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South East: SME's lose out due to productivity gap

By Jo Whittle
29 June 2018

NatWest today unveils research, conducted by CEBR, which reveals businesses in the South East could add up to £5.3billion a year to the UK economy if they introduced a series of productivity improving measures. This represents the highest ‘productivity gap’ for any regional economy in the UK, outside of London. Productivity in the UK is under increasing scrutiny following the latest ONS figures, which identified a 0.5% fall in productivity in the first quarter of the year. 

Despite this productivity gap, NatWest’s research found SMEs in the South East are uncertain about the actions they need to take to boost business productivity. Even though more than two-thirds (67%) of SME decision makers in the region believe improving productivity is important, over a third (37%) don’t know what productivity means in practice, making it difficult for them to identify the steps to improve. 

NatWest’s research, ‘Addressing the regional and sector productivity gap’, analysed the productivity of SMEs around the UK to identify potential changes SMEs can make to improve their productivity. Despite the significant potential gains for the South East economy, the research found that Brexit and political uncertainty mean tackling productivity falls to the bottom of a list of key business priorities, and less than half (43%) of businesses who see productivity as important, have targets in place to improve productivity. 

To help SMEs in the South East understand how they can improve productivity, NatWest and Cebr identified the following measures with the biggest impact:  

  South East potential productivity impact: Potential increase in output, per worker, per year Average percentage of SMEs in the South East that have implemented
Rewards for good performance (financial and non-financial). 

For example: commissions, bonuses, non-financial performance incentives for employees. 

£18,000 24%
Benefit packages above statutory minimum.

For example: offer of paid days leave above the legal minimum, subsidies for meals eaten at work.

£13,000 31%
Investing in workplace culture. 

For example: team building exercises, mentorship or buddy schemes.

£11,900 29%

Offering rewards for good performance, employee benefits packages and investing in workplace culture were the measures most likely to have the greatest impact on improving productivity in the South East. Despite this, just a quarter (24%) of SMEs in the region said they offer rewards for good performance, and just under a third (31%) said they invest in employee benefits above the statutory minimum. While over a quarter (29%) of SMEs in the South East invest in workplace culture. 

In terms of potential gains for the local economy, the South East has the largest productivity potential outside of London. By comparison, the region with the least to gain from productivity improving measures is the North East (£1.10b).

Region  Potential increase in output by region from introducing significant productivity improving measures 
LONDON £6.20bn
SOUTH EAST £5.30bn
NORTH WEST £3.71bn
SOUTH WEST £3.14bn
WALES £1.36bn
NORTH EAST £1.10bn

To provide businesses with guidance on how to improve business performance and work towards closing the productivity gap, the bank has teamed up with beauty business mogul Sharmadean Reid to create a Productivity Blueprint, outlining the measures which have the biggest impact on productivity and including tips and advice from other successful small business leaders across the country. 

Additionally, NatWest has made available £1b in additional lending aimed at SMEs looking to boost performance through investment in productivity-improving measures. 

Stuart Johnstone, managing director corporate and commercial banking London and South East said: “From talking to hundreds of our business customers every year in the South East, we know that many small to mid-size businesses struggle to understand how best to improve productivity. That’s why we’ve commissioned this research to better understand the productivity landscape and source best practice in this area to share with our customers. It’s crucial that banks, Government, and business leaders tackle this problem head-on, and start putting measures to improve productivity into practice. Our NatWest Productivity Blueprint, created in partnership with business leaders across the country, will help our customers identify what measures they can put in place to improve their business’ productivity and performance.”

Further help can also be found on the NatWest Business Hub launched last month. The Hub provides insight on a wide range of topics, including cashflow, exporting, productivity, e-commerce and keeping safe from scams, to businesses of all sizes and sectors, through editorial articles, videos, podcasts and access to webinars and events.

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