IT Essentials: Small is beautiful

Whisper it, but things might be looking up for small and medium tech firms

At Computing, we spend so much time considering the consequences of Big Tech that it’s easy to overlook the fact that the fortunes of UK tech, and the wider digital economy are inextricably bound to those of SMEs.

UK Tech SMEs are a crucial part of our economy. Ready? Here come the stats. In 2021, digital SMEs contributed £101.7bn to the overall economy, and they account for 50% of all private sector jobs in the country.

As of October last year there were approximately 5.6 million private sector businesses in the UK, and only 7,960 employed more than 250 people. Not all of this business will be tech focused but most will have an IT function, and all will use technology in their operations. Much of the analysis, research and insight that the Computing team delivers to you has input from tech leaders in the larger end of the SME space.

Still, if you're trying to scale up a tech business in the UK it's been a rough few years. Brexit has made it harder to find staff with the right skills and its also made it harder to export digital services to EU countries. Economic and political turbulence has discouraged investment.

Start-ups struggle to raise capital - particularly if the founders are women. The dearth of talent and funding combined with the economic chaos of the last few years has, unsurprisingly failed to staunch the flow of tech entrepreneurs abandoning the UK for the more amendable business and actual climate of California.

The origin story of Mustafa Suleyman, in the news last week for his move to Microsoft's Consumer AI, is a case in point, and it will be interesting to observe the fortunes of the hundreds of new gaming start-ups which we reported on.

But there are grounds for cautious optimism. Blink and you might well have missed it but there has been positive news for SMEs of late.

Last week, Prime Minister Rishi Sunak delivered a speech to a SME business collective in the Midlands where he announced the founding of a new Invest in Women Taskforce with the objective of raising a female-focused investment fund to address the huge challenges female founders face in raising capital.

The announcement of yet another taskforce doesn't typically quicken the heart, but recognition of the female funding gap is long overdue. The government's own figures suggest that if women were to start and scale enterprises at the same rate as men, we could add £250bn to the British economy.

Sunak also announced changes to the Apprenticeship Levy which, although arguably in need of more drastic surgery, should become less expensive and bureaucratic for SMEs. This is due to increased funding and changes to enable levy payers - businesses with a monthly payroll bill in excess of £3m a year, to transfer up to 50% of their unused fund training for SMEs – up from 25%. Small businesses could now have their training costs covered on full.

It flew under the radar, but the increase in the transferable proportion of the apprenticeship levy is another Labour policy that has been quietly pinched by the present government. A lecture delivered by the Shadow Chancellor Rachel Reeves week also should have given SMEs reason for optimism, given the likelihood of Reeves being office within a relatively short time.

This wasn't a platform for delivering policy details, but Reeves revealed the odd detail such as the beefing up of the Treasury's Enterprise and Growth Unit which will be embedded into every budget and fiscal event to encourage the conditions for investment by and in SMEs.

Reeves also reiterated the policy of binning the Apprenticeship Levy altogether and replacing it with new Growth and Skills Levy, and the replacement of short funding cycles for the R & D institutions and universities which often produce tech and life sciences spin outs, with ten-year cycles. This should boost industry partnership and desperately needed private investment.

Perhaps most importantly, Reeves acknowledged "the long tail of firms behind the productivity frontier," and noted that "a strong economy cannot rely only on the contribution of the few firms at the leading edge."

SMEs are often referred to as the backbone of the economy but really they're more of an engine. They convert innovation into employment, growth and improvements in living standards. The engine's been running on fumes for too long but there are signs that a long overdue service is now booked in.