and grow with £4bn of that allocated outside London;
- Creation of 30 Local Enterprise Managers and 20 Entrepreneur Acceleration Managers designed to give businesses the support they need, when they need it, and a commitment to help 10,000 NatWest customers to get the best training or growth opportunity; and,
- Strategic new partnerships with Business in The Community (BITC), Hatch and Digital Boost, to empower underrepresented entrepreneurs and communities and embed new skills and technology.
Andrew Harrison, Head of Business Banking, NatWest said:
“The findings of this report have shown us that SMEs are not a homogenous group, and that support available across Wales and the wider country need to be more closely tailored to their specific needs. We’re also seeing a continued disparity in the allocation of support and funding by gender, location and ethnicity. It’s the responsibility of our entire industry to help reset this balance to help all SMEs and by extension the UK economy to thrive again.
“In recognition of that, NatWest is delighted to be partnering with both the UK Government on the ‘Help to Grow’ programme, and with partners like Hatch and Digital Boost, to support future and existing SMEs with expertise and advice on how to get to that next level. Combined with an additional £6 billion of targeted funding, we are confident that these initial steps will help us unlock the growth for the business success stories of the future.”
Federation of Small Businesses National Vice Chair Martin McTague said:
“This report marks a helpful contribution to efforts to improve small business policy and there are suggestions here worthy of serious consideration. It’s encouraging to see NatWest championing the small business cause, and we look forward to it, and all major banks, doing absolutely everything in their powers to help small firms recover from a torrid year. Many are emerging with high levels of debt, low levels of cash and shattered confidence as they look to make their way in a trading environment that remains unpredictable. We need to see government, big businesses and financial service providers alike pulling out all the stops to help the small firms and sole traders that make-up 99% of our business community get our economy firing on all cylinders again.”
Adam Marshall, Director General of the BCC, said:
“SMEs are the engine-room of the economy and their ability to bounce back and grow exponentially will be crucial to the UK as a whole as it emerges from lockdown. It’s great to see the potential of our SMEs reflected in NatWest’s new report, which hits on many of the key drivers that would enable small and medium-sized firms to restart, rebuild and renew.
“To boost productivity, SMEs need to be able to invest more in skills and digital innovation. Mentoring will also allow bosses to understand their companies’ needs and allow them to rapidly adapt to changes in the workplace and the market.
“I’m also delighted to see a clear focus on boosting diversity among entrepreneurs, which has long been recognised as an important factor in improving productivity. Of course, all of this must also be placed within the framework of the UK’s commitment to a net zero future. It’s very encouraging to see Natwest place SME sustainability so prominently in its blueprint.”
Irene Graham OBE, CEO, ScaleUp Institute, said
“Scaleups are essential to the UK economy and our levelling up agenda. As our work has shown, scaleup businesses deliver 50% of all UK SME turnover. Supporting their further growth and increasing our scaleup population remains vital to every local area and every sector.
We have long evidenced the need for targeted, tailored and segmented support, with Account Management, to better enable scaling businesses on their growth journey – which this report also highlights as important.
There are a number of initiatives in the public and private sector that are already delivering against these needs and it is vital that those which have had real impact are built upon as work continues on the Government's Help to Grow scheme.”
Dirk Bischof, CEO, Hatch Enterprise, said:
“We are delighted to partner with Natwest for this really important work to support SME's in the post-pandemic recovery. Hatch has a particular focus to support underrepresented founders and levelling the playing field for those who want to start, grow and scale businesses that have a positive societal and environmental impact. Thanks to this new partnership we can get to work to start delivering these urgent activities to make entrepreneurship more inclusive.”
Amanda Mackenzie OBE, Chief Executive of Business in the Community, said:
“SMEs are the bedrock of Britain’s communities. But we know that, without the right support, many face overwhelming challenges and may never reach their potential. I hope that NatWest and BITC’s new partnership inspires other big businesses to recognise the role they can play in strengthening the whole ecosystem – making our country fairer, stronger and more economically resilient.”
