UK: EIRO CAR on SMEs in the crisis: Employment, Industrial Relations and Local Partnership

Disclaimer: This information is made available as a service to the public but has not been edited or approved by the European Foundation for the Improvement of Living and Working Conditions. The content is the responsibility of the authors.

This report looks at SMEs in the UK, showing that they are key drivers of employment creation in the UK, although the recent economic crisis has taken its toll. The new government is putting forward targetted measures to try to help SMEs, although there is at present no public subsidies for actions such as short-time working. SME interest groups are, however, lobbying for the introduction of such subsidies. Overall, the data available on working conditions in SMEs is not as widespread when compared with data relating to larger companies. Similarly, social dialogue in SMEs is relatively undeveloped when compared with larger firms.

Questionnaire

The accompanying questionnaire seeks information from national EIRO correspondents on a number of key themes, including:

• general information on the presence and operation of SMEs
• levels of employment in SMEs and any structural changes that have taken place since 2007
• measures that the government has taken to help SMEs to withstand the crisis
• interest representation in SMEs, including any social dialogue initiatives that have taken place, if these exist
• successful cases of local partnership in terms of maintaining employment
• views from the social partners

Block 1: Please provide general information about the evolution of SMEs in your country, focusing on:

Question 1.1: the number of SMEs operating, size class (1-9, 10-49 and 50-249) in absolute numbers and share in the national economy;

According to UK government statistics released in October 2010, small and medium-sized enterprises (SMEs) accounted for 99.9 per cent of all enterprises, 59.8 per cent of private sector employment and 49.0 per cent of private sector turnover. The tables below give more details.

The table below shows the number of SMEs operating in the UK, by size class in absolute numbers, and their contribution to the national economy (ie share of all companies), between 2006 and 2009. The available data shows that the number of organisations with 1-9 employees increased between 2006 and 2007, but then decreased in 2008 and then decreased further in 2009. The number of SMEs with 10-49 employees and 50-249 employees increased between 2006 and 2008, but fell back between 2008 and 2009, as did the number of companies with 50-249 employees, suggesting that the economic crisis has reduced the number of SMEs over the past year in all size categories.

Number of SMEs operating, size class (1-9, 10-49 and 50-249) in absolute numbers and share in the national economy

	2006		2007		2008		2009
	N	%	N	%	N	%	N	%
1-9*	1,064,170	23.4	1,079,845	22.6	1,032,770	21.6	1,019,605	21
10-49	178,695	3.9	180,000	3.8	185,770	3.8	167,670	3.5
50-249	29,855	0.6	30,210	0.6	30,310	0.6	26,905	0.6

Data is from the UK Department of Business, Innovation and Skills publication, Small and

Medium-sized Enterprise (SME) Statistics for the UK and Regions 2008.

*Data for this category is for UK private sector only, as the whole economy statistics also included enterprises with no employees. This category excludes enterprises with no employees, which comprises sole proprietorships and partnerships comprising only the self-employed owner-manager(s), a category that accounts for a substantial proportion of enterprises in the UK, for example 74.1% in 2008 and 74.8% in 2009.

Question 1.2: their estimated share of employment by size class and economic activity (NACE 1 digit);

This table shows that the share of employment in SMEs has grown for all category of SMEs, although the absolute numbers in each size categroy have decreased between 2008 and 2009, presumably as a result of the crisis.

Estimated share of employment by size class and economic activity: whole economy

	2006		2007		2008		2009
	N	%	N	%	N	%	N	%
1-9**	3,274,000	12.8%	3,322,000	12.9%	3,258,000*	17.1%*	3,229,000	17.3%
10-49	3,424,000	13.4%	3,441,000	13.4%	3,518,000	13.5%	3,170,000	17%
50-249	2,978,000	11.7%	3,033,000	11.7%	3,056,000	11.7%	2,617,000	14%

*Data for this category is for UK private sector only, as the whole economy statistics also included enterprises with no employees. 2009 data not yet available.

** This category excludes enterprises with no employees, which comprises sole proprietorships and partnerships comprising only the self-employed owner-manager(s). In 2008 there were 3,545,720 of these types of company, accounting for only 2.7% of employees, but 16.8% of employment overall (ie counting the self-employed owners).

Tables 1-4 below show the evolution of the number of enterprises by industry and employment by industry from 2006 to 2009. In terms of overall number of enterprises, almost three quarters of enterprises have no employees, and this has remained relatively stable over the period from 2006 to 2009. The number of enterprises with 1-49 employees has fallen slightly, from 26.2% in 2006 to 24.6% by 209, while the proportion of enterprises with 50-249 employees has remained constant, at 0.6%, as has the proportion of enterprises with 250 or more employees, at 0.1%.

On a sector basis, the proportion of enterprises with 1-49 employees has decreased between 2006 and 2009 in the majority of sectors, with significant declines in hotels and restaurants (from 82.6% in 2006 to 72.2% in 2009) and education (from 11.9% in 2006 to 7.7% in 2009). However, the number of enterprises in this size category actually increase in the agriculture, hunting and forest and fishing sector, from 31.2% in 2006 to 33.0% in 2009, and in construction (from 13.5% in 2006 to 14.7% in 2009).

The number of enterprises in the size category of 50-249 employees remained relatively stable over the period from 2006 to 2009, although there was a decrease in the proportion of companies in the category of mining and quarrying; electricity, gas and water supply, from 1.2% in 2006 to 0.7% in 2009.

In terms of the number of employees, the proportion of employees is greatest in enterprises of 250 or more employees (41.1% in 2006, falling slightly to 40.2% by 2009), and just under a third (31.2% in 2006, falling slightly to 31.0% in 2009) of employees work in enterprises with 1-49 employees.

On a sector basis, the proportion of employment has increased in enterprises with 1-49 employees in agriculture, hunting and forestry and fishing) from 54.4% in 2006 to 57.5% in 2009), manufacturing (from 25.8% in 2006 to 27.1% in 2009), construction (from 33.1% in 2006 to 35.3% in 2009), and financial intermediation (from 9.6% in 2006 to 11.1% in 2009). All other industries showed a decrease in the proportion of employees in this size of company.

In medium-sized companies (those with 50-249 employees), the proportion of employment was relatively stable over the time period, although there was an increase in the proportion of employees in these companies in the financial intermediation sector (from 6.5% in 2006 to 7.4% in 2009) and a slight increase in employees in this size of company in manufacturing (from 21.3% in 2006 to 21.5% in 2009).

