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We live in an era of accelerating access and analysis of data and knowledge — a phenomenon that diginomica calls Knowledge Velocity. In business, investments in digital technology are giving enterprises faster insights into performance, risks and opportunities. But those investments are unevenly applied, and of all the sectors that lag behind in their access to information, government policymakers often bring up the rear.
Aiming to help plug that gap, at least in relation to the small and medium business (SMB) sector in Britain, business financials vendor Sage last week released a new quarterly and monthly index based on aggregated insights from its own customer base in the UK. In a panel discussing the survey last week at Sage's London offices, Nina Skero, CEO of leading UK economics consultancy the Centre for Economics and Business Research, which helps Sage analyze the survey data, commented:
I feel like the official statistics are better at telling us when something has already happened than when it's about to happen.
There is now so much capability to look at data that is not survey-based, that is basically capturing actual behaviors, and to use that as a [source] of information that tells us how people are acting.
Being able to tap into these more up-to-date metrics is particularly important at a time when unexpected events such as the recent conflict in the Persian Gulf can rapidly change the economic landscape at home. Expanding on this theme, she added:
It is an increasingly unpredictable world. By the time we get any sort of official information on the impact of what's happening in the Middle East, with a little bit of luck maybe the whole conflict will be over. Whereas, for something like Sage, we will, by next month, have a little bit of an indication of some of the data points that are captured monthly.
'Cautious momentum'
The new Sage SME Pulse survey draws on aggregated, anonymized data from more than 350,000 small and medium enterprises (SMEs) in the UK who use Sage software to help run their business. Offered as a public asset as part of Sage's Data for Good initiative, it provides a monthly snapshot of workforce metrics, drawn from payroll data across those businesses, and a quarterly measure of overall business performance, drawn from accounting and finance data from a smaller subset of 145,000 businesses. There's also an annual workforce survey that provides deeper analysis of key themes influencing SME employment and growth.
The inaugural release of all three surveys last week paints a picture of "cautious momentum," says Steve Hare, CEO of Sage. He comments:
Hiring is close to flat, but the opportunity is to rebuild productivity and resilience so that growth, when it returns, can be sustained. That means staying disciplined today while making sure SMEs are ready to grow tomorrow.
The survey finds that SME revenues are up 3.3% year-on-year in real terms, outpacing growth in the wider UK economy of 1.0%. Profits did even better, rising 6.2% year-on-year to the highest level seen in four years. Firms in the Midlands did particularly well, with profits rising 15.7% in the East Midlands, an area encompassing Nottingham, Leicester, Derby and Lincoln, and 10.8% in the West Midlands, which is centered on Birmingham. The North East saw the weakest profit growth at just 0.7%. But despite the generally good news on profits, businesses are still reining in spending, up just 2.1% over the year, while headcount rose a meager 0.2% year-on-year in February — though better than the 0.1% dip measured in November. These metrics suggest that SME leaders are taking a wait-and-see stance on investing in growth.
Within that spend, capital expenditure on tangible assets such as equipment or property fell by a precipitous 17.4% year-on-year, which Sage says is the 17th consecutive quarter of decline for this metric. Given this decline in investment, it's perhaps no surprise to find that average productivity, which is measured as real revenue per employee, fell 2.6% in Q4 2025 compared to the year prior, compared to a slender 0.2% rise in the prior quarter.
Notably, there's been a demographic shift in the SME workforce over the past four years, with over-65s now making up 5.1% of SME employees, compared to just 1.8% in 2022, while under-18 employment has fallen — perhaps bad news for school and college leavers entering the workforce. Median earnings were up 5.3% on the previous year, but that growth in pay is slower than the 7.6% seen the year before. Within these figures, there are again regional variations, with Wales showing the highest pay growth at 6.4%, with headcount rising 0.6%, while it was slowest in London at 3.8%, where headcount fell by 0.4%.
Among industries, pay grew fastest in information and communication, which posted a rise of 7.7%, while the most hiring took place in public administration and defence, which saw headcount growth of 4.2%. The survey also identifies hotspots for scale-up businesses, defined as fast-growing firms that are hiring at a rapid rate. The largest proportion are found in the London area, and the industries with the highest numbers are utilities, hospitality, and health and social care.
SME investment
Government needs to pay attention to metrics like these, argues Sage's CEO, because SMEs are such a crucial engine of growth. He says:
It is simply a fact that if we want the UK to grow faster, we need SMEs to grow faster, because they are pretty much two thirds of the economy. And so I really hope that what this data does is really help to give politicians, give other policy makers, decision makers, that insight that just brings that to top of mind.
Sage is urging policy makers to take steps to encourage SME investment in digital tools that will aid productivity, as well as continuing to support workers in learning new skills, especially AI. More education and support for entrepreneurship is needed, too, says the company. Hare adds that consistency in government policy is also important:
We need to stop changing the goalposts from a fiscal perspective, so that people can plan and they know they can have the confidence to invest.
Unsurprisingly, the vendor also believes businesses will benefit from digitizing finance and operations, ensuring that they too have up-to-date performance data. Hare comments:
Historically, people would set businesses up, and in the early stages of the business, they wouldn't really seek to digitize their back office. They would do all that manually. They'd use Excel spreadsheets or whatever. What we're trying to do now is help capture those businesses, appeal to the digital native, so that the day they set their business up, they're setting their business up in a digital way. The reason that's important is because then... they have much better visibility of more real-time data.
Taking advantage of AI should also be a priority, although Hare also emphasizes the importance of retaining human accountability:
We all need to invest in using those tools. But then we need to remember that the key to this is that human collaboration. If we're not having those final connections as humans, AI actually could cause greater disconnections faster, if humans don't embrace it and use it in that way to enhance the collaboration. And so you are definitely trying to do more with less, but you must never, ever forget that in the end, you can't delegate accountability.
My take
Sage's initiative to make this data available is a useful contribution to ongoing debate about the UK economy and the role that smaller businesses play in driving growth. Government policy makers shouldn't be stuck looking into the rear-view mirror of statistics that often take half a year or more to collect. They need to align with the prevailing trend towards collecting and analyzing more real-time data. But whether they choose to ignore or act on Sage's surveys, the information also provides a useful benchmark for businesses themselves to be aware of how their peers are doing and what challenges and opportunities others are seeing.
The growth in profitability that Sage has found is encouraging, but the lack of investment does seem to suggest that caution is inhibiting a faster recovery. However it's also important to exercise caution when interpreting the data. The metric for capital investment, for example, doesn't include investment in software, digital services, or training. This may mask investment that's going into digital/AI adoption and reskilling, which could in turn drive future growth. One speaker at the event, Dan Murray, co-Founder and CEO of fast-growing health supplements business Heights, provided a case in point:
When my company was doing 5 million of revenue, we had 25 people. We're now doing 35 million. We have 22 people. So our headcount's gone down. Our sales have exponentially grown. We serve exponentially more customers and more spaces, and even doing retail with Boots nationally. And actually we need less people, because the tools around make it more efficient — I couldn't probably have done that five years ago. I think I would have needed 50-60 people.
There's another potential headache for policy makers. If rising automation allows businesses to do more with less — to make fatter profits while hiring fewer people — what does that mean for public policy? Enabling more people to start their own businesses could be one response, emphasizing once again the key role of the SME sector.