Time to explode the small firm myths says TUC

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date: 20 December 2002

embargo: 00:01hrs Monday 6 January 2003

Attention: industrial, business, city desks

Policy makers and commentators often exaggerate the importance of small firms to the economy warns the TUC in a research report published today (Monday). While small firms are, and remain, important the TUC says that there is little detailed research on the role of small firms, despite big government hand-outs to the sector, and too often assumptions such as 'all new jobs come from small firms' go unchallenged, despite the evidence.

Many people confuse small firms with small workplaces, says the TUC report - ‘Small firms - myths and realities’, but small workplaces such as high street shops are increasingly part of large national companies. Most people in the service sector now work for big enterprises in small workplaces, and the share of employment in small firms in the UK has been falling in the 1990s, as it has in the US and Europe.

Public sector support for small firms costs at least £2.5 billion a year, according to Treasury estimates. The Small Business Service alone costs £360 million a year.

The report argues that in order to make sure this cash is spent well we need a more targeted and sophisticated enterprise policy. The old 1980s approach based on crude blanket polices to encourage more small firms was both ineffective and wasteful. Instead, the TUC report argues policy should be based on three key themes:

  • Quality rather than quantity - we need better small firms rather than just more;
  • Target support - on areas where entrepreneurial activity is weak and on groups such as some ethnic minority groups who face prejudice in getting start-up capital;
  • Focus on dynamic sectors - such as high tech services - where the growth potential for high quality small enterprise is greatest.

Mirroring changes in parts of Europe and the United States, the share of employment in small firms in the UK has been falling in the 1990s. The prime market-driven reason is that big businesses in many service industries such as hospitality and retail distribution are capturing a bigger share of the market.

Brendan Barber, TUC General Secretary-elect,said: 'There’s no doubt that small firms are an important part of the economy, and we certainly need many of them to grow and succeed. But the trendy ideas that large companies were finished and would never provide new jobs now looks very dated. We need much more hard knowledge about the small firms sector so that government support can be effectively targeted, and not based on wishful thinking.'

‘Small firms - myths and realities’ shows:

  • More people now work in big firms in services (53.3 per cent of all who work in services worked in firms employing more than 250 people) than in big firms in manufacturing (51.6 per cent of all who work in manufacturing worked in firms employing more than 250 people);
  • Between 1994-1996 and 1999-2001 the share of employment in large enterprises went up from 47.7 per cent to 51.3 per cent;
  • Between 1995 and 2001 the share of employment in large firms went up most in sectors such as hospitality (up from 34 per cent to 47 per cent); and distribution (up from 43 per cent to 54 per cent).

The TUC’s report is a contribution to the review and development of government policies to promote enterprise announced in the July Spending Review and the November Pre Budget Report.

Notes to Editors:

The full report ‘Small firms - myths and realities’ is available on the TUC web site from Sunday 5 January at http://www.tuc.org.uk/smallfirmmyths Before the embargo the report can be found at www.tuc.org.uk/pressextranet

The report uses the standard EU definitions of firm size: small firms are all those who employ between 1 and 49 employees; medium employ between 50 and 249 employees; and large firms employ 250 employees or more. The figures are taken from official statistics published by the DTI’s Small Business Service. They exclude national and local government and the non-profit sector, but include public corporations.The TUC will be publishing a further report looking in more detail similar changes in the structure of the labour market in the United States and some European economies.

All TUC press releases can be found at www.tuc.org.uk Register for the TUC's press extranet: a service exclusive to journalists wanting to access pre-embargo releases and reports from the TUC. Contacts:

Media enquiries: Liz Chinchen on 020 7467 1248 or 07699 744115 (pager) or email [email protected]

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