						Size (number of employees)
Busi nesses				(=100%)		None 1		1 - 49		50 - 249		250 +
All industr ie s				4,46 6,700		73.0		26.2		0.6		0.1
A, B	Agr ic ultur e, Hun ti ng and Forestry; Fishing			178,385		68.7		31.2		0.1		0.0
C, E	Mining and Qua rr ying; E lect ri city, Gas and Water Supply			9,455		87. 1		10. 9		1. 2		0.6
D	Manufacturing			325,875		65.9		31.4		2.1		0.5
F	Construction			920,780		86.3		13.5		0.2		0.0
G	Who le sale a nd Retail Trade; Repairs			580,685		56.4		42.6		0.8		0.2
H	Hotels and Restaurants			139,150		15.8		82.6		1.4		0.2
I	Tran sp ort, S torage and Communication			272,195		83.3		16.0		0.5		0.2
J	Financial Intermediation			66,620		74.9		23.6		1.0		0.5
K	Real Es ta te, R en ting a nd Business Activities			1,109,665		71.2		28.3		0.5		0.1
M	Education			128,840		87.7		11.9		0.3		0.1
N	Health and Social work			246,580		79.6		19.5		0.9		0.1
O	Other Community, S ocial a nd P er sonal Service Act ivities			48 8,465		81.4		18.4		0.2		0.1
Employment ( / 1,000)
All indust ri es				22, 402		15.9		31.2		11.7		41.1
A, B	A gricu lt ur e, Hunting and Forestry; Fishing			439		40.0		54.4		*		*
C, E	Mining and Qu arry in g; E lectricity, Gas and Water Supply			161		5.5		5. 6		*		*
D	Manufacturing			3,345		7.2		25.8		2 1.3		45.7
F	Construction			2,010		41.1		33.1		9.1		16. 7
G	Wh oles al e and Retail Trade; Repairs			4,836		8.0		30. 2		9.2		52.6
H	Hotels and Restaurants			1,649		1.8		43.5		11.5		43.3
I	Tr an spor t, Storage and Communication			1,734		14.0		16.8		8.1		61.1
J	Financial Intermediation			1,096		5.2		9.6		6.5		78.7
K	Rea l Estat e, Rent in g and Business Activities			4,245		20.0		3 6.2		12.2		31.5
M	Education			351		33.7		31.0		*		*
N	Health and Social work			1,228		17.7		44.4		15.9		22.1
O	Other Communit y, Soci al and P ersonal Service Ac ti vi ties			1,3 09		32.2		34.2		7.7		26.0

Source: BERR Enterprise Directorate Analytical Unit

1. "None" comprises sole proprietorships and partnerships comprising only the self-employed owner-manager(s), and companies comprising only an employee director.

Table 2: Number of enterprises by industry and employment by industry, 2007

						Size (number of employees)
Busi nesses				(=100%)		None 1		1 - 49		50 - 249		250 +
All industries				4,67 9,08 0		74.0		25.3		0.6		0.1
A, B	Agr ic ultur e, Hun ti ng and Forestry; Fishing			168,495		61.5		38.4		0.1		0.0
C, E	Mining and Quar ry ing; E lect ri city, Gas and Water Supply			13,025		90.8		7.8		0.8		0.5
D	Manufacturing			348,250		69.2		28.4		2.0		0.5
F	Construction			978,065		85.4		14.4		0.2		0.0
G	Who le sale a nd Retail Trade; Repairs			562,030		55.9		43.1		0. 8		0.2
H	Hotels and Restaurants			149,765		22.4		76.0		1.4		0.2
I	Tran sp ort, S torage and Communication			297,550		84.5		14.9		0.5		0.1
J	Financial Intermediation			67,275		70.0		28.5		1.1		0.5
K	Real Es ta te, R en ting a nd Business Activities			1,130,890		72. 5		26.9		0.5		0.1
M	Education			162,540		91.3		8.4		0. 2		0.1
N	Health and Social work			273,570		80.2		18.9		0.8		0.1
O	Other Community, S ocial a nd P er sonal Service Activit ies			527,62 5		82.5		17.2		0.2		0.1
Emp loyment (thous ands)
All industries				22, 734		16.6		30.9		11.7		40.8
A, B	A gricu lt ure, Hunting and Forestry; Fishing			448		32.9		61.3		3.6		2.1
C, E	Mining and Qu arry in g; Electricity, Gas and Water Supply			183		7.0		5.0		6.4		81.5
D	Manufacturing			3,231		8.5		25.8		21.5		44.2
F	Construction			2,151		40.3		34.3		9.2		16.3
G	Wh olesale and Retail Trade; Repairs			4,881		7.5		29.3		9.1		5 4.1

Table 2: Number of enterprises by industry and employment by industry, 2007

H	Hotels and Restaurants		1,669		2.4		42.9		11.7		43.0
I	Tr an sport, Storage and Communication		1,739		15.4		16.8		8. 2		59. 7
J	Financial Intermediation		1,117		4.7		10.6		6.5		78.1
K	Rea l Estat e, Renting and Business Activities		4,301		2 0.6		3 5.1		12.6		31.7
M	Education		344		45.0		27.3		11.8		15.8
N	Health and Social work		1,311		18.5		43.2		15.2		23.1
O	Other Communit y, Soci al and Personal Service Activi ti es		1,359		33.9		33.2		7.3		25.6

Source: BERR Enterprise Directorate Analytical Unit

1. "None" comprises sole proprietorships and partnerships comprising only the self-employed owner-manager(s), and companies comprising only an employee director.

