intelligent

EUROPE

The report , Small business productivity : Trends , implications and strategies , which is based on anonymised and aggregated data from more than 240,000 Xero small business customers , looks at – what the company believes is the first time using objective monthly data – small business labour productivity in the UK , Australia and New Zealand .

It identified that productivity is below pre-pandemic levels for all three countries , but the UK is lagging further behind Australia and New Zealand – with the productivity gap between both countries and the UK widening even further since the UK left the European Union .

Small business labour productivity is currently below its pre-pandemic average . Temporary business closures and disruptions saw productivity plunge from around £ 41 / hour , for the three-year period prior to the pandemic , to as low as £ 36.20 / hour in July 2020 . As pandemic disruptions eased , productivity began to rebuild , reaching its most recent peak in August 2022 at £ 41.80 / hour . But over 2023 productivity fell again to be just £ 38.80 / hour at the most recent reading in December 2023 . This is likely putting pressure on small business profits , making it harder for them to lift wages for staff and keep prices low for customers .

Small business productivity keeping up with larger business

Another key finding from the report is that small business productivity growth in the UK , as measured by the XSBI data , is often higher than productivity growth across all businesses . This is unexpected as , generally , small business productivity performance is lower than national productivity growth . A likely reason for this difference is that the small businesses in the XSBI data set are all Xero customers and therefore using digital technology , which is known to improve productivity . This points to a positive link between digitalisation and productivity .

Uncertainty impacting on productivity

Heightened uncertainty in recent years , including Brexit , may have had a negative impact on small business labour productivity , according to the XSBI data .

Comparing the gap in productivity between the UK , Australia and New Zealand highlights that after the UK left the European Union in January 2021 , the productivity gap between the countries widened . UK productivity outcomes fell behind New Zealand by 13.6 percentage points between January 2021 – December 2023 , and behind Australia by 11.1 percentage points . This is a wider gap compared with the Brexit negotiation period ( January 2017 – January 2020 ).

How small businesses can boost productivity

For tips on how small businesses can lift their own productivity , Xero has put together a guide . This includes four key areas for a small business and their advisors to think about :

• Buying better work tools ( or capital ) to amplify the efforts of workers

• Developing smarter processes or methods of working

• Upskilling workers

• Using entrepreneurship skills to not just start a business but also make sure it is operating at its full potential �