How important are small firms for employment?
Lord Young of Graffham was one of Mrs Thatcher’s favourite ministers. Now he seems to be a Cameron favourite too. First came his report on health and safety. Now he has been asked to report on small businesses, with strong hints that he will recommend lifting the qualifying period for unfair dismissal from one year to two.
On the Today programme he did nothing to rule this out, saying only that he wanted to ask small businesses first. I think we know what they will say if they are asked if they want fewer rules, but he would be better advised to look at the economics.
I was struck by his assertion that 60% of the private sector workforce now work in small businesses, so I thought I would look at the stats.
It is true that the most recent stats press release says:
Small and medium-sized enterprises (SMEs) together accounted for 99.9% of all enterprises, 59.8% of private sector employment and 49.0% of private sector turnover.
But if you look in more detail the employment figure there is somewhat misleading.
For a start it includes sole traders and partnerships that don’t employ people. That accounts for 17.3% of the workforce, so that gets the number of employees in the SME sector down to 42.5% of the workforce.
The SME group is also very diverse. The UK follows the EU definition and includes workforces up to 249. But issues for medium sized employers, ie those employing 50 to 249, are rather different from micro-employers, whose who employ fewer than 10 staff.
This chart shows the cumulative private sector employment by size of employer. It does not reach 100% as I’ve excluded the 17.3% of self-employed and sole traders.
It shows that just over 30% of the private sector workforce are employed in small businesses ie fewer than 50 staff.
Of course we need small businesses in the UK. But what we need more are businesses that can grow from being small or medium sized into bigger businesses. Making their staff wait for two years before they get protection from unfair dismissal is not going to help them grow.
Giving them access to credit would, and that can’t wait for a review.