Table 3: Number of enterprises by industry and employment by industry, 2008

						Size (number of employees)
Enterpr ises				(=100%)		None 1,2		1 - 49		50 - 249		250 +
All industries				4,783,285		74.1		25.2		0.6		0.1
A, B	Agriculture, Hunting and Forestry; Fishing			174,315		63.0		36.9		0.1		0.0
C, E	Mining and Quarrying; Electricity, Gas and Water Supply			15,545		92.2		6.8		0.6		0.5
D	Manufacturing			324,330		67.0		30.5		2.0		0.5
F	Construction			1,009,725		85.0		14.8		0.2		0.0
G	Wholesale and Retail Trade; Repairs			583,280		57.5		41.6		0.8		0.2
H	Hotels and Restaurants			164,105		28.8		69.7		1.2		0.2
I	Transport, Storage and Communication			294,800		84.1		15.2		0.5		0.0
J	Financial Intermediation			74,160		71.5		27.1		1.0		0.5
K	Real Estate, Renting and Business Activities			1,206,505		73.6		25.9		0.4		0.1
M	Education			168,305		91.4		8.3		0.2		0.1
N	Health and Social work			265,585		79.4		19.7		0.8		0.1
O	Other Community, Social and Personal Service Activities			502,6 30		81.6		18.2		0.2		0.1
Employment ( / 1,000)
All industries				23,128		16.8		31.1		11.5		40.6
A, B	Agriculture, Hunting and Forestry; Fishing			459		33.8		60.6		*		*
C, E	Mining and Quarrying; Electricity, Gas and Water Supply			226		7.1		*		*		83.2
D	Manufacturing			3,132		8.0		26.4		21.3		44.3
F	Construction			2,227		40.0		35.0		9.2		15.7
G	Wholesale and Retail Trade; Repairs			4,963		8.0		29.0		8.9		54.1
H	Hotels and Restaurants			1,740		3.6		41.9		11.2		43.3
I	Transport, Storage and Communication			1,724		15.4		17.3		8.5		58.9
J	Financial Intermediation			1,146		5.4		10.9		6.6		77.1
K	Real Estate, Renting and Business Activities			4,502		21.3		34.7		12.3		31.7
M	Education			351		45.9		*		11.7		*
N	Health and Social work			1,314		17.8		44.2		15.7		22.5
O	Other Community, Social and Personal Service Activities			1,344		32.5		34.4		7.9		25.1

Source: BIS Enterprise Directorate Analytical Unit.

1. "None" comprises sole proprietorships and partnerships comprising only the self-employed owner-manager(s), and companies comprising only an employee director.

2. "With no employees" comprises sole proprietorships and partnerships comprising only the self-employed owner-manager(s), and companies comprising only an employee director.

Table 4: Number of enterprises by industry and employment by industry, 2009

						Size (number of employees)
				All (=100%)		None 1,2		1 - 49		50 - 249		250 +
Bus inesses
All industries				4,834,045		74.8		24.6		0.6		0.1
A, B	Agriculture, Hunting and Forestry; Fishing			195,480		66.8		33.0		0.1		0.0
C, E	Mining and Quarrying; Electricity, Gas and Water Supply			15,165		92.0		6.8		0.7		0.5
D	Manufacturing			303,245		66.3		31.2		2.1		0.4
F	Construction			1,017,210		85.1		14.7		0.2		0.0
G	Wholesale and Retail Trade; Repairs			562,815		56.8		42.2		0.8		0.2
H	Hotels and Restaurants			156,470		26.2		72.2		1.3		0.3
I	Transport, Storage and Communication			315,020		85.7		13.7		0.5		0.0
J	Financial Intermediation			83,890		75.4		23.3		0.9		0.4
K	Real Estate, Renting and Business Activities			1,195,825		73.7		25.7		0.5		0.1
M	Education			180,825		92.0		7.7		0.2		0.1
N	Health and Social work			279,560		80.3		18.7		0.9		0.1
O	Other Community, Social and Personal Service Activities			528,5 40		82.6		17.1		0.2		0.1
Employment ( / 1,000)
All industries				22,819		17.3		31.0		11.5		40.2
A, B	Agriculture, Hunting and Forestry; Fishing			496		35.3		57.5		*		*
C, E	Mining and Quarrying; Electricity, Gas and Water Supply			235		7.2		3.8		6.0		83.4
D	Manufacturing			2,903		7.9		27.1		21.5		43.5
F	Construction			2,184		41.1		35.3		8.7		15.0
G	Wholesale and Retail Trade; Repairs			4,853		7.7		29.1		8.9		54.2
H	Hotels and Restaurants			1,702		3.1		42.1		11.6		43.3
I	Transport, Storage and Communication			1,711		16.7		16.8		8.3		58.2
J	Financial Intermediation			1,086		6.9		11.1		7.4		74.7
K	Real Estate, Renting and Business Activities			4,482		21.2		34.2		12.4		32.2
M	Education			380		45.8		24.7		*		*
N	Health and Social work			1,401		17.8		41.8		16.0		24.5
O	Other Community, Social and Personal Service Activities			1,386		33.5		33.2		7.9		25.5

Source: BIS Enterprise Directorate Analytical Unit.

1. "None" comprises sole proprietorships and partnerships comprising only the self-employed owner-manager(s), and companies comprising only an employee director.

2. "With no employees" comprises sole proprietorships and partnerships comprising only the self-employed owner-manager(s), and companies comprising only an employee director.

Question 1.3: recent developments in SMEs in those sectors where they have been more affected by the crisis (major restructuring, new technologies, big job losses, etc.);

The Federation of Small Businesses (FSB), which represents SMEs in the UK, has estimated that there will be record numbers of individuals setting up their own businesses during 2010, due to the high levels of redundancies and job losses that have resulted from the economic crisis of the past two years. It estimates that around 300,000 people will set their own business.

A survey carried out by the FSB (Voice of Small Business Index, based on more than 1,200 members of the FSB and published quarterly. The most recent survey was published on 20 July 2010) indicated that business confidence has worsened during the second quarter of 2010, meaning that established businesses are not confident about the future business operating environment, and that almost 67% of small firms are are operating below capacity, with those in the manufacturing sector faring much better than service sector firms. The survey’s key findings were:

• Small business confidence has faltered each month since March 2010, with fewer small firms believing that business prospects will improve, down from 16 per cent to four per cent. 
• The majority of small businesses are still operating below capacity, although the proportion of businesses has fallen slightly from 70.5 per cent to 66.6 per cent since the last report. 
• Firms operating below capacity are more prevalent in the service sector than manufacturing and are more likely to be based in the South East of the country
• Revenue growth remains weak and is not expected to improve in the third quarter of 2010.

