A large part of the job market in the UK is the SME economy which currently employments over 16 million people and, pre-coronavirus, was growing faster than the overall job market. SMEs make up 99.9% of private sector businesses and so supporting entrepreneurs to start businesses as well as providing vital growth finance is clearly of the utmost importance to the overall health of the UK economy.

Luke Davis, CEO of IW Capital and private equity expert, discusses the importance of SME growth to employment and economic recovery and what can be done to help them thrive:

While the government’s furlough scheme has helped to sustain employment during the lockdown period, there are signs of turbulence ahead. The small business community and the support it receives is absolutely crucial in ensuring that workers are in employment, allowing the economy to recover and grow and reducing the reliant on state subsidies. 

With an economic contribution of over £2trillion, the success of the UK economy as a whole may in future hinge on the prosperity of SMEs, startups and high growth firms. There are a fantastic range of innovative, growing SMEs that we work with which are likely to drive our private sector forward in the coming years and employ some of the finest talents in the market today. There are a few ways that the government could encourage growth in SMEs to aid employment.

Extend tax reliefs on SME investments

The Enterprise Investment Scheme (EIS) is one of the UK Government’s most successful initiatives in terms of driving investment into high growth early-stage companies. It has helped produce some incredible business successes that otherwise may not have got off the ground due to the reluctance of banks to lend to these firms. Growing SMEs offer huge opportunities in terms of job creation and increasing the tax efficiencies of EIS is a certain way to increase investment into these firms, offering a part of the solution to economic problems.

When the EIS income tax relief was extended from 20% to 30% in 2011, the amount invested in small companies through the scheme saw a tremendous jump. If the Government were to extend the scope or tax efficiencies of the scheme again, it could really help catalyse private investment - a crucial source of growth finance.

Make the Future Fund EIS qualifying

Extending the Future Fund to include EIS investments will open up the scheme to a whole new sector of investors and private capital; from angel investors to VCTs. This is not an insignificant amount of money that could be a big boost to companies trying to grow and take on a larger team.

Innovation grants

SMEs are famously more nimble and adaptable than big firms and some of the most successful private firms to come out of this arena have been at the cutting edge of innovation. This includes finance, science and engineering, and while loans are helpful, they can lead to an untenable debt burden on firms that need time to develop technology or software before going to market. Grants can help entrepreneurs kick-start their business and help them hire the best talent or help more established companies build and scale.