SMEs don’t need more talk, they need more time

Small and medium-sized enterprises (SMEs) are the undisputed engine of the British economy, accounting for over 99% of our businesses. They are the go-to spots on our high streets, the innovative tech startups, and the service providers that keep our communities moving.

At Starling, we see their energy first hand, every day, because we bank almost one in 10 of them. We get to see what’s working well and have privileged insights into the barriers holding them back – insights that aren’t always as intuitive as you might expect.

Take the tenacious problem of labour productivity and the fact that Britain’s output per worker trails significantly behind that of our G7 competitors. This matters to all of us since, if we could increase our productivity to that of France, our economy would be 10% larger than it is today. It matters acutely to entrepreneurs, for whom time is one of their most precious resources.

Does the solution lie in asking entrepreneurs to work harder or to work longer hours? They already do that. Some 60% of female founders tell us they regularly work weekends. No, it lies instead in empowering them to work faster and smarter.

Running a small business today means navigating a labyrinth of interconnected tasks. When we spoke recently to a thousand entrepreneurs about their administrative workload, we found that the average SME spends £63,000 a year just on managing their finances, from book-keeping and invoicing to filing tax returns. For microbusinesses of under ten people, that figure still stands at a staggering £30,000.

This is a hidden tax on time. It is money and mental energy that should be spent on reaching new customers and developing new products, but that is spent poring over paperwork. It is part of the drag on our labour productivity.

And yet, solutions are already within reach in the form of digital financial tools. It’s just that many SMEs aren’t aware of them or believe them to be prohibitively expensive. Our research shows that those SMEs using digital tools for their financial tasks report an average time saving of 41% compared to manual processes. However, it also shows that some SMEs believe digital financial software costs up to 15 times more than its market price.

To break this barrier, we need to raise awareness and we need a radical shift in the support eco-system for British businesses. We need to create a digital safe harbour that empowers SMEs to get on with the business of doing business.

Government digital adoption initiatives being rolled out this year must prioritise the tools that save SMEs the most time: invoicing, accounting software, and digital tax submission. We need a new, user-friendly online Financial Tool Cost Calculator embedded in the national Business Growth Service, so we break the perception that digital transformation is only for large corporations.

Prioritising microbusinesses and female-led firms is also essential. We must encourage peer-to-peer learning to build confidence and the new Business Mentoring Council should make digital adoption a core focus of its support for microbusinesses.

We also need to do all we can to help sole traders grow. This is why we support the VAT threshold being raised to £100,000. The current threshold acts as a cliff-edge with businesses deliberately capping their turnover to avoid the sudden 20% tax jump.

By raising the threshold it will counteract years of inflationary fiscal drag and incentivise businesses to grow. To avoid shifting the cliff-edge to a larger turnover, we’d like to see the introduction of a smoothing mechanism for those only marginally above the £100,000 allowance threshold. This will provide a much needed boost for small businesses and allow them to grow.

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We also urgently need a single unified register of small businesses, so large companies can easily check if a supplier is an SME and pay them within 30 days, rather than the government’s favoured 60 days. Late payments cost the UK economy £11 billion every year and a straight forward register will give clarity to help speed up payments.

While we advocate for these structural changes, Starling is not waiting for the policy landscape to shift. In March, we launched free, HMRC-recognised Making Tax Digital (MTD) software for income tax and we are breaking new ground in the use of agentic AI to provide in-app financial assistance.

The dawn of the AI era represents a shift from digital access to digital intuition, with users able to interrogate their finances in plain language and receive hyper-personalised answers. Over the next decade, we expect banking to move entirely toward an intent-based model, where the complexity of financial management is abstracted away by AI that understands the user’s context and provides immediate solutions to their problems.

We are leaning into these technologies today because we want to allow small businesses to benefit from a time-saving system that notifies them of a late payment, manages their cash flow and offers predictive insights into their next quarter’s growth. We want to ensure that SMEs spend less time on admin and more time on the passions that drive them, ensuring that every small business owner has the tools, the confidence, and the freedom to succeed.

Tackling the hidden administrative burden on our entrepreneurs is something industry and policymakers can do together now, and that will pay a multi-billion pound growth dividend to us all.