Commenting Sherry Coutu founder of Digital Boost said:
“At Digital Boost, we help those who work for and lead small businesses and charities with mentoring, workshops and courses so they can successfully adopt the best digital technologies to grow their businesses. We are thrilled to work alongside the local SME task forces, Natwest and the UK Government’s Help to Grow programme, so that SMEs up and down the country have what they need when they need it in order to survive the COVID-19 crisis and build back better.”
NatWest’s interventions are designed to help level up the SME landscape, drive productivity, and encourage economic recovery and growth. They are focused around four areas:
1.Micro SMEs – 1 in 5 of them aspire to grow at 20% YoY: are a big part of the UK economy ~1.2mn micro businesses (82% of SMEs) drive 1/3 of SME turnover (14% of UK) and employ 15% of UK workers;
- £2bn commitment to help micro SMEs scale;
- Creation of 30 Local Enterprise Managers and 20 Growth Acceleration Managers – designed to give businesses the support they need, when they need it. This programme will reach more than 10,000 SMEs by the end of 2022; and
- A commitment to connect 10,000 NatWest customers to the most appropriate training or growth opportunity for their business
2.“Untapped potential” outside of London we believe there is hidden potential across the UK SME landscape with 75% of the potential coming from outside London: there are ~290k highly ambitious, diverse SMEs scattered across the UK (~18% female-led with ~13% of employees from Black, Asian and Minority Ethnic groups)
- £4bn commitment to help SMEs outside London grow – with a focus on loans to move businesses online and grow export markets beyond local customers;
- Creation of collaborative Regional SME Taskforces – designed to support growth across the UK and redress the balance with London. Membership will be drawn from the local eco system including corporates, Funders, Universities / Further Education colleges, Government and Local Authority governments, Enterprise Agencies and serial entrepreneurs;
- A partnership with Hatch – a charity which empowers underrepresented entrepreneurs to imagine, launch and grow sustainable and impactful businesses through tailored support, community and partnerships;
- Partnership with Business in The Community – helping businesses to grow and thrive in disadvantaged communities, focusing particularly on networking, peer learning, workshops, and one-to-one tailored coaching.
- Refocusing of our award-winning Accelerator Network – from July, 75% of our accelerator programme will be focused on high growth potential / scaleup businesses, equating to support for more than 1500 high growth businesses per annum (a tenfold increase) whilst the remaining 25% of the programme will be for businesses whose core offering supports sustainable environmental activities;
3.SMEs who want to implement best practice management skills ~380k SMEs in the UK aim to implement best practice management practices to improve their business’ productivity. We know that “bad management” practices are a real barrier to SME success and scaling-up – previous research by the UK government has found that a large share of SME failures (up to ~56%) are linked to this issue
- NatWest is a lead partner of the UK Government’s Help to Grow Management initiative and are supporting the development of the programme, curriculum and course materials.
4.SMEs who are closed to new technologies – Firms that use two or more technology solutions (e.g., ERP, CRM) benefit from a 25% productivity benefit and female-led businesses are ~20% more likely to self-select out of adopting digital solutions to improve productivity (37% of female owners believe digitisation can improve productivity vs 46% of male owners).
- A new partnership with Digital Boost – supporting the goal of mentoring at least 500,000 women over the next 12 months and free of charge to employees of SMEs to help them learn new skills and embed new technology enabled practices in their businesses to contribute to recovery.
The NatWest SME Recovery Report published today, is available at https://natwestbusinesshub.com/campaigns/a-springboard-to-recovery-building-back-better-together.
 Figures adjusted to reflect national Black, Asian and Minority Ethnic workforce participation from BEIS (using ONS population and DWP labour market data)
 Source: https://publications.parliament.uk/pa/cm201719/cmselect/cmbeis/807/80707.htm#footnote-245 Research conducted by Chartered Management Institute
 Source: Be the Business, ONS