The survey notes that there are differences in terms of performance between sectors and between regions in the UK:

The survey suggests that there are important regional and sectoral differences in business over and under-capacity. In particular, the survey finds that a greater proportion of manufacturing businesses are running at or above capacity at present, compared to services. This is consistent with other survey findings for June and July which found that services were recovering more sluggishly than manufacturing. When making a regional comparison, we find that business under-capacity is greatest in the South East. This may be, in part, due to the region’s historic dependence on the service sector.( p.4.)

In addition, recent research from the Globalisation and Economic Policy Centre (GEP) at the University of Nottingham Job creation, job destruction and the role of small firms. Peter Wright, Richard Upward and Alexander Hijzen: found that small businesses employing fewer than 100 workers account for 65% of new jobs created in the UK in an average year. The study analysed data from the Office for National Statistics' Inter-Departmental Business Register for 1997-2008 and found that an average of 53,000 jobs a week were created in the private sector, compared with 47,000 lost (2.6 million compared with 2.35 million annually). The study also found that small firms employed between 38% and 52% of all workers. They accounted for 65% of jobs created and 45% of those lost. In the service sector, the comparable figures were 15.6% of jobs created and 13.6% lost. The manufacturing sector declined over the period (10% created and 13.7% lost).

Question 1.4 types of contractual arrangements used for the workforce: for example, the ratio of standard (open-ended, full time contract) / atypical (long fixed-term, long part-time, temporary agency work) / very atypical (fixed-term contracts of under 6 months, part-time contracts of under 10 hours a week, on call working, work without a contract) per size of enterprises (1-9, 10-49 and 50-249);

There is very little information available on the types of contractual arrangements for the workforce in SMEs.

Other research (Small Businesses in the UK: New Perspectives on Evidence and Policy. University of Westminster) notes that there is a relatively high proportion of flexible working arrangements in small firms in the UK, including a relatively high level of part-time working, perhaps reflecting the fact that small firms tend to employ a larger proportion of women and older workers than larger firms. The table below shows the percentage of women workers by firm size, showing that the proportion decreases as company size increases, from 35.4% in firms with 5-24 employees, to 20.5% in firms with 100-199 employees.

Table 0.1

Gender Distribution and Proportion of Part-time Working by Firm Size
	All firms	5-24 employees	25-49 employees	50-99 employees	100-199 employees	200-499 employees	50+ employees
Percentage of employees who are working part-time	32.5	35.4	31.2	28.8	20.5	24.1	22.3
Percentage of employees who are female	53.0	55.0	53.1	49.2	44.6	42.4	44.8

Source: Workplace Employment Relations Survey, 2004, reported in Small Businesses in the UK: New Perspectives on Evidence and Policy. University of Westminster.

In terms of sector, this study indicates that women and older workers in the Financial Intermediation and Real Estate, Renting and Business Activities sectors make up a much larger proportion of employees in small firms than in other sectors. The survey notes that

“the small business sector is clearly an important provider of one particular form of flexible working for many employees; and in sectors such as Finance and Business Services, this flexibility amongst smaller firms may be driven by a strong business case, as they attract the talented who wish to alter their work-life balance” (p.23).

The study also notes that small firms tend to have less formal arrangements in place regarding working conditions. For example, they are less likely to have a formalised process of request for flexible working.

The data on part-time working is backed up by the 2004 Workplace Employment Relations Survey (WERS), which indicates that a greater proportion of employees worked part-time in small firms than in medium or large firms (27 per cent, 16 per cent and 21 per cent respectively).

The 2004 WERS survey also found that small firms were also less likely to operate a shift system, with 16 per cent of workplaces in small firms having one in place, compared to 27 per cent of those in medium-sized firms, and 31 per cent of workplaces in large firms. Whilst only two per cent of SME workplaces made use of either zero or annual hours contracts, their use was more common in large firms (7 per cent and 5 per cent respectively).

Employees were slightly less likely to have an open-ended contract if they worked for an SME rather than a large firm (91 per cent compared to 93 per cent). Reflecting this, a greater proportion of SME employees were on fixed-term contracts (3 per cent compared to 2 per cent of those employed by large firms) and temporary contracts (6 per cent compared to 4 per cent of employees of large firms). Where some staff were on fixed-term contracts, the reasons for using these were fairly similar between firms of different sizes, although workplaces which were part of SMEs were more likely to employ fixed-term staff as a spur to improve performance (10 per cent compared to 2 per cent), and were less likely

to use them to cover for maternity leave or long-term absence (14 per cent compared to 25 per cent).

Question 1.5: the type of work organisation that is common in SMEs. This could include working patterns, shift work, flexible working, remote working, and could also look at whether subcontracting is a widespread practice. The information should be provided per size class and in comparison with companies having more than 249 employees.. Differences between economic activities should be taken into account.

Employees in the UK are entitled to request flexible working and the employer must consider the request and state the business case for any refusal. SMEs often do not have a dedicated HR function, which can make it difficult for them to deal with flexible working. One recommendation given by the Chartered Institute of Personnel and Development (CIPD) is that the government should improve and tailor the advice and guidance it gives out, in order to enable SMEs to more effectively design and manage flexible jobs.

The WERS 2004 survey states that management reports suggested that generally employees who worked in SME workplaces were less likely to have access to flexible working arrangements than those who worked for larger firms. By contrast, it found that a fairly similar proportion of employees believed that they would have access to flexible working arrangements in both small and large firms. It states that this apparent discrepancy between the findings of the management and employee surveys might be explained by a greater availability of informal flexible working arrangements in small firms, so that employees expected that they would be able to use these arrangements if needed, even where managers reported that they were not available. For details, see the table below.

Table

Perceived availability of flexible working arrangements, as reported by employees (cell %s)
	All private sector	All SMEs	Small (5-49 employees)	Medium-sized (50-249 employees)	Large (more than 250 employees)
Reduced hours	30	28	31	24	31
Increased hours	33	33	35	30	33
Change working patterns	29	25	27	21	32
Flexitime	36	39	43	33	35
Jobshare	15	16	18	14	15
Homeworking	14	15	17	13	13
Term-time only	8	9	10	7	8
Compressed hours	20	18	21	15	20

Source: Small and medium-sized enterprises. Findings from the 2004 Workplace Employment Relations Survey. p. 83.

According to the WERS 2004 survey, at least some core employees worked in teams in 55 per cent of workplaces which were part of an SME, compared with 64 per cent of workplaces which belonged to a large firm.

