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Funding SMEs could bring £270bn to UK economy, says industry body

Multiethnic worker, supervisor wearing mask in manufacturing factory on business day. African industrial engineers have to consult with colleagues while using machine. New normal, epidemic prevention
One in two SME manufacturers said the government needs to prioritise infrastructure investment in the domestic transport network. Photo: Getty Images (Godji10 via Getty Images)

The UK's GDP could see a boost of £270bn ($358bn) if the government improved access to funding for SME manufacturers so they can get their hands on expensive heavy-duty equipment and industrial real estate, a new study has said.

Research by Make UK found the economy would greatly benefit if 75% of Britain’s smaller businesses with lower productivity upped their game to the output of the top 25%.

In order to do this, they need the government to help them access funds, and improve international trade along with infrastructure so they can expand to more areas across the country.

The report found that around two thirds of SME manufacturers grow by reinvesting past profits due to a lack of access to funds.

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Nearly a third (31%) say they would prioritise investment in developing products and expanding capacity if could access “appropriate new finance” .

“Micro and SME manufacturers account for 99% of all manufacturers in the UK but they are being held back by a lack of access to funding, skills, physical space and exporting,” said Stephen Phipson, CEO of Make UK.

He said that, compared to other industries, “manufacturers need access to higher levels of skill than most, they need access to finance to not only stay afloat, but capital lenders that are willing to be patient before they see growth from any investment”.

Phipson added that the government must improve trade across borders - 27% of businesses surveyed said they could grow faster if the government helped them with improved access to overseas markets.

Read more: Rising costs, falling GDP and capital crunch may derail UK's recovery, CBI warns

Manufacturers said they want to see the reinstatement of trade access programmes or immediate replacements to help them expand into new trading ventures.

The report also urged for an improvement in the infrastructure of transport, digital and energy in areas of the UK where these are lacking.

This would allow manufacturers to expand into new parts of the UK where industry has never traditionally been based.

One in two SME manufacturers said the government needs to prioritise infrastructure investment in the domestic transport network, particularly on road networks and improving the quality of logistics.

One in three said there should be increased investment in developing industrial concentrations as well as 5G connectivity.

When it comes to access to finance, the report cited many challenges. For example, one in five SME manufacturers are completely unaware of the business support and finance that exists to incentivise growth.

Another concern is that the pandemic has changed how financial institutions are assessing risk before lending to SMEs and offering stricter conditions or asking for higher guarantees.

And Make UK has urged the government to understand that manufacturers need “heavy investment” to expand, with benefits seen over the longer term rather than short term gains.

But it believes these long-term rewards are far greater than those realised by other sectors in the economy which include the creation of well-paid jobs.

Watch: What is inflation and why is it important?