Call for digital adoption fund to boost small business productivity

Tech start-ups call for a Singapore-style fund to help small businesses cover the cost of upgrading digital solutions, boosting the UK’s woeful productivity

Tech start-ups have called for a digital adoption fund to help small businesses upgrade to digital technology.

Adopting digital technology has long been seen as key for the UK to boost its woeful productivity levels.

One in three small businesses – those with fewer than 250 employees – cite cost as the biggest barrier to them adopting digital tech, whether it’s video conferencing such as Teams or Zoom, customer relationship management software such as Salesforce or enterprise resource planning like Oracle Netsuite.

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The digital adoption fund would be based on Singapore’s “SMEs Go Digital” initiative, which offers grants covering over two thirds of what small businesses spend on digital tech. The proposed UK version of the scheme would cover 70 per cent of what it costs to upgrade capped at £22,500 per company.

The Coalition for a Digital Economy (Coadec) report says such a digital adoption fund would close the gap between Britain’s most productive larger companies and the long tail of its unproductive SMEs.

If SMEs were to match the productivity levels of their larger cohorts, it would boost GDP by £92bn.

And if the UK’s 1.1m microbusinesses – those with fewer than 10 employees – were to do the same, that would create a £16.6bn productivity boost alone.

In addition, Coadec says the government should publish a list of pre-approved technology tools for each business sector – from accountancy through to wholesale – explaining which technology is recommended for each sector.

Local Enterprise Partnerships (LEPs) could act as the conduit between tech start-ups eager to explain to businesses the benefits of digital adoption. “Necessary communication channels are lacking,” said the report.

Finally, the whole Covid disaster has fundamentally redrawn how businesses are using technology. The government must kickstart post-Covid rethink on digital adoption, by consulting with tech start-ups, SMEs and experts, say its authors.

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Why productivity matters

Historically, UK labour productivity has grown by around 2 per cent per year, but since 2008 that figure has stagnated. Indeed, according to the latest ONS statistics, labour productivity fell by 0.4 per cent between January and March 2020 compared to Q1 2019. Covid has slashed anticipated productivity levels by 25 per cent. In real terms, this mean an average drop in wages of £5,000 per worker.

By contrast, the average French worker is estimated to produce more by the end of a Thursday what their UK counterpart produces across a full week.

And the long tail of dismal productivity accounts for 75 per cent of UK businesses, concentrated in SMEs and the regions outside London.

Which is especially concerning, given SMEs employ 61 per cent of the population and generate 52 per cent of turnover.

Further reading

4 ways to solve the small business productivity puzzle