Questions 1.6: How far are SMEs involved in networks of enterprises? Please provide information by size of company and sector as far as possible.

There is no data available on SME networks that relate specifically to employment. There are some SME networks that function as information-sharing and advice networks, designed to encourage growth and development among SMEs. For details, see Block 4 below.

Block 2: Has your government undertaken any targeted measures to help SMEs to weather the crisis?

If yes, which ones:

The new UK coalition government between the Conservatives and the Liberal Democrats has made a number of pledges relevant to SMEs in its coalition policy document (The Coalition: Our Programme for Government]. The emphasis is on encouraging small business and entrepreneurship. The specific pledges and most recent action, where available, are listed under the appropriate categories below.

The government department for Business, Innovation and Skills (BIS) has an enterprise and business support division, which aims to boost enterprise, start-ups and small business growth.

• financial measures (access to credit/loans, provision of direct subsidies/credits).

The new government’s emergency Budget, launched in 22 June 2010, extended the Enterprise Finance Guarantee, which will help many small businesses which face difficulties in accessing credit.

In the above-mentioned 2010 emergency Budget, the Small Companies Tax Rate was reduced to 20%. Further, the government has doubled the normal tax discount for small businesses, known as Small Business Rate Relief.

BIS’s enterprise and business support division acts to help SMEs gain easier access to finance. In order to make government grants, subsidies and advice more targeted and easier to access the Business Support Simplification Programme (BSSP) has reduced the thousands of publicly-funded support schemes to 30 via one, transparent, portfolio of products under the heading “Solutions for Business”.

• commercial opportunities (help with finding new markets, help with exports).

The government is concentrating on small business procurement, in particular by introducing an aspiration that 25% of government contracts should be awarded to small and medium-sized businesses and by publishing government tenders in full online and free of charge.

• support through the provision of consultants or other help

The government has developed Business Link, which is a free business advice and support service for SMEs, available online and through local advisers. It offers advice and support in a range of areas, including how to set up a new business and how to keep up with regulatory issues.

• simplification of administrative processes (i.e.: cutting red tape, simplification of hiring and dismissal rules)

The coalition agreement will undertake a wholesale review of all small business taxation and “seek to replace it with simpler measures that prevent tax avoidance but do not place undue administrative burdens or uncertainty on the self-employed, or restrict labour market flexibility”. The government also commits itself to finding a “practical way to make small business rate relief automatic”. Further, it states that it will make it easier for people to set up new enterprises by cutting the time it takes to start a new business. Its ambition is to “make the UK one of the fastest countries in the world to start up a new business”. It promises to reduce the number of forms needed to register a new business, and move towards a ‘one-click’ registration model. On 24 November the government announced that, in order to help eligible SMEs claim their tax cut in the future, new statutory measures will end the legal requirement for ratepayers to fill in an application form first. Councils will be free to administer Small Business Rate Relief in a way that best serves local businesses and local needs.

Further, it has made mandatory the Small Firms Impact Test (SFIT) as a part of the Impact Assessment (IA) process when proposals impose or reduce costs on small business. The Coalition Government's commitment is to cut red tape and target inspections on high risk organisations. The SFIT is intended to provide sufficient guidance for policymakers to confidently establish whether the costs, benefits and the impacts on small firms have been robustly identified and reflected in the choice of options, and, where SMEs are to be included within the scope of the regulations there is compelling case made for their inclusion.

• supporting job creation, (for instance, through reducing labour taxes)

In the June 2010 Budget, the government announced that for the next three years, anyone who sets up a new business outside London, the South East and the Eastern region will be exempt from £5,000 of employer National Insurance payments, for each of their first ten employees hired. The aim of this is to encourage start-ups in regions where the private sector is not strong.

• enabling temporary reductions in staff levels or in the overall working time of the workforce (temporary short-time working), eg through financial subsidy

There is no national short-time working scheme in the UK.

• support for training

From April 2011 all employees in businesses with fewer than 250 people will have the legal  'Right to Request' time to train. However, small business organisations, notably the Federation of Small Businesses, is concerned about the extra burden that this may place on SMEs and is lobbying the government to give businesses with fewer than 20 employees the ability to opt out from this legislation.

• other measures targeted at SMEs

The new government pledges to seek to ensure a level playing field between small and large retailers by enabling councils to take competition issues into account when drawing up their local plans to shape the direction and type of new retail development. It will also end a ban on social tenants starting businesses in their own homes.

It is difficult to assess any of these measures as they have just been introduced by the new government. However, they have been supported by the Federation of Small Businesses in the UK.

Block 3: Please provide information on recent developments of social dialogue in SMEs, taking into account the employee representation arrangements in SMEs in your country.

Question 3.1.Please detail the evolution / recent developments in social dialogue with regard to SMEs and their employees (new agreements, new interest organisations and employee representations, etc.). Also, specify the relevant social partners.

The main representative body for SMEs is the Federation of Small Businesses (FSB). It describes itself as the UK's largest campaigning pressure group promoting and protecting the interests of the self-employed and owners of small firms. It has 213,000 members across 33 regions in the UK and 194 branches.

The FSB and the Trades Union Congress (TUC) have issued a joint publication containing a proposal to the government, urging it to establish a subsidy for short-time working [http://www.tuc.org.uk/extras/wagesubsidies.pdf ]. They argue that a subsidy should be set up along the lines of the following principles:

• subsidies should be time-limited;
• workers should receive 60 per cent of their previous wage for non-working days or weeks;
• the subsidy should be available for part-time workers;
• employers should be responsible for meeting workers’ National Insurance contributions (at their subsidised wage level) during the lay-off or reduction in hours;
• where employers are able to make additional contributions towards wages the subsidy should not be lost, allowing workers an increase in wages up to 70 per cent of normal salary on subsidised days;
• access to the scheme should be contingent upon long-term business viability and genuine need, as assessed and agreed by an independent panel which would enable Government to take advantage of trade union and employer expertise;
• employers accessing support should enable workers on short-term hours or a temporary lay-off to access training.

There is no social dialogue that takes place specifically for SMEs. Recent and relevant developments take the form of pressure groups and campaigning. For example, as set out above, the FSB and the TUC have been working together to try to lobby the government on behalf of SMEs.

Question 3.2: Please list any particular actions or initiatives that social partners have taken to support SMEs in the crisis or initiatives coming from the social dialogue.

