Procurement · 23 October 2017

Postcode lottery: Where does your company sit on the productivity map?

The productivity map indicated strong regional disparity in small business productivity levels
The productivity map indicated strong regional disparity in small business productivity levels

New data has revealed significant disparity between UK postcodes of small business productivity, suggesting that the most productive parts of the country are up to 26 times more so than the least.

The State of Small Business report, published by innovation charity Nesta in partnership with technology firm Sage, used in-depth data analysis to produce an overall assessment of small business performance in each UK region, using a productivity map to demonstrate its findings.

Annual turnover per employee was used to measure productivity levels. By this metric, small firms in West Somerset were found to be the UK’s least productive, generating an average £56,500 per employee each year.

In contrast, small businesses in the City of London produced £1.45m annually for each employee.

On the surface, the data suggested that small companies in the most productive parts of the UK were 26 times more productive than those in the least.

However, significant productivity disparity was also discovered within individual regions. On average, the most productive local authorities were typically five times more so than the least in each region.

Revealed: The UK’s top five cities to be self-employed

Availability of skills and connectivity levels were cited as the key drivers of productivity differences.

Small business productivity across the UK

Local authorities with the highest productivity rate

Local authority Turnover per employee (£)
1 City of London 1,450,000
2 Lambeth 1,060,000
3 Westminster 684,000
4 Flyde 603,000
5 South Derbyshire 354,000
6 Watford 349,000
7 Slough 293,000
8 Tonbridge and Malling 288,000
9 Southwark 280,000
10 Woking 274,000

 

Local authorities with the lowest productivity rate

Local authority Turnover per employee (£)
1 West Somerset 56,500
2 Weymouth and Portland 58,700
3 Torbay 62,400
4 Isle of Wight 63,200
5 Conwy 67,200
6 Scarborough 67,300
7 Argyll and Bute 68,200
8 Purbeck 68,700
9 Isles of Scilly 69,600
10 Orkney Islands 69,600

 

The findings also poured cold water on the notion that strong business survival rates were an indication of a thriving SME landscape. Researchers found that some of the most productive parts of the UK also registered the toughest rates of survival, and vice versa.

For example, the London borough of Lambeth produced £1m turnover per employee each year, within a 42.1 per cent five-year survival rate. In contrast, businesses in Aberdeenshire produced £0.123m within a 54.5 per cent survival rate.

The term “creative destruction” was coined by the study to indicate the economic benefit of harsh trading environments.

Commenting on the study’s findings, Christopher Haley, head of new technology and startup research at Nesta, said addressing the productivity disparity between small businesses in different regions was vital.

“Much of the answer is innovation: there is increasing evidence that innovation is essential for productivity growth and that this, in turn, is essential for rising living standards,” Haley explained.

“Whilst national government obviously has an important role in encouraging business, there is also much that can and should be done at a local level to create the best possible environment for entrepreneurs. Part of this means recognising local differences and improving data availability.”

Meanwhile, Stephen Kelly, Sage chief executive, said the “huge” local authority level productivity variation represented a “real wake up call”.

“Our call is for government to work with local authorities, Mayors and MPs to deal with this current productivity log jam locally,” Kelly added.

“This can be achieved by driving up standards in education and providing appropriate digital skills training and digital tools for our entrepreneurs.”

The study also found that small business owners had been disproportionately driving employment levels throughout Britain. Since 2010, small firms have created 73 per cent of new private sector jobs across the country, despite accounting for just 60 per cent of all private sector employment.

Britain’s small business economy is predicted to be worth £241bn by 2025

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ABOUT THE EXPERT

Praseeda Nair is the editorial director of Business Advice, and its sister publication for growing businesses, Real Business. She's an impassioned advocate for women in leadership, and likes to profile business owners, advisors and experts in the field of entrepreneurship and management.

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