FSB: Incentivise investment in tech adoption and innovation

The call followed new research from the Federation that showed innovative and tech-savvy business have less access to government funding than big corporations, despite the majority having introduced changes and new ideas to their business in the last three years that have helped fuel productivity and economic growth.

FSB’s The Tech Tonic report found that two-fifths of small business owners don’t have time to develop new ideas or adopt new technologies to innovate their business, while 28% said that affordability was a barrier.

Half of the business owner interviewed said that additional government grants would encourage them to innovate and 46% say extra tax relief would do so.

Barrier to entry

However, money wasn’t the only barrier to entry – respondents (28%) called for non-financial incentives as well. More than a quarter (26%) wanted better information and advice, while a further 24% said they needed more suitably skilled staff.

In spite of the this, seven in 10 (69%) of small businesses have introduced a new form of innovation in the last three years, including: development of an entirely new product(s) to their market (25%); significantly improved existing or new product(s) (38%); and better staff and customer experience (25%).

FSB Policy Chair Tina McKenzie said: “The use of technology and innovation is a major force in economic growth, which is exactly what our country needs right now. ​

“The pandemic has shown how quickly start-ups and small businesses are to move with new ideas that change the economy, often up against large incumbents. These small firms are keen to keep that legacy alive but are also facing scarcer government support – cuts to R&D Tax Relief Scheme for SMEs, the scrapping of Help to Grow: Digital Scheme, and downscaled support for Growth Hubs. ​

Cracking the productivity puzzle

“The reduced government support is down to a top-down approach to innovation policy overlooking the potential of 99% of the total business population. Becoming the next Silicon Valley won’t crack the productivity puzzle if we can’t also encourage all firms to adopt new technologies and improve their process. Innovation must be for the many, not for the few.​

FSB put forward a list of recommendations to the Government, including:

• Spending the equivalent of at least 10% of the overall Research and Development budget on the diffusion and adoption of innovation.
• Setting itself a target that at least half of all direct government R&D funding goes to SMEs.
• Introducing a ‘modernisation and diversification tax relief scheme’ based on R&D tax relief, providing small businesses tax relief for those which have invested in significantly improving products or processes.
• Introducing digital audit vouchers for small businesses to enable more small firms to effectively use data and technology.
• Expanding Made Smarter geographically and similar bodies should be set up for different sectors across the country – these organisations should be focused exclusively on enabling small businesses to adopt innovation and technology.
• Developing an Automation Fund, providing small businesses with grant funding to automate processes where access to labour is challenging.

“Our report tells the story of how tech adoption and innovation is not confined to big businesses and the tech industry, and how millions of small firms are bringing in new ideas and changes to their business, when times are tough, to drive productivity,”​ McKenzie continued.

“We need a set of new policies and decisions to encourage new starters to innovate, and small businesses to take their new ideas and changes to the next level. To do that, there needs to be an inclusive, entrepreneur-led approach that incentivises small business owners to take risks and develop new solutions from the bottom up.”​