The FSB is trying to support SMEs during the current crisis and has a number of different policy aims. It campaigned for a freeze in the National Minimum Wage in 2010. It is active in trying to help SMEs to weather the economic crisis and most of its actions concern campaigning and giving advice to companies, rather than implementing actual initiatives.

In its publication, Small Businesses, Big Employers, the FSB sets out a number of policy aims targeted at helping SMEs to weather the recession. These include:

• allocating a dedicated small business manager to all Job Centres, who would be familiar with the circumstances and needs of small businesses
• increasing the number of apprenticeships available, and creating a graduate internship scheme dedicated to small businesses
• more financial help to enable people to set up their own businesses
• the introduction of a short-time working subsidy, which would help small businesses to maintain staff during a recession
• to limit business regulation. The FSB notes that small firms find it difficult to keep up with the detail of regulation and to deal with changes to regulations. The FSB proposes that no changes are made to existing regulation until the economic climate improves

The CBI, which is the main employer representative body in the UK, also has a dedicated section for SMEs. Its SME Council meets four times a year and is currently focusing on the following issues:

• Business support – the CBI is lobbying for a business support network that is demand-driven and customer-led.
• SME tax issues – the main channel for the SME Council's tax work is through Budget submissions to the UK government, traditionally based around the theme of encouraging business growth, through correction of anomalies, simplification and incentives.
• Regulation – the SME Council works to lobby for a risk-based approach to policy-making, inspection and enforcement, and embedding the culture of "think small first" across the government.
• Access to finance – work on improving the availability of finance for SMEs has focused on encouraging the government to address what it terms ‘market failures’. In particular, the SME Council is calling for the government to seek further ways to address the £250,000 to £3m equity gap facing SMEs seeking growth capital and to make the 'incidental costs', up to £20million, of raising equity finance deductible for corporation tax purposes.

The FSB has also issued a five-point plan aimed at retaining and creating jobs based on the following principles:

• cutting payroll taxes
• simplifying access to public procurement contracts
• declaring a moratorium on business regulation
• promoting part-time work through tax exemptions
• Simplifying and promoting apprenticeships

The most comprehensive data available on the situation of SMEs comes from the 2004 Workplace Employment Relations Survey (WERS) 2004. A dedicated report, entitled Small and Medium-Sized Enterprises: Findings from the 2004 Workplace Employment Relations Survey, sets out key data relating to employment relations in SMEs. This provides some additional data that builds on the UK report for the 2006 CAR on employment relations in SMEs across Europe.

The report is based on 621 SME workplaces in the private sector and 4,683 of their employees. The results are representative of 26% of all SME workplaces and 76% of employees in such workplaces. It compares practices in small (5–49 employees) and medium-sized (50–249) companies with those in larger organisations.

Question 3.3 What proportion of SMEs are members of employers’ organisations, and has this proportion changed since 2006?

It is difficult to find data on the proportion of SMEs that are members of employers’ organisations. However, the Department for Business, Innovation and Skills indicates that in 2008, the most recent year for which figures are available, there were an estimated 4.8 million private sector enterprises in the UK, of which a substantial majority are either SMEs or sole proprietor organisations with no employees. As the FSB claims to have 213,000 members in total, a relatively low proportion of SMEs are members of the FSB.

Question 3.4 What is the level of union membership in SMEs, and how has this changed since 2006? and what are the sectors of relative union strength and weakness?

The above-mentioned 2004 report found that 7% of employees in small firms and 10% in medium-sized firms were members of a trade union, compared with 28% in larger firms. However, in the health sector, trade union membership was much higher in SMEs, at 17%. It was lower in manufacturing – 8% in small firms and 13% in medium-sized firms, compared with 39% in larger firms – and in services – 6% in small firms and 9% in medium-sized firms, compared with 24% in larger firms.

Around 90% of workplaces belonging to small firms had no union members at all an in only 3% did union membership density reach at least 25% (in only 2% of small firms and 7% of medium-sized firms did union membership reach at least half of all employees).

There is no data available that can give an indication of whether union membership in SMEs has changed since 2006.

Question 3.5 Please report on the existence and type of employee representation at company level, broken down by firm size.

The above-mentioned 2004 report found that trade unions were recognised for the purposes of collective bargaining over pay and working conditions in only 2% of small company (5-49 employees) and 7% of medium-sized company workplaces (50-249 employees), compared with 31% in larger organisations (more than 250 employees) in the UK. On a sector bases, 5% of SME firms in manufacturing and 3% of SME firms in services recognised trade unions. The study links lower recognition rates among SMEs with lower trade union membership in SMEs.

Only 10% of SME workplaces with union members had an on-site trade union representative, compared with 30% for larger firms, and of all SME workplaces overall, only 1% of small and 3% of medium-sized workplaces had an on-site representative, compared with 10% for all larger firms.

Arrangements for employee representation (%)

	All private sector	All SMEs	Small (5-49 employees)	Medium-sized (50-249 employees)	Large (more than 250 employees)
Any union representative(s)	7	1	1	4	15
On-site	5	1	1	3	10
Elsewhere in the organisation	2	0	0	2	5
Recognised trade union(s)	14	3	2	7	31
Any joint consultative committee(s)	31	10	5	29	62
On site	7	4	3	9	10
At a higher level in the organisation only	25	6	2	20	52
Stand-alone non-union representatives	5	6	6	6	2
Any arrangements for employee representation	39	17	12	39	71

Source: Small and medium-sized enterprises. Findings from the 2004 Workplace Employment Relations Survey. p. 48.

Base: all private sector workplaces with 5 or more employees.

Figures are weighted and based on responses from the following numbers of managers

(minimum): 1,672 (all private sector), 616 (all SMEs), 391 (small firms), 225 (medium-sized

firms) and 1,056 (large firms).

The study notes that there seems to be limited potential for an extension in recognition in workplaces belonging to smaller firms as only 4% of workplaces in SMEs had union membership density of between 10% and 50% although they did not recognise trade unions, and a further 1% only had majority membership without recognition. Further, less than 1% of workplaces in SMEs reported that there had been a request for recognition since 1998 (when new legislation on trade union recognition came into force in the UK) that had not been granted.

