This paper examines whether small- and medium-sized enterprises (SMEs) could play a more significant role in advancing the UK’s productivity and sustainability goals – two priorities often assumed to be mutually reinforcing, yet difficult to achieve in practice.
While large firms have traditionally been viewed as the engines of innovation and low‑carbon transition, progress has been slow, and the majority of the economy, comprised overwhelmingly of SMEs, remains under‑supported. Despite recent policy initiatives, their overall business confidence remains low, with many struggling simply to stay afloat.
This research explores the conditions under which SMEs operate and how these shape their ability to improve productivity and reduce environmental impacts. Using in‑depth evidence from two long‑standing UK industries – garment manufacturing and house building – we illustrate how macroeconomic volatility, supply ‑chain fragility, planning constraints and shortages of skilled labour combine to reduce firms’ capacity for experimentation or strategic change.
Interviews reveal widespread uncertainty and frustration, with many business leaders expressing that they are continually in survival mode, leaving little room for long ‑term investment. As a result, productivity remains an abstract concern, and sustainability ambitions, though often well ‑intentioned, are deprioritised in favour of immediate operational needs.
The findings highlight the risks of relying on SMEs to drive major economic or environmental improvements without substantial, targeted support. Rather than viewing them as smaller versions of large firms, policymakers must recognise their distinct circumstances and uneven capabilities.
Authors Suzanne Peters, Jonatan Pinkse, Laura Spence, Britt Regal