Small Business Advice

Average UK employee 56% less productive than German counterpart

7 Sep 2018

UK SMEs could add up to £57 billion a year – more than the cost of Brexit – to the UK economy if they were as productive as SMEs in Germany, new research indicates.

A study from NatWest shows UK SME employees generate £147,000 worth of output per year on average – less than half that of their German counterparts (£335,000 per worker, per year).

This productivity gap is under further pressure according to the latest ONS estimates, which identified a 0.4% fall in UK productivity in the first quarter of 2018.

NatWest’s research analysed the productivity of UK SMEs and those in Germany – the G7’s most productive economy – to identify potential changes UK firms can make to close the productivity gap.

It found that a UK business with 10 employees could increase annual turnover by £1.9 million if they worked at the same productivity level as a German business, with this figure increasing to £4.7 million for businesses with 25 employees.

The research shows the uncertainty harboured by UK SMEs with regards to the actions they need to take to boost business productivity.

Even though more than two-thirds (69%) of SME decision makers believe improving productivity is important, just over two-fifths (41%) don’t know what productivity means in practice, making it difficult for them to identify the steps to improve.

At Accounts and Legal, our team has carried out a huge amount of research to help design a service specifically tasked with helping SMEs become more productive and more profitable. To learn more about our MBA-qualified business coach and how he can help you, please get in touch.

How can UK SMEs become more productive?

To help UK SMEs understand how they can improve productivity, the following measures appear to carry the greatest impact:

UK potential productivity

Investing in workplace culture, employee benefits packages and offering rewards for good performance were the measures most likely to have the greatest impact on improving productivity.

Despite this, only a third of UK SMEs said that they invest in workplace culture and employee benefits above the statutory minimum, and a quarter offer rewards for good performance (both financial and non-financial), such as bonuses.

By comparison, a much higher percentage of SMEs in Germany are already implementing two of the top three measures most likely to have the greatest impact on German SME productivity.

But, as is the case in the UK, German SMEs would also see a significant benefit per employee (£42,400) if they offered rewards for good performance.

German potential productivity impact

Raising funds to invest in productivity

The one obvious thing associated with the above boost in productivity is the cost of investing in employee productivity, and while the ultimate payoff of the investment can be very positive, stumping up the initial injection of money can be hard to come by for SMEs.

Thankfully, there is a wide variety of funding options available to small business in the UK. Traditionally, small business owners have gone down the route of bank loans, investors, personal savings and borrowing from family and friends.

On the other hand, technology has brought new options to the table - namely crowdfunding.

However, one option that’s often either overlooked or missed through obliviousness is the Seed Investment Scheme, or SEIS. The scheme, along with EIS, provides one of the best alternative routes of funding for the country's small businesses.

As a small business accountants in London, we specialise in working with clients to grow their business, and part of that includes helping them to secure the funding they need to prosper.

Get in touch with our team to discuss your business plan, and what you need to do to attract investment for your small business.