The economy in the UK is always in the news with its performance constantly scrutinised and analysed. However, this enables us to gain an insight into how the economy is performing and where it is falling short but one thing that is important to the economy is local businesses. You might have heard it time and time again, but small, local businesses are the backbone of the economy – and that is not something that just comes from small business owners either! Of course, we are currently experiencing economic difficulties as a result of the Covid-19 pandemic but what does it all mean? Why are local businesses the backbone of the economy in the UK? After all, there are plenty of large businesses turning over millions and billions of pounds each but that doesn’t paint a clear picture of the economy in the UK and what keeps the wheels turning.


Let’s Consider The Initial Problems Faced by Small Local Businesses


Running a small, local business is a challenge. Whether you’re a takeaway expanding through the use of a free online ordering system or a boutique clothing shop, the challenges are there to see every day. There is no doubt that you’ll also have your own thoughts on the economy, much of which will be shaped by your turnover and experiences. However, whether you are a new small business or an established one, you are bound to have faced challenges or are likely to face them.


While your business might be thriving, there are plenty of obstacles that will come your way. From consumer price inflation to a drop in household income and a decrease in spending, they can all leave you wondering where the light at the end of the tunnel might be. Along with this, you might have to deal with the volatility of the pound, especially in recent times and that might cause problems when it comes to purchasing from suppliers overseas. 


The UK economy has hardly been thriving itself when compared to other countries in Europe, despite the government promising to reduce austerity. Despite all of this, there is some good news because the government does recognise that the economy and its strength is underpinned by the success of small businesses, so, with that in mind, why are small businesses the backbone of the economy?



Why Small Business Are So Crucial to the UK Economy


There is no doubt that small businesses are the backbone of the economy and we have every reason to believe that this is completely true. However, it’s important to identify why they are.


The Shape of the Economy is Shaped by Small Business Turnover


As far as small businesses go, they are measured by their turnover, and that is one of the metrics that is used to show how they contribute to the economy. Despite this, it’s not the only metric that can be used but it is crucial. 


Small, local businesses are considered those that have less than 50 employees and have a turnover of less than £6.5 million. So, when you consider that there is a huge number of small businesses that fit these criteria, it’s clear to see how they can collectively contribute to the economy in the  UK. When you break the figures down, it actually means that all of this amounts to more than 50% of the turnover of the entire private sector which is hugely impressive.


Furthermore, small businesses make up around 99% of businesses in the UK which means that they collectively employ millions of people. Along with this, they all play their part in the success and failure of the UK economy and so, they are considered to be a vital cog in the inner workings of the UK economy.



The Impact of Employment Figures


In the UK, a large percentage of small businesses are not employers, such as sole traders who work alone to make up around 60% of private sector businesses in the UK, however, small, local businesses still play a vital role in job creation in the UK. 


On the whole, small businesses employ more than 16 million people in the UK and that makes up more than 60% of all employment in the private sector, once again proving that small local businesses are vital.


The Growth of Small Businesses Impact the UK Economy


Small businesses have been performing well and in some instances, even during the pandemic, they have still been adapting and operating. Even small food establishments have moved from operating restaurants to offering a food delivery app while large businesses have been forced to close their doors for the time being. All of this proves that small local businesses are more flexible than they are given credit for. Along with this, prior to the pandemic, small businesses were performing well, with high employment rates while many were considering expanding. So, overall, the outlook is positive when it comes to the economy and the way in which small businesses play their part. What might also surprise you is the fact that small businesses make up more than 99% of businesses in every main sector with them being particularly prominent in the hospitality sector as well as personal service and professional service such as financial services. 


Along with this, small businesses also play a role in the local economy, from creating jobs but also putting more back into the local economy. As money is spent with them, they are likely to spend that money with local suppliers and that alone has a significant impact on the economy as a whole. So, while small businesses might seem insignificant in the grand scheme of things, this couldn’t be further away from the truth. Many large businesses in the UK rely on smaller businesses to supply products, goods and materials and this all has a knock-on effect. Without them, the larger businesses would struggle and this would have an impact on the performance of the economy in the UK.