Small businesses vital for cities, but London SMEs struggle with property costs ⁰

Two new surveys demonstrate that while small firms in creative sectors are essential for the economic success of the UK’s cities, many small businesses are struggling to find appropriate and well-priced office space in London and are now calling on the incoming new Mayor of London to address the issue as a matter of  urgency. While a report  from the Centre for Cities shows how small businesses in the creative, professional and digital sectors drive job growth, productivity and average wages in ten key UK cities, the study by the Federation of Small Businesses claims that the cost of commercial property remains one of the most pressing concerns for many SMEs based in London. The FSB study also found that the cost of living in London was also a concern for small employers in the capital, with many claiming it makes it incredibly hard to attract and retain employees.

The Centre for Cities Small Business Outlook 2015 report published this week claims the ten UK cities with the highest concentrations of small businesses in the creative, professional and digital sectors are among the most successful places in terms of overall jobs growth, productivity and average wages. These firms have a large impact on the wider city economy by increasing demand and jobs in other sectors such as service-based businesses, retail and leisure.

Seven of the top 10 cities for ‘new work’ SMEs are also in the top 10 places in terms of productivity and average earnings, while five of these cities are also in the top 10 for highest jobs growth. Seven of the 10 leading cities for new work SMEs are in the greater south-east region, including Reading, Cambridge, London and Oxford.

The report also shows that new work SMEs are growing at a faster rate in UK cities than small firms in traditional sectors. From 2008-14, the number of SMEs in the creative sector rose by 25 percent, compared with 17 percent in professional services. Employment in these sectors also increased over the same period, rising by 22 percent in creative industries and 11 percent in professional industries. However, new work SMEs are unevenly spread across cities, reinforcing economic disparities between different places.

Just one in five SMEs in Burnley and Doncaster are in new work sectors, the lowest concentrations of the 64 UK cities cited. Burnley is also among the bottom 10 cities in terms of jobs growth and average wages, while Doncaster is one of the 10 least productive places in the country.

Alexandra Jones, chief executive of Centre for Cities, said, “In recent decade, small innovative firms, taking advantage of technological advances, have started to play an increasingly important role in driving jobs growth, wages and productivity in UK cities. The government needs to give cities greater control over skills, infrastructure and spending, to help them become more responsive to the needs of local businesses.

“The government’s plan to let local government keep business rates is a welcome step towards giving cities more of the tools and flexibility they need to support local businesses. Local leaders should use these powers to create a better environment for innovative firms to thrive in, especially in places which have seen slow growth.”

Meanwhile, the new study from the Federation of Small Businesses claims that for small businesses in London, there is still a great deal of concern about the cost of both commercial and residential property. More than half (56 percent) of respondents from among the FSB’s 7,000 members said the rising cost of commercial space was a concern, with the soaring residential property market also presenting its own challenges. Nearly a quarter (22 percent) said it has had a negative impact on their ability to retain staff, with a further ten per cent saying the need to increase workers’ pay in order to meet rising rents is hindering their ability to take on new members of staff.

As a result of these concerns, the FSB has published a manifesto outlining the areas small firms would like Mayor of London Boris Johnson’s incoming successor to focus on. It urged the mayoral candidates to lower the cost of doing business in the capital, boost investment in faster broadband and other infrastructure, to help secure London’s status as a significant driver of the UK economy.

Sue Terpilowski, London policy chairman at the FSB, said: “The spiralling cost of housing and business premises is a significant barrier to growth, and we are starting to see a ‘flight from the centre’ on the part of established independent small businesses – exactly the type of business that makes London such a special and vibrant place.”