Some form of employee representation – mainly in the form of joint consultative committees – was found in 12% of small and 39% of medium-sized companies, compared with 71% in larger companies. 3% of small and 9% of medium-sized firms had an on-site joint consultative committee, compared with 10% of larger firms, and 2% of small and 20% of medium-sized firms had a joint consultative committee in place at a higher level in the organisation only, compared with 52% of larger firms.

Collective bargaining was also extremely rare in SMEs, occurring in only 3% of workplaces and covering 5% of workers, compared with 25% and 35% respectively in larger organisations in the UK.

In terms of employee involvement in decision-making processes in SMEs, the above-mentioned 2004 report states that managers were asked about the nature of involvement in cases where some notable change had been made in the workplace. With the absence of formal structures, it might be expected that worker involvement would be rare in SMEs. In fact, no involvement was reported in only 10% of SME workplaces, while employees ‘decided’ the matter in another 10% of workplaces; these proportions compare with 19% and 3% respectively in larger organisations. Further, SME workers were more likely than others to rate managers highly on seeking employees’ views and responding to suggestions. Similarly, they reported higher influence over their work tasks. For example, 42% of SME employees, compared with 35% in larger companies, reported ‘a lot’ of influence over work tasks.

Incidence of different types of employee representation by firm-size (%)

Type of representation	Size	Yes	No	DK	Total
Trade union	10 to 19	4	95	1	100
	20 to 49	9	89	2	100
	50 to 249	21	79	0	100
	250 plus	49	49	2	100
Works council	10 to 19	9	89	1	100
	20 to 49	14	85	1	100
	50 to 249	21	76	3	100
	250 plus	57	41	2	100
Health and Safety representative or committee	10 to 19	46	53	1	100
	20 to 49	54	45	1	100
	50 to 249	65	35	0	100
	250 plus	84	15	2	100

Source: European Company Survey, units of observation are single

Data in the above table shows the incidence of different types of employee representation by firm size, for trade unions, works councils and health and safety representatives or committees. Looking at the incidence of trade unions, their presence in companies increases in sized, ranging from 4% in companies with 10-19 employees, to 9% in companies with 20-49 employees and 21% in companies with 50 to 249 employees. Works councils are not a traditional type of employee representative body in the UK, compared with practice in some other EU Member States. However, works councils are reported to be present in all size of SMEs, although the incidence again increasees with size, from 9% in companies with 10-19 employees, to 14% in companies with 20-49 employees and 21% in companies with 50 to 249 employees.

There is more evidence of the presence of health and safety representatives or committes in SMEs, presumably due to statutory health and safety obligations. Accordingly, health and safety representatives or committes are present in 46% of companies with 10-19 employees, 54% of companies with 20-49 employees and 65% of companies with 50 to 249 employees.

While it is difficult to compare the figures from the ECS above with the national data from the WERS survey, due to issues such as dates and sampling, both sets of data show a pattern of levels of representation that rise in accordance with company size.

Block 4: Please provide general information on local partnership in your country and describe two cases of SME local partnerships with a social dialogue aspect aimed at maintaining employment levels or supporting job creation during the crisis. These could include cases of sectoral, regional or local networks with other SMEs, or partnerships with public institutions, research and development bodies and social partner organisations. Please note that the focus should be on the social dialogue aspects of local partnerships.

Question 4.1: Background information: Before describing the cases, please briefly provide information about the importance of local partnerships in your country: What are the main characteristics? Are they new developments because of the crisis? If so explain the goals and what the new patterns are. Are SMEs normally involved in local partnerships? And are social partners usually involved?

There are examples of SME networks and local partnerships in the UK, although there is no explicit evidence that such partnerships have been set up expressly as a result of the crisis. An OECD review of local partnership, clusters and SME globalisation looked at the situation in the UK, finding that in the UK, cluster development initiatives have generally been promoted by regional development agencies or organisations. In Scotland, the business support organisation Scottish Enterprise has developed a top-down approach in which the agency has selected a number of clusters for inward investment promotion, local linkage programmes, and training and research support. In Wales, the Welsh Development Agency has led similar efforts to attract plants of foreign firms and then develop a local supplier base to support these firms. In Northern Ireland, a private-led effort linked with local government agencies and government funding has identified a rather diffuse set of clusters for support. The lack of a regional governmental structure in England has meant there have not been clear focal points for cluster development programmes in England, though some areas, such as Northern England, have developed local initiatives.

The new coalition government intends to replace the existing eight Regional Development Agencies (excluding London) by local enterprise partnerships that can “provide strategic leadership in their local areas and create the right environment for business success and economic growth”.  These will be put into place in 2011. The Communities and Local Government Secretary Eric Pickles has stated that "We want to urgently rebuild and rebalance local economies without strangling businesses with red tape so that new economic opportunities spread across the country”.  The Federation of Small Businesses is set to be a key business partner in these local enterprise partnerships.

Question 4.2: Describe two case studies of SMEs local partnerships aimed at maintaining employment levels or job creation during the crisis, focusing on the social dialogue aspect and the involvement of the social partners.

The cases selected should include the involvement of social partners unilaterally or social dialogue. Please try to answer – where possible – each of the bullet points separately.

Case study 1: the SME Knowledge Network

• Region, sector, types of companies involved, company size.

Yorkshire, UK. SMEs of up to 250 employees.

• Period of initial establishment of the partnership

2000 (it has been operating for 10 years)

• Actors involved in the local partnership

Local businesses, academics and EU funding

• What was the trigger for the specific action?

To support SMEs in business development

• Which specific actions have been taken to maintain employment levels/support job creation during the crisis.

The crisis is not a particular focus for this network. Its emphasis is more on supporting SME growth and development, which in turn will maintain and/or create jobs.

• What was the role of the social partners or social dialogue?

Not clear, although social partners possibly involved in an advisory capacity

• To what extent has the initiative proven to be successful?

Over 3,000 organisations have benefitted from this network in the 10 years it has been operating.

• Which governmental/social partner support measures/general policies deemed to be successful and crucial for the outcome?

Some EU funding (European Regional Development Fund)

• Add any other relevant information you find interesting for the success of the case

The SME Knowledge Network, run by the Bradford University School of Management, aims to provide a service which allows businesses across Yorkshire and the north of England to benefit from access to practical and solution-focused learning, tailored to the needs of the SME. The initiative is funded by the Higher Education Funding Council for England via their Economic Challenge Investment Fund (ECIF), and aims to “offer more resources and a greater breadth of services to help SMEs manage through these difficult and challenging times but beyond to growth in the future”. The organisation works with all types of SMEs of up to 250 employees.

