Last week, the government published ‘Backing your business’, its strategy for small and medium-sized enterprises (SMEs). The strategy positions the UK’s SMEs as crucial to achieving the government’s central mission for growth. It aims to support more SMEs to start up and grow, including by tackling challenges like late payments and retail crime, unlocking access to finance, and supporting businesses to revitalise high streets.
Alongside this, the Business and Trade Committee – which considers policy and scrutinises the work of the Department for Business and Trade – has launched an inquiry on the small business strategy, to assess how small businesses can contribute to the government’s growth mission and help to address regional inequalities.
While the strategy nods to co-operatives and mutuals as a resilient part of the economy, it lacks a real analysis of the role that community and co-operative businesses can play in delivering the strategy, by creating inclusive growth, good local jobs and more prosperous high streets.
A strategy for the small business landscape needs to recognise the unique value of these organisations and back them too.
Putting community business in the picture
Community businesses are impactful local businesses that can help government achieve its objectives across a range of policy issues – from high street renewal to improving health and wellbeing to addressing unemployment. Despite this, community businesses to date have not been backed with the same opportunities and incentives as for-profit SMEs, and their potential to combine economic growth with social impact has remained at the periphery of the government’s growth mission.
However, far from being a ‘nice to have’ community businesses are essential economic and social changemakers in their communities, who can help drive a more inclusive form of growth. The small business strategy recognises the potential impact of SMEs on their local economies. Community businesses not only ensure the wealth they generate stays local, but also create significant social and environmental benefits.
How to create inclusive local economies
Community businesses are owned by and accountable to the wider community, and any profits they make are reinvested locally – creating more vibrant and resilient communities through collectively-owned assets and services. Often community businesses keep their margins intentionally small so that they can keep the costs of their goods and services affordable to local people.
While this way of doing business may seem contrary to the traditional view of success – one that assumes small businesses should scale up and maximise their profit – being rooted in their communities and putting impact ahead of profit is precisely where community businesses add value. And, their collective impact is contributing to growth, with community businesses contributing a total of £5.8 billion in GVA (direct, indirect and induced) in 2022.
However, because they put purpose above profit, many community businesses are locked out from accessing the types of finance used by mainstream SMEs, and many struggle to access business support that understands and is well placed to advise on how to turn their ambitious ideas for their communities into thriving businesses. Any strategy covering small businesses needs to take account of the unique value proposition of community businesses as well as the specific challenges they are facing.
The government can also draw inspiration from what community businesses are already doing well. The strategy notes that ‘the UK lacks a depth of relationship-focused finance models’ that prioritise business support and longitudinal relationships between small businesses and lenders – which leaves us lagging behind other countries. Government should look to and invest in models like Kindred, which demonstrates not just the importance of patient and affordable lending to social business growth in Liverpool City Region, but the power in bringing investees together in a supportive and resilient entrepreneurial community.
Transforming high streets
Community businesses can help reverse the long decline of the high street. One such example, Ramsgate Space in Kent, is highlighted in the strategy, but there are many more around the country creating vibrant, mixed use high streets and more inclusive local economies.
Given high streets are one of the most visible signs of local prosperity and decline, and impact how we feel about our lives and the places where we live, this is key to making growth feel real for everyone.
The strategy highlights an opportunity for communities to revive struggling high streets through the Community Right to Buy, recently introduced in the English Devolution and Community Empowerment Bill.
Community ownership can give local people the power to decide what happens to the spaces that matter most to them, and a platform from which to trade on the high street. But high business rates can stifle community entrepreneurialism and with the government’s current business rates reform focusing on retail, leisure and hospitality businesses, many community businesses may miss out on support.
The small business strategy sets out plans for High Street and Growth Incubators, delivered as part of the integrated settlements for the Greater Manchester, West Yorkshire and West Midlands combined authorities. Community businesses like Madlab in Stockport and Urban Hax in Walsall are already driving high street innovation in these regions, and should be included in this work.
Delivering social and co-operative growth
The strategy repeats the government’s manifesto commitment to doubling the size of the co-operative sector and lays out plans for a call for evidence on how to achieve it. This is a positive step, recognising the role of co-operatives and community businesses in creating a more inclusive model of growth. But the scale of this ambition can only be met by including the community businesses already driving inclusive growth up and down the country, and through providing support needed for others to start up, grow and thrive.
As the government begins to put this strategy into motion, it needs to show it’s serious about building a stronger, fairer economy, by backing businesses that put people and place first. It isn’t just good policy—it’s a bold investment in the kind of growth that everyone can see and feel.
