By any serious measure, small and mediumsized enterprises are the backbone of the British economy. They make up 99.9 per cent of all businesses, employ over half of the privatesector workforce, and are responsible for most net job creation.1 And yet, our economic policy conversation still too often treats them as an afterthought, spoken about warmly, but designed around someone else.
Britain’s growth problem cannot be solved without SMEs, but too much of our current policy architecture is built with investors, not business builders, at its centre. Equity finance is vanishingly rare outside a narrow slice of highgrowth, techoriented firms, and well over 90 per cent of small firms never take on equity investment of any kind.2 So why does policy so often start with the needs of investors rather than the realities of SMEs?
In part, because government finds it easier to listen to a relatively small number of organised, wellresourced actors. Big funds speak loudly, with coherence and confidence. Small business owners speak quietly, between payroll runs and latenight invoicing. But if we are serious about inclusive, resilient growth, that asymmetry has to change.
Here are three questions the Government needs to answer if SME policy is to be genuinely fit for purpose.
1. What is the incentive to start and keep reinvesting in a small business?
Starting and re-investing in a business is a risk. Ownermanagers routinely defer earnings, reinvest profits, and absorb uncertainty in ways employees simply do not. But too often our tax and regulatory systems treat that sacrifice as incidental. We should be incentivising problem-solving businesses and not treating them the same way as passive capital gains.
We need to consider a Labour vision of starting a business, that is, how do you give every person the equal opportunity to start and make a living from a business? Part of that argument has to understand how much easier the risk is to take when you have other wealth to fall back on. So, when we discuss the incentives to start or scale a business, as a Labour Government we cannot just evaluate the financial impact of various schemes, we must also evaluate how those incentives create equitable access to being willing and able to take the risk to run a business in the first place.
Do we truly understand the psyche of why a working-class graduate might get a job over choosing to build that idea they had developed during their degree? There are things that numbers can’t tell us, but decent research might.
Many of my colleagues refer to being Labour politicians because there may be someone in their constituency who, for example, could cure cancer with the right education. By the same logic, it is critical that a Labour Government makes the risk of starting a business palatable to anyone, as that business could go on to solve some of our most critical problems.
Labour policy has recently focussed so hard on deprivation that we have depleted the investment in growth that is needed alongside it. That is most evident in how 1000s of business support jobs and ecosystem infrastructure have recently been removed from universities and local councils for spinning out and scaling businesses, with the closure of the Shared Prosperity Fund (which itself replaced extensive EU economic development funding). That leaves areas like mine in Lancashire with no equalising force to access knowledge and connections to start a business.
Alongside supporting equal opportunity to get a good job, we must support equal opportunity to create a grow a useful business. Fair growth requires that risk be part of the fairness calculation. If we want founders to keep reinvesting, in skills, equipment, premises and people, then the eventual upside must remain credible.
2. What role do we believe businesses play in our communities?
For millions of people, SMEs are not abstract economic units. They are butchers, cafés, manufacturers, care providers. The institutions that give a place texture and resilience. Family businesses, in particular, behave differently. UK research shows they are more likely to retain jobs during downturns, invest locally, and take a longterm view precisely because ownership and identity are bound together.3
Governments often have a blind spot in understanding how small businesses function as social as well as economic actors. These businesses are not inefficient holdovers. They are repositories of skill, trust and local knowledge that markets struggle to replicate.
This is where the cooperative tradition offers something vital. Cooperatives embed many of the behaviours we say we want: longtermism, shared value, community commitment, into their ownership structures.4 Labour’s commitment to doubling the size of the cooperative and mutual economy is welcome, but the real opportunity lies in applying cooperative principles more widely: patient capital, stakeholder governance, and a clearer recognition that businesses are social organisms, not extraction machines.
3. What is the incentive for an 18 or 21 year old to become an entrepreneur?
Young people have some of the best ideas, yet we make entrepreneurship a risky choice for young people. For most schoolleavers or graduates, starting a business means combining financial precarity, student debt, limited access to capital and a welfare system that still treats selfemployment as a deviation rather than a legitimate path.
This matters, because interest in entrepreneurship among young people is not the problem. More than half of 18 to 24yearolds say they would like to start a business. But only around 4 per cent manage to do so successfully on their first attempt.5 Research consistently shows that fear of failure, lack of role models, and limited access to early capital are decisive barriers.
As we rightly increase our efforts to reduce youth unemployment it would be incredibly shortsighted to not include routes to entrepreneurship in that strategy. With the SEND and mental health crises rife throughout this age group, entrepreneurship can help everyone, but especially those with different ways of seeing the world, to find a route to contribute and thrive.
But we must also start much earlier than that. If innovation creates growth, and creativity drives innovation, then creativity must be at the heart of our education system if we truly want an economy that’s ‘Made in Britain.’ That means more play for longer in primary schools and holding ourselves to account to improve our Creative Thinking PISA rankings, where socio-economic inequalities are particularly stark.
If risk is structurally concentrated on the young, then we should not be surprised when ambition narrows.
Listening to our communities
I am a Labour MP because I believe in fair growth: growth that spreads risk as well as reward, that values work and care alongside capital, and that recognises how deeply our economy is embedded in relationships. SMEs understand this instinctively. They live it every day.
This Government is getting lots of technical, data-led decisions on business right, but it risks missing the social impact, both in terms of how businesses are incentivised to be productive in the first place, and then on how those businesses serve socially in the wider wellbeing of local communities.
We have diverted most of our economic development funding to Pride of Place funding. In doing so, we forget that some of the greatest pride comes from what we create. If we don’t put greater focus on those smaller businesses, we risk never empowering communities enough to lead their own futures, which in turn leads the future of this country.
The task for government is simple to state, and hard to execute: to design policy that listens not just to those who own capital, but to those who build things slowly, locally, and at risk.
Maya Ellis has been the Labour MP for Ribble Valley since 2024.
Notes
- Department for Business and Trade, ‘Business Population Estimates for the UK and Regions 2024’, www.gov.uk, 3 October 2024.
- Department for Business and Trade, ‘Longitudinal Small Business Survey 2024’, www.gov.uk, 25 September 2025; British Business Bank, ‘Small Business Equity Tracker 2024’, www. british-business-bank.co.uk, 11 July 2024.
- Enterprise Research Centre, ‘State of Small Business Britain 2024’, www.enterpriseresearch. ac.uk, 25 March 2025.
- Cooperatives UK, ‘Cooperative and Mutual Economy 2025’, www.uk.coop, 23 September 2025.
- Urban Foresight, ‘Unlocking 10 Billion: How Backing Young Entrepreneurs Can Power UK Growth’, www.urbanforesight.com, 26 June 2025.