The network holds regular evening events and masterclasses that aim to provide insights into business and management topics, usually chosen by members of the network. These insights are complemented by presentations from practitioners about how it actually works in practice, including discussion of the failures, the opportunities and the threats.

The SME Knowledge Network also offers a Growth Programme to businesses in the Bradford area, which is sponsored by the Kickstart Programme from Bradford Council and by funds from the Higher Education Innovation Fund.

When businesses join the Growth Programme, a learning and development pathway is created for them to help the business overcome its own particular barriers to growth. The Programme opens up a bank of resources from the School of Management, using resources such as consultancy from key academic staff, a variety of courses, clinics, student projects, networking, group learning and master-classes to create customised solutions to boost business growth.

Case study 2: The VEN Group

Region, sector, types of companies involved, company size.

Yorkshire and Humber region.

• Period of initial establishment of the partnership

Following a pilot project, the VEN project became a separate group of companies in April 2006.

• Actors involved in the local partnership

The actors involved are the Regional Development Agency, Yorkshire Forward, SMEs, and large-scale procurement companies.

• What was the trigger for the specific action?

To help SMEs to gain access to procurement contracts. The group states that large-scale contracts can represent golden opportunities for SMEs – but only if they can first access invitations to tender and then respond to them following exacting, and often exhaustive, procedures. For small companies in particular, this can be a difficult and potentially expensive process. This initiative therefore to help SMEs work together to increase market opportunities through collaboration. VEN Group enables its members to offer more competitive, sophisticated and flexible responses to contracts, thereby winning more than they could alone.

• Which specific actions have been taken to maintain employment levels/support job creation during the crisis.

The crisis is not a particular focus for this network. Its emphasis is more on supporting SME growth and development, which in turn will maintain and/or create jobs.

• What was the role of the social partners or social dialogue?

Not clear, although social partners possibly involved in an advisory capacity

• To what extent has the initiative proven to be successful?

Since inception, in sectors as varied as aerospace, marine, healthcare, advanced engineering and manufacturing and the digital, creative and media industries, the organisation has facilitated opportunities valued at around £5m. For procurers, VEN Group’s work means greater access to the diverse range of goods, services and specialist skills that comes from working with a variety of companies, but at lower cost and risk. It also affords them the value for money and enhanced service levels that come from dealing with just one contract and supplier.

• Which governmental/social partner support measures/general policies deemed to be successful and crucial for the outcome?

Support from the Regional Development Agency, Yorkshire Forward.

• Add any other relevant information you find interesting for the success of the case

The network states that it works closely with its member companies, offering them a wide range of services to support them in collaboration. By identifying and mapping the core competencies of member organisations it can match their collective capabilities with business opportunities from multiple sectors. The VEN model ensures that buyers engage with numerous suppliers through a single legal entity and one point of contact. A network spokesperson noted that this is a simple approach, but one that is still rare, globally.

In response to an opportunity, a group of members is brought together to form a Virtual Factory, a legal entity which will continue to exist for the duration of the contract if the bid is successful. The Virtual Factory uses VEN’s IT system, cost management, legal and governance frameworks and processes to work together on a collaborative bid. The bid price, though competitive, achieves sustainable profits for members.

Block 5: What are the main views of the social partners in your country regarding the functioning of SMEs in your country, the particular issues they face, the main employment and organisational trends in SMEs and the measures available to help them to weather the crisis.

Please provide views from employer and employee representatives.

The Trades Union Congress (TUC) worked with the FSB earlier in 2010, lobbying the government for a short-term working subsidy, although without success as yet. The TUC does not support calls for SMEs to be exempted from regulation or employer national insurance payments in order to help them through the recession. However, it does support extra help for SMEs in areas such as health and safety. A TUC spokesperson, interviewed for this research, said that “Our impression  is of a lack of management skills in SMEs and especially of management qualifications, but that isn’t particularly related to the recession. It isn’t surprising in a part of the economy (ie the SME sector) where such a high proportion are self-employed. The obvious problem for SMEs right now is access to capital, though whether this is a matter of merchant banks failing to invest or a lack of good opportunities for investment in SMEs is open to debate. Trade unions would tend to lean to the former view, but we would say this about larger companies as well. The Work Foundation reported (Knowledge Economy and Enterprise, 2009) that, pre-recession, employment in SMEs was growing in telecommunications, finance, business services and education but stable in other services, distribution, hospitality and transport. If this trend has continued, access to venture capital will be even more important.”

The FSB stresses that, in terms of employment, small businesses need flexibility in order to grow and thrive. It maintains that rigid employment legislation can make it very difficult for small businesses to deliver potential benefits within the UK. One key area of focus for the FSB is regulation. It believes that there are moderately serious to serious costs involved in form-filling and providing information to regulators. It states that this is therefore a serious issue for its members and that it will continue to work closely with the UK government to lessen the impact regulation has on SMEs. (Source: FSB website).

The CBI’s SME Council, which focuses on the needs of SMEs, is currently focusing on the following issues as a priority: business support; SME tax issues, based around the theme of encouraging business growth,; trying to ensure that regulation does not overburden SMEs; and improving SME access to finance. (Source: CBI website)

Commentary by national correspondents

As is the case in many EU Member States, SMEs play a key role in employment creation. They have suffered during the recent economic crisis and the new coalition government has recognised that help is needed in order to ensure that SMEs survive and continue to innovate. It has therefore included a range of measures in its coalition agreement that are designed to help SMEs. The FSB, which represents small firms in the UK, is active in lobbying on behalf of SMEs and has put forward a range of proposals designed to ease the financial and regulatory burden on SMEs.

In terms of social dialogue, this is relatively undeveloped in small firms and there is also scant evidence of local partnerships designed to create or maintain employment levels among SMEs in the UK. Where local partnerships exist, they are not specifically focused on the crisis, or have not been set up in response to the crisis. They usually take the form of relatively well-established networks or partnerships that aim to promote growth and development among SMEs.

Andrea Broughton, Institute for Employment Studies

• ID: UK1010039Q
• Author: Andrea Broughton
• Institution: IES
• Country: United Kingdom
• Language: EN
• Publication date: 15-06-2011