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Small innovative firms are crucial for successful local economies

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The world of work is changing.

Knowledge and innovation are at a premium, while technological advances have transformed the way businesses operate. Over the past 40 years traditional sectors such as manufacturing and construction have become more efficient and more exposed to global economic shocks, as the on-going crisis in the UK steel industry illustrates all too clearly. Meanwhile, firms in the creative and digital sector and in professional services such as law and accounting have seen steady growth in both jobs and businesses.

The impact these changes are having on UK cities is profound, as illustrated by Centre for Cities’ new report, Small Business Outlook 2015. Three main findings emerge.

First, small businesses in creative, professional and digital sectors (or ‘new work’ industries for short) are not only growing at a much faster rate than small businesses in traditional industries such as manufacturing and construction; they are also having a bigger impact on the wider city economy, by increasing demand and jobs in other sectors such as service-based businesses, retail and leisure.

Second, this translates into overall economic prosperity. Places which have the highest numbers of new work small firms are the most successful places in terms of overall jobs growth, productivity and average wages.

Third, there is a geographical divide, with over half of small businesses in Cambridge and Aberdeen in new work sectors, compared to around one in five in cities such as Burnley and Doncaster.

For places to prosper and grow, they need to help create a better environment for new work small businesses to thrive. Some of the key issues in the report for local leaders include:

Tackling skills gaps – having local skills policies tailored to better respond to the needs of new work businesses.

Improving digital infrastructure – lobbying broadband providers to improve provision and supporting businesses to engage with schemes such as the government’s SuperConnected Cities Programme (providing vouchers to SMEs for superfast broadband).

Creating global connections – supporting SMEs to operate in global markets, for example, by working with the UK Trade and Investment’s centres of excellence, which aim to open up international markets for UK businesses in new work sectors.

Working with the private sector to make the right premises available – new work SMEs prefer smaller, flexible office hubs in city centres, close to other businesses and clients.

In a rapidly changing economic and policy context, leaders need to make the most of the strengths in their particular local economy. This report shows that this should include responding to the needs of these new work small businesses which will be crucial for long-term growth and prosperity.

Alexandra Jones is chief executive for the think tank Centre for Cities.





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