The local economic power of small businesses

The power of small businesses in contributing to local economies is evidenced in recently published findings from the Federation of Small Businesses (FSB).

The extensive research shows that 58 per cent more of the money spent by local authorities with small firms is re-spent in the local economy compared to that spent with large businesses in the same area. The FSB and the Centre for Local Economic Strategies surveyed local authorities across the UK and found that in the last year they spent a total of £8.7 billion buying goods and services in their local area.

The findings highlight how doing business locally is better value for money as small local firms generated £746 million more for the local economy compared to the large local businesses – even though more than £500 million less was spent with them. The research shows that for every £1 spent with a small or medium-sized business (SME), 63p was re-spent in the local area compared to 40p in every £1 re-spent by a larger business.

The FSB wants to see more local authorities using businesses in their areas to help boost economic growth. The business group believes that if, in the last year, each authority had spent an additional five per cent of their budget locally and committed just three per cent more of that to small local firms, an additional £788 million could have been generated for local economies.

The FSB’s report, ‘Local Procurement, making the most of small businesses, one year on’, is the second report on the power of local authorities and how they utilise local businesses in their areas for goods and services. It shows good practice across many of the responding local authorities, including 86 per cent of local authorities breaking contracts into smaller chunks to help SMEs win work.

For example, Leicester City Council opened up opportunities for SMEs within larger contracts ensuring that large contracts include clauses which make sure small local firms are used in the supply chain. Furthermore, Surrey County Council has committed to switching lower value construction and maintenance projects from a single contractor to a panel of small local suppliers.

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