Will the Government's Small Business Plan deliver for SMEs?

The UK is known to provide an attractive environment for entrepreneurs to start a business. But when it comes to scaling small businesses, it is a different story.

Last year the Enterprise Research Centre (ERC), based at Warwick Business School, published its 10^th annual State of Small Business Britain report, reflecting on research it had undertaken over the last decade.

While one in three adults in the UK run their own firm or is looking to start one, it is also true that around half of all start-ups fail within three years.

It has also become increasingly difficult for surviving businesses to scale up.

ERC research showed that the proportion of small firms expanding their workforce fell 40 per cent between 2012 and 2022, with just two per cent of start-ups reaching a turnover of £1 million within three years.

Small businesses are struggling with a raft of challenges including rising costs, complex and shifting new trade barriers, rapidly evolving digital technologies, and pivotal issues such as sustainability.

What do small businesses need to unlock growth?

Against that backdrop, the Government’s new Small Business Plan (published on 31^st July, 2025) is badly needed.

In our State of Small Business Report last year, we also outlined a manifesto for creating sustainable small business growth.

We outlined 10 key areas for action, which have the potential to deliver significant benefits for individual firms and the UK economy.

After all, Small and Medium-Sized Enterprises (SMEs) account for more than 99 per cent of all UK firms and 48 per cent of jobs.

The good news is that the new Government plan recognises and seeks to address many of the key challenges we set out in our manifesto, drawn from extensive research.

Below we explore five headline messages from the plan and reflect on what the Government must do to deliver meaningful change.

1 Tougher action on late payments

The headline message from the Small Business Plan was the Government’s promise to take tougher action against large firms that repeatedly pay small suppliers or service providers late.

Late payment is a significant problem for UK businesses, costing the UK economy an estimated £11 billion per year and forcing 38 businesses to close every day.

Small businesses are particularly vulnerable, with some estimates suggesting they are owed as much as £20 billion at any given time.

The Small Business Plan  makes clear the responsibility of larger firms to ensure they are treating small suppliers fairly.

The Small Business Commissioner has been given more powers to enforce this by carrying out spot checks and fining large firms who persistently pay late.

This is a welcome step given that late payment creates a major obstacle to growth for many small firms. However, it is not a silver bullet for the declining performance of small business.

Late payment is a business issue that has risen to the top of the policy agenda, but there are other important issues to address, some of which were included in the election manifestos of the main parties last year – such as business rates and access to finance.

Late payment may have become the headline issue right now because it is easier to frame as a compelling message compared to other equally important policies.

However, it must be part of a wider package of measures aimed at supporting small businesses if the Government is to meet its growth aspirations.

2 Developing leadership skills

Another welcome development in the Small Business Plan was the emphasis placed on leadership and management skills.

This has the potential to shift the dial for many small businesses, and our research has highlighted the importance of adopting ‘growth-oriented’ management practices for realising growth.

Inspirational leadership, strong people management, and data-driven operational management processes often separate businesses that scale successfully from those that struggle to grow.

Leadership development programmes are one way to teach SME leaders these key skills and there are several areas of best practice that successful programmes share. These include action learning, peer mentoring, and tacit learning through peer networks.

In addition, our research has identified the important role that ‘intangible’ leadership skills play in business growth – which are often overlooked.

Nurturing these intangibles – such as creativity, adaptability, and trust – is crucial to ensure growth programmes create more agile, innovative, and resilient organisations.

Participants in the Goldman Sachs 10,000 Small Businesses programme have emphasised how these intangible factors are crucial to create the kind of strategic leadership and business culture that drives revenue growth and job creation.

To maximise change, the Government needs to support leadership programmes that are flexible, context-specific, and geared towards both network-building and overcoming the unique challenges associated with scaling a business.

They should also ensure that all small businesses can access the expertise of the UK’s leading business schools and provide small firms with free tools to build their resilience.

3 A sustainable route to net zero

SMEs account for up to 55 per cent of all UK business emissions and can play a crucial role in the transition to net zero.

Yet many lack the capability to make the transition, even though they would like to.

Our research has shown that small business leaders face three key tensions that prevent them turning aspiration into action.

First, they are torn between sustainability and the everyday challenges of running their business, and often feel compelled to prioritise business goals above environmental measures.

Second, many SME leaders feel the cost of net zero initiatives are an unfair burden for small businesses. They struggle to see how they will recover their investments or justify the expenditure as their small size means anything they do will have a relatively small impact on reducing the total amount of greenhouse gas emissions released into the atmosphere.

Finally, they are afraid of being accused of ‘greenwashing’ because they are not clear on exactly what constitutes genuinely sustainable practice and what does not.

Small businesses urgently need information and advice to help them adopt net zero practices and measure their effectiveness – but only a small minority of firms currently receive that support.

