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The importance of small businesses in the economy

posted on 24/03/2016 09:17:09 by James McAllister

Most people in the small business world will be well aware of the fact that SMEs are currently thriving in the UK. There have been a record number of start-up businesses in both 2013 and 2014V, and this trend if showing no signs of slowing. The attitude of many is that there has never been a better time to start a business in the UK.

While the economic climate in the UK may currently be a favourable one for start-up success, the lesser known notion is that the country actually needs small businesses to sustain a healthy economy. SMEs are a large and integral part of the UK’s economy, with over 99% of all of Britain’s businesses classified as small or mediumII.

But why – exactly – are small businesses so important to the UK economy?


Typically, this is one of the first metrics that springs to mind when measuring economic contribution, and while it is not the only one, it is important. Small and medium sized businesses had a combined turnover of £1.6 trillion at the start of 2014I. While this is a significant figure in itself, it’s even more impressive when you consider that it amounts to a whopping 47% of the private sector’s overall turnoverI.


Although the majority of small businesses are not employers – for instance, sole traders who work independently – SMEs still make a “disproportionately large contribution to job creation” in the UKIV. Small businesses employ over 24.3 million people in the UKII, which accounts for 60% of all private-sector employmentI, and a massive 81% of the overall workforceII.


When it comes to business growth, SMEs triumph over their larger counterparts. Innovation is a large part of growth, as it keeps fresh markets which may otherwise go stagnant, stops businesses from becoming passive, and allows active firms to rise above dormant or unproductive ones. A reported 37% of SMEs engage in innovative activity IV, suggesting that small businesses are one of the key drivers of innovation, competition and growth.

There was a colossal 47% increase in the number of small business births between 2009 and 2013 III, which is correlative with the UK’s economic recovery after 2008’s recession. SMEs have played a vital role in lifting the UK out of recession, and thus, never has the entrepreneurial spirit been so strong in the UK.


The largest industries in the UK are retail, manufacturing and the repair of motor vehicles, and small businesses are at the heart of these three core economic activities. 46% of all SME revenue comes from businesses in one of these sectors, and three out of every 20 small businesses fall into one of these categoriesI. With small and medium firms such a vital part of Britain’s core industries, it becomes clear how essential they are to the country’s economy overall.


The small and medium sized firms of the UK have a mutually beneficial and symbiotic relationship with the country’s overall economy – SME contributions are vital to economic health, and the UK’s current financial climate is an ideal facilitator for small and start-up business growth. It’s true to say that there has never been a better time to be a small business in Britain, and arguably, never before have Britain’s existing small business been such an important part of the country’s well-being.


I Business Population Estimates for the UK and Regions 2014, Department for Business Innovation and Skills

II The Importance of SMEs to the UK Economy, The Telegraph

III Business Demography 2013, Office of National Statistics

IV SMEs: The Key Enablers of Business Success, Department for Business Innovation and Skills

V According to reports from StartUp Britain

James McAllister

James is an online content creator at Make It Cheaper. Having previously created a variety of content for a number of websites and media outlets, James focuses on making it easy for SME owners to find interesting and engaging content - as well as useful guides and online tools.You can email James at

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