The Federation of Small Businesses has called on the Government to kick-start economic growth by investing more in in small firms.
The report, titled The Tech Tonic, looks at the types of new ideas and technologies small firms used to drive productivity as well as the barriers they face against the backdrop of scaled down government support.
FSB Policy Chair Tina McKenzie said: “The use of technology and innovation is a major force in economic growth, which is exactly what our country needs right now.
“The pandemic has shown how quickly start-ups and small businesses are to move with new ideas that change the economy, often up against large incumbents. These small firms are keen to keep that legacy alive but are also facing scarcer government support – cuts to R&D Tax Relief Scheme for SMEs, the scrapping of Help to Grow: Digital Scheme, and downscaled support for Growth Hubs.
“The reduced government support is down to a top-down approach to innovation policy overlooking the potential of 99% of the total business population. Becoming the next Silicon Valley won’t crack the productivity puzzle, if we can’t also encourage all firms to adopt new technologies and improve their process. Innovation must be for the many, not for the few.”
Earlier this year, the Government made cuts to the R&D Tax Relief Scheme for SMEs. Business support and funding to encourage tech adoption by small firms have also been significantly reduced in the past years.
FSB’s research shows seven in ten (69%) small firms have introduced a new form of innovation in the last three years. This includes the development of an entirely new product(s) to their market (25%), significantly improved existing or new product(s) (38%), and better staff and customer experience (25%).
Small firms with new and improved products say increased turnover or profit is the main catalyst for change, followed by their desire to diversify their business. Those that have introduced new or enhanced staff and customer-facing process are mostly motivated by the need to increase business resilience and automate.
The average cost of introducing any types of innovation over a three-year period amounts to over £27,000 for a small firm, and the changes on average increase revenue by 14.8%, says the FSB report.
But barriers remain for small businesses aspiring to go further with their tech investments and innovation.
Two-fifths of small business owners say they don’t have time to develop new ideas or adopt technologies to innovate their business, while 28% identify affordability as a barrier. A further 17% feel that they lack the know-how to implement changes.
Half of small firms say additional government grants would encourage them to innovate, and 46% say extra tax relief would do so.
There should be non-financial incentives as well, with close to a third (28%) of small firms seeking help with implementation. More than a quarter (26%) want better information and advice, and a similar proportion (24%) say they need more suitably skilled staff.