"Innovation for the many, not the few": Digitalising small businesses

The Federation of Small Businesses (FSB) has recommended that the Government should do more to incentivise small businesses to transition to digital systems.

The FSB’s latest research presented in the Tech Tonic report revealed that 40% of small businesses don’t have the time or capacity to invest in R&D or implement digitalisation. Meanwhile, half of the small businesses interviewed said that government grants or tax relief would encourage them to digitalise and implement new technologies.

The barriers to digitalisation are high for many small business owners. Nearly a third said that the cost of digitalisation prevented them from implementing Industry 4.0, while another third said that there wasn’t enough information and advice available, and a quarter mentioned that their staff did not have suitable skills.

To foster a healthy ecosystem of small, local and innovative firms, it is essential to marry the small scale with the digital and efficient. It’s important not to fall into the trap of thinking that small businesses are somehow more backwards or resistant to change than their larger counterparts. In fact, 7 in 10 small businesses have implemented innovative changes in the last three years, while small business owners typically spend a sixth of their total working time on planning innovation.

“The use of technology and innovation is a major force in economic growth, which is exactly what our country needs right now,” said Tina McKenzie, Policy Chair at FSB.

“The pandemic has shown how quickly start-ups and small businesses are to move with new ideas that change the economy, often up against large incumbents. These small firms are keen to keep that legacy alive but are also facing scarcer government support - cuts to R&D Tax Relief Scheme for SMEs, the scrapping of the Help to Grow: Digital Scheme, and downscaled support for Growth Hubs.

“The reduced government support is down to a top-down approach to innovation policy overlooking the potential of 99% of the total business population.” Ms McKenzie continued.

“Becoming the next Silicon Valley won’t crack the productivity puzzle if we can’t also encourage all firms to adopt new technologies and improve their process. Innovation must be for the many, not for the few.”

The Tech Tonic report made several recommendations around tax reform, grants and policy changes to the Government as a result of their research:

• Spend the equivalent of at least 10 per cent of the overall Research and Development budget on the diffusion and adoption of innovation.

• Pilot a scheme to enable businesses looking to “on-shore” or “re-shore” manufacturing processes to overcome barriers they face

• Develop an Automation Fund, providing small businesses with grant funding to automate processes where access to labour is challenging.

• Decrease the eligibility thresholds for firms to be eligible to apply for Industrial Energy Transformation Fund (IETF). The current threshold for energy efficiency and decarbonisation projects should be reduced from £100,000 to £20,000.

Read the full report and its recommendations here.