We found that small businesses were more likely to take action if they were able to locate trustworthy sources of information, both in person and online. That information needs to be relevant to their particular firm and the challenges they face.

They also need to understand the benefits of adopting more sustainable business models and a standard approach they can use to measure the environmental impact of the steps they take.

4 Increased funding for innovation

In another welcome step, the Government has also pledged to increase funding for innovative firms and high-growth businesses that can strengthen the UK economy.

ERC research has shown that the ‘innovation gap’ between large and small firms has grown. But focussing solely on firms that are already earmarked as ‘innovative’ or ‘high growth’ is unlikely to produce the kind of trickle-down effect that is required to drive economic growth.

Innovation can take different forms, and for small businesses it often hinges on their ability to learn from others, and make changes to processes rather than the size of their R&D budgets.

But, unlike large corporations, small firms often operate in silos. They typically lack the resources to attend conferences, subscribe to industry research, or hire consultants.

So even when one firm discovers a better approach, that knowledge rarely spreads to the rest.

One way to overcome this lack of diffusion is through ‘mavens’ – individuals who are both knowledgeable and deeply motivated to share what they know.

These mavens often span industries and professional networks, sharing insights from one business to another and building bridges across the small business ecosystem.

By identifying and supporting these individuals, policymakers can help small firms to thrive through shared learning and collective progress.

5 Driving digital transformation

One of the most promising ways small businesses can foster growth is to adopt digital technologies which can increase efficiency and sales. This has been clearly recognised in the Small Business Plan.

However, many small business leaders are unsure about whether these technologies are relevant or affordable for their company, easy to integrate, or likely to deliver an adequate return on their investment.

If the Government is to meet its objective to support small businesses to adopt digital technologies, it will have to find ways to overcome these sorts of barriers.

One way to do this is to provide training programmes to improve digital literacy and ‘readiness’, making businesses more aware of the availability, relevance, and benefits of these technologies.

Several years ago, the Evolve Digital trial provided small, family-owned firms with little experience of using digital technologies with an online opportunity to learn about them, testing the impact of the training

The participating businesses were divided into two groups. The ‘treatment’ group received 42 hours of facilitated, cohort-based learning over several weeks.

Those in the ‘control’ group were only given access to online learning materials for self-study, with no interaction with their peers or an expert facilitator.

Six months later, we found that businesses in the ‘treatment’ group had greater confidence in their ability to use digital technologies, were more interested in new technologies, and had a better understanding of how to identify those that were relevant to their business.

The were also more confident about how to implement those technologies, including training other members in the business to use them effectively, illustrating the value of the intervention.

An ecosystem that helps small firms grow

A key trend that emerges from our range of research is that small businesses benefit from strong support networks and focused expertise.

If the Government is to harness small businesses as an engine of growth for the UK economy, it needs to create a fertile ecosystem for SMEs to flourish and expand.

Providing funding and support for a select band of small firms that meet typical criteria of ‘high-growth firms’ is not enough.

The reality is that businesses don’t typically experience constant growth year-on-year, instead, they tend to experience growth ‘episodes’ at different stages in their lifecycle. The key thing is to provide the right support needed at these crucial times.

Policymakers may recognise the potential of fast-growing firms to drive economic growth and create jobs. However, they need to understand the myriad factors that help SMEs to scale or prevent them from doing so, and develop a system that supports as many small businesses as possible, rather than focusing on a few exceptional cases.

There is already an extensive range of support available for SMEs. But that support is fragmented and many firms do not know where to turn.

The Government’s long-awaited Business Growth Service has a vital role to play in structuring those initiatives into a holistic package that is easy to find, understand, and access.

It also needs to, create the networks that allow SMEs to share best practice and innovative ideas, driving collective progress.

Perhaps we will get to a point not in the too-distant future when the UK can transform its impressive record for launching start-ups into longer term success stories -  enabling small businesses  to survive, thrive, and grow.

Further reading:

Growing pains: How to help small businesses scale

Can diverse workplaces increase innovation?

How to overcome fear of failure and foster innovation

Why are ambitious female founders penalised by investors?

Mark Hart is Deputy Director of the Enterprise Research Centre and Professor of Entrepreneurship and Enterprise Policy at Warwick Business School.

Vicki Belt is Deputy Director for Impact and Engagement at the Enterprise Research Centre.

Kevin Mole is Associate Professor of Enterprise at Warwick Business School and the Enterprise Research Centre. He teaches Entrepreneurship and New Venture Creation on the Executive MBA and Global Online MBA and Entrepreneurial Mindset on the MSc Management.

Learn to lead your start-up or small business to growth with an entrepreneurship specialism on any of our MBA programmes.

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