Strategy & Leadership

Derailing the future of economic growth: Demographic risks and financing pressures facing the UK SME economy

July 03, 2013

Europe

July 03, 2013

Europe
Monica Woodley

Editorial director, EMEA

Monica is editorial director for The Economist Intelligence Unit's thought leadership division in EMEA. As such, she manages a team of editors across the region who produce bespoke research programmes for a range of clients. In her five years with the Economist Group, she personally has managed research programmes for companies such as Barclays, BlackRock, State Street, BNY Mellon, Goldman Sachs, Mastercard, EY, Deloitte and PwC, on topics ranging from the impact of financial regulation, to the development of innovation ecosystems, to how consumer demand is driving retail innovation.

Monica regularly chairs and presents at Economist conferences, such as Bellwether Europe, the Insurance Summit and the Future of Banking, as well as third-party events such as the Globes Israel Business Conference, the UN Annual Forum on Business and Human Rights and the Geneva Association General Assembly. Prior to joining The Economist Group, Monica was a financial journalist specialising in wealth and asset management at the Financial Times, Euromoney and Incisive Media. She has a master’s degree in politics from Georgetown University and holds the Certificate of Financial Planning.

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Report Summary

The UK’s small and medium-sized enterprises (SMEs) face a complex mix of demographic and financing pressures – as baby-boomers reach retirement age – with worrying consequences for both SMEs themselves and the broader UK economy.

A survey of 549 SMEs, conducted by The Economist Intelligence Unit on behalf of global insurer Zurich, finds a dangerous conflation of shifting age demographics, poor succession planning, dwindling pension incomes and a new generation of would-be entrepreneurs stifled by poor access to start-up funding and low levels of personal capital. This combination is likely to create business challenges that may act as a drag on the UK’s economic growth in the long term.

Almost two-thirds (63%) of small-business owners are aged over 50, with just 11% aged 40 or younger. This age profile might imply that most survey respondents are preparing for retirement, but of those aged over 60, just one-third (36%) say that they have a clear succession plan for transferring ownership and control of the business – meaning that SMEs may be significantly under-prepared for the retirement of their owners.

However, these baby-boomers may not be planning for succession because they are not willing or able to stop working yet. Just two-fifths of survey respondents aged over 60 say that they are currently dealing with their retirement, or expect to have to do so in the next five years.

The reality of having to ‘work ‘til you drop’ is the product of increasing longevity, poor market returns affecting pensions – or lack of a pension entirely – and a lack of finance that would allow younger entrepreneurs to buy-out the businesses of the older generation. The top three concerns of respondents regarding the sale or transfer of control of their businesses in the next five years are a limited number of buyers, limited access to finance for prospective buyers and availability of capital for the next generation.

But this is not just a problem for small-business owners who are unable to move on. The ageing of SME owners and the workforce, as with the ageing of the overall workforce, has implications for the growth prospects of SMEs – as well as the wider economy – in terms of productivity, pay growth, domestic demand and overall growth.The implication could be a ‘growth penalty’ on the UK economy, just as it is reeling from the volatility of multiple recessions and continuing economic stagnation.

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