£145Bn Productivity Boost for UK Economy if SME Digital Investment Can Be Unlocked

£145Bn Productivity Boost for UK Economy if SME Digital Investment Can Be Unlocked

New research published today by Sage plc and Capital Economics finds that unlocking SME digital investment will be critical in helping small and medium size businesses remain resilient as a wave of local lockdowns trigger ongoing uncertainty – and could also deliver major benefits to the UK economy.

According to the research, Covid-19 has had a transformational effect on attitudes to technology among UK SMEs. 73% of businesses have turned to technology during the pandemic to keep their business functioning – although only 17% were planning investment before the crisis.

It has also highlighted the appetite, and need, for greater digitisation. 43% of businesses say the pandemic has made technology investment more urgent in order to remain competitive and boost productivity – and nearly three-quarters (72%) believe that further investment now into key areas of technology would deliver performance improvements and support recovery. This increased appetite presents an opportunity to underpin fundamental long-term productivity improvements among UK businesses.

However, Covid-19 has dramatically reduced businesses’ capacity to invest. Over three-quarters say that financial constraints are preventing the necessary investment in technology.

If these barriers can be overcome and this untapped appetite for investment unlocked in full, UK SMEs could deliver major benefits to the economy, including –

£145 billion in annual economic output as a result of improved productivity, equivalent to:

  • 140 million working weeks per year – or 8 working weeks per employee, per year
  • More than 2 times the total estimated cost of the Job Retention Scheme
  • £325 billion additional annual revenue
  • Supporting, creating and protecting 2.7 million jobs across the UK private sector

There is widespread support among businesses for Government-backed financial incentives to accelerate technology investment, including digital vouchers, digital adoption grants and tax benefits. Almost 9 in 10 believe that these incentives would directly benefit their business performance. Capital Economics analysis reveals that these policies could deliver an incremental £50 billion in revenue annually and £20 billion in economic output from improved productivity, supporting around 400,000 jobs. The benefits of the policies modelled would outweigh the cost within a year, delivering a positive net fiscal impact.

Steve Hare, Sage CEO, said: “As businesses across the country face the threat of tighter lockdowns, the need to place firms on a more sustainable footing – by giving them confidence and support to invest – is more important than ever. The only certainty for SMEs right now is uncertainty, and we must do everything we can to ensure firms can stand effectively on their own two feet through a challenging period.

“We are on the brink of a once-in-a-generation digital revolution among SMEs – one that will power job creation and growth at a time when its most needed, as well as helping to finally crack the UK’s long-standing productivity puzzle. But the UK stands to lose out on these massive gains if we do not encourage this investment now. Currently, businesses do not believe they can deliver even half of the technology investment they need in order to position themselves for recovery and growth.

“So, in addition to targeted and local support, SMEs in all sectors across the UK need a strong message from Government that they can invest in technology with confidence. Our research shows that policy incentives like vouchers and tax breaks would pay for themselves within a year, driving a tech-led recovery that will underpin greater resilience, productivity, and job creation for decades to come.”

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