Request a Digital Adoption Fund to Enhance Small Enterprise Productiveness

Digital Transformation: Closing the productivity gap through technology would increase productivity in the UK by £ 92 billion

Tech startups have called for a digital adoption fund to help small businesses migrate to digital technology.

The adoption of digital technologies has long been seen as key for the UK to increase its sad productivity.

Every third small company – with fewer than 250 employees – names costs as the biggest obstacle to the introduction of digital technologies, be it video conferencing like Teams or Zoom, software for customer relationship management like Salesforce or corporate resource planning like Oracle Netsuite.

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The Digital Adoption Fund would be based on Singapore's SMEs Go Digital initiative, which provides grants for more than two-thirds of small business spending on digital technologies. The proposed UK version of the system would cover 70 percent of the cost of an upgrade, capped at £ 22,500 per company.

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

If SMEs reached the productivity levels of their larger cohorts, it would add £ 92 billion to GDP.

And if the UK's 1.1 million micro-businesses – with fewer than 10 employees – did the same, that alone would increase productivity by £ 16.6 billion.

Coadec also said the government should publish a list of pre-approved technology tools for each business sector – from accounting to wholesale – explaining which technology is recommended for each sector.

Local Enterprise Partnerships (LEPs) could serve as a link between technology start-ups who want to explain the benefits of digital adoption to businesses. "The necessary communication channels are missing," says the report.

After all, the entire Covid disaster has fundamentally changed the way companies use technology. After Covid, the government needs to rethink its digital adoption by consulting with technology start-ups, SMEs and experts, the authors say.

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Why productivity matters

Historically, labor productivity in the UK has increased by around 2 percent a year, but that number has stagnated since 2008. According to the latest ONS statistics, labor productivity fell 0.4 percent between January and March 2020 compared to the first quarter of 2019. Covid has lowered the expected level of productivity by 25 percent. In reality, this translates into an average drop in wages of £ 5,000 per worker.

In contrast, it is estimated that the average French worker produces more by the end of a Thursday than their UK counterpart over a full week.

75 percent of UK businesses that focus on SMEs and regions outside London make up the long tail of dismal productivity.

This is particularly worrying given that SMEs employ 61 percent of the population and generate 52 percent of sales.

further reading

The UK could see a £ 83 billion boost if regions cut productivity gaps in half

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