£145bn productivity boost for UK economy if SME digital investment can be unlocked

New research published 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 -

  • £145bn 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
  • £325bn 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 £50bn in revenue annually and £20bn 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.”

Felicity Burch, CBI Director of Innovation and Digital, said: “Against the COVID-19 pandemic, UK business has demonstrated extraordinary levels of adaptability by forging new working methods and routes to market. Much of this innovation has been underpinned by an accelerated move towards new technology.

“But cash is now tight, and this will hold firms back as they now seek solutions to help them grow out of the current crisis, and on to a successful future beyond COVID-19.

“It is clear the Government needs to step up the support available for innovation adoption. This will be vital to ensure the UK builds back better, with a more productive, sustainable and green economy in all parts of the country.”

Other key findings from the study include:

  • On average, SMEs believe they need to invest £10,000 into technology to best position themselves for recovery and growth. Micro businesses (less than ten employees) believe they need to invest £5,000 - 9,000 on average, and larger SMEs (more than ten employees) are most likely to need to invest upwards of £10,000
  • On average, SMEs surveyed believe that if they were able to invest the total amount, they need to into tech today, in the next six months they would have an average +15% increase in monthly revenue and +14% increase in monthly profits
  • Communication platforms, cyber security and accountancy software are the technology tools SMEs feel deliver the highest value and are most beneficial to their performance
  • The hospitality, technology, retail, construction, and manufacturing sectors are most likely to say that COVID-19 has reduced their ability to invest. They are also the sectors who anticipate the greatest benefit from Government financial incentives to encourage technology adoption, with over half of technology and retail businesses predicting significant benefits. 
  • 49% of SMEs rate their current level of technology adoption as high (between 7/10 and 10/10)
  • SMEs that have digitised have done so primarily to stay competitive in their market (39%) or to increase their employees’ productivity (38%)
Startup Details

Startup Details



Sage Group provides small and medium sized company business management software and services.

  • Headquarters Regions
    Newcastle upon Tyne, UK
  • Founded Date
  • Founders
    Chad Ruff, Colin Cooper
  • Operating Status
  • Number of Employees