Growth in every postcode starts with SMEs

Andy Burnham may have only been Prime Minister for a matter of days, but his early decisions already offer a clear indication of the type of government he intends to lead.

The appointments of John Healey as Chancellor, Angela Rayner as Housing Secretary and Jonathan Reynolds retaining the business brief point towards a government focused on regional growth, housing delivery, planning reform and investment. Meanwhile, Energy Secretary Miatta Fahnbulleh’s emphasis on energy security and pragmatism suggests ministers recognise the importance of competitiveness alongside the transition to cleaner energy.

More importantly, Burnham’s agenda has been shaped by his experience in Greater Manchester, where devolved decision-making, public-private collaboration and local accountability became central to economic development. As one political insider recently remarked, government can sometimes resemble ageing infrastructure – layers of systems and processes built up over decades, becoming increasingly difficult to navigate or improve. Burnham’s answer appears to be moving decisions closer to the people and businesses they affect.

For SMEs, that should be an encouraging starting point. Smaller firms make up more than 99% of UK firms and sit at the heart of local economies. If Burnham wants to deliver the “growth in every postcode” promise that has become his starting slogan, SMEs will need to play a critical role. But that will require government to address some longstanding barriers to growth.

The first is the cost of employing people. Across manufacturing, construction, transport and agriculture, SMEs continue to face rising workforce costs at a time as pressure on margins increases. Paragon research recently found that 42% of SMEs want government to prioritise employee tax and costs, while 73% said they had been impacted by the increase in Employer National Insurance Contributions.

Larger businesses often have greater capacity to absorb these increases; smaller firms do not. If government wants businesses to invest and create jobs, it must carefully consider the cumulative impact of employment taxes and workforce costs.

Skills are an even more pressing challenge. Paragon research found that more than four in ten SMEs have struggled to recruit suitably skilled employees during the past year. More than a quarter identify skills shortages as a major challenge, rising to 33% in manufacturing and 40% in construction. One in ten say labour shortages are actively restricting growth.

This aligns with what we’re seeing. One construction business we support in Telford told us it is struggling to recruit plant operators under the age of 70. These are skilled careers paying between £40,000 and £70,000 a year without requiring a university degree, yet too many experienced workers are approaching retirement with too few younger people entering the profession to replace them.

If government wants to accelerate housing delivery, infrastructure upgrades and regional regeneration, tackling skills shortages must move higher up the agenda. More flexible apprenticeships, stronger links between employers and education providers, and clearer routes into technical careers would all help level the playing field for SMEs competing with larger employers for talent.

Energy is another important area. Fahnbulleh has spoken about reducing exposure to volatile global energy markets while improving energy security. For manufacturers, agricultural businesses and other energy-intensive sectors, affordable and reliable energy is not simply an environmental issue. It is a competitiveness issue. Through Paragon’s renewable energy finance offering, we increasingly support businesses investing in solar, battery storage and other technologies that reduce costs and improve resilience. Government could accelerate that transition through stronger incentives for SME investment in clean energy technologies.

Debate around Burnham’s agenda has also highlighted a longstanding challenge for the UK – helping innovative businesses scale. Britain has no shortage of entrepreneurial firms, but too many struggle to access the investment required to achieve their full potential. Devolution without investment risks simply decentralising existing constraints. For regional economies to drive national growth, they need access to the finance required to invest, recruit and expand.

Having spent decades working alongside businesses across the UK, I know entrepreneurial talent and solutions exist in every region. It is encouraging to see a Prime Minister who recognises that. Now he must ensure SMEs have a genuine seat at the table because, if growth is to reach every postcode, they will be the firms driving it.