Could Small Businesses bring a Surge of Employment?

17th June 2020

The number of people on UK payrolls dropped by 612,000 between March and May, according to early data from the Office for National Statistics and HM Revenue and Customs that is starting to show the depth of the hit to the economy from the pandemic. The UK unemployment rate for the three months to April 2020 was estimated at 3.9%, 0.1 percentage points higher than a year earlier but largely unchanged on the previous quarter.

A large part of the job market in the UK is the SME economy which currently employs over 16 million people and, pre-Coronavirus, was growing faster than the overall job market. SMEs make up 99.9% of private sector businesses and so supporting entrepreneurs to start businesses as well as providing vital growth finance is clearly of the utmost importance to the overall health of the UK economy.

While the government’s furlough scheme has helped to sustain employment during the lockdown period, there are signs of turbulence ahead. The small business community and the support it receives is absolutely crucial in ensuring that workers are in employment, allowing the economy to recover and grow and reducing the reliant on state subsidies.

With an economic contribution of over £2 trillion, the success of the UK economy as a whole may in future hinge on the prosperity of SMEs, start-ups and high-growth firms. There are a fantastic range of innovative, growing SMEs that we work with at IW Capital which are likely to drive our private sector forward in the coming years and employ some of the finest talents in the market today. There are a few ways that the government could encourage growth in SMEs to aid employment. One of these could be an extension to the tax reliefs provided by the EIS.

The Enterprise Investment Scheme (EIS) is one of the UK government’s most successful initiatives in terms of driving investment into high-growth early-stage companies. It has helped produce some incredible business successes that otherwise may not have got off the ground due to the reluctance of banks to lend to these firms. Growing SMEs offer huge opportunities in terms of job creation and increasing the tax efficiencies of EIS is a certain way to increase investment into these firms, offering a part of the solution to economic problems.

When the EIS income tax relief was extended from 20% to 30% in 2011, the amount invested in small companies through the scheme saw a tremendous jump. If the Government were to extend the scope or tax efficiencies of the scheme again, it could really help catalyse private investment – a crucial source of growth finance. This investment would undoubtedly create jobs and fuel growth in the economy.

To find out more about IW Capital, or for more information on investment and non-executive opportunities, please speak to a member of the IW Capital team today on 020 7015 2250, or email info@iwcapital.co.uk