Xero, a global small business platform, has unveiled findings from a special Xero Small Business Insights (XSBI) report, indicating that labour productivity among UK small businesses remains lower than pre-pandemic levels.

Based on anonymised and aggregated data from over 240,000 Xero small business customers, the report titled ‘Small Business Productivity: Trends, Implications, and Strategies’ analyses small business labour productivity in the UK, Australia, and New Zealand. Despite productivity remaining below pre-pandemic averages across all three countries, the UK lags notably behind, with the productivity gap widening further post-Brexit.

Labour Productivity Trends in the UK

Labour productivity in UK small businesses has yet to recover fully from pandemic disruptions, with temporary closures and disruptions causing a dip from approximately £41/hour before the pandemic to as low as £36.20/hour in July 2020. While productivity rebounded to reach £41.80/hour in August 2022, it declined again to £38.80/hour by December 2023. This downward trend poses challenges for small businesses, impacting profitability and their ability to sustain competitive pricing and staff wages.

Alex von Schirmeister, Managing Director UK and Emerging Markets at Xero, emphasises the importance of driving digital adoption among small businesses to enhance productivity. He highlights the transformative potential of digital tools, such as those offered by Xero, in streamlining operations and unlocking business potential.

Digitalisation and Productivity Growth

The report also underscores a positive correlation between digitalisation and productivity growth, with small businesses leveraging digital technology experiencing higher productivity gains. This trend highlights the significance of embracing digital tools to enhance efficiency and competitiveness in today’s market landscape.

Heightened uncertainty, including Brexit, may have contributed to the UK’s lag in productivity growth compared to Australia and New Zealand. To address this, Xero is recommending small businesses focus on areas like investing in better tools, refining processes, upskilling employees, and leveraging entrepreneurial skills to maximise operational efficiency.