Implications and impacts of the crisis on micro businesses and their future resilience

Abstract

Small businesses are widely regarded as an important aspect of the productivity puzzle in the UK, representing over 98 per cent of the business base. At the start of 2019 SMEs under 250 employees accounted for 61 per cent of total employment and 52 per cent of turnover in the private sector, with micro businesses and sole traders employing under 10 accounting for 33 per cent and 22 per cent respectively. The concept of this long tail of less productive businesses is one that has come to capture the imagination of researchers and policymakers alike. Current analysis of the productivity puzzle suggests that this tail is considerably longer in the UK when compared to elsewhere. The long tail of companies was described by Haldane (2017) as those firms with low and slow productivity growth which are unable to keep up, much less catch up with frontier companies. However, the composition of the long tail is contested. As these numbers imply, it is true that small businesses are inevitably less efficient than their larger counterparts which benefit from scale and specialisation. However, the highly heterogenous base of small unproductive firms is not responsible for all of the UK’s productivity issues. Many of the smallest businesses have borne the brunt of the immediate economic shock resulting from the Covid-19 global health crisis. However, this diversity of small businesses means that while some have experienced very dramatic reductions in turnover and needed to make temporary or possibly permanent adjustments to employment, others have found themselves presented with new opportunities with potential for productivity enhancement. Furthermore, supporting sole traders and micro businesses is not straightforward – a fact borne out in small business policy over the past three decades. The first section of this chapter begins by reflecting on the nature of sole traders and micro businesses, before the second section reviews emerging evidence and insights as to the impact of the Covid-19 crisis on micro businesses. A third section discusses the immediate responses and experiences of these businesses. A fourth section discusses the wider economic outlook and the prospects for recovery in a post-Covid world where productive sole traders and micro businesses continue to be important to the economy