Increased adoption of digital financial tools by UK small and medium-sized enterprises (SMEs) could unlock £25.3 billion in economic growth and help close the nation's productivity gap with countries like France and Germany, according to new research from Starling Bank.
SMEs, which represent 99% of UK businesses, currently spend an average of £63,000 annually managing their finances. The digital bank's study of 1,000 business owners reveals that if more SMEs embraced digital solutions for routine tasks such as bookkeeping, invoicing, and tax returns, they could redirect the time and money saved toward innovation and customer acquisition.
While 84% of SMEs already use digital tools for some financial tasks, nearly half (48%) do not expect to increase their usage, citing entrenched processes and cost concerns. However, where digital tools are deployed, SMEs report an average time saving of 41% compared to manual processes.
"Small businesses are the backbone of the British economy, but they are being held back by a 'hidden tax' on their time," said Adeel Hyder, managing director of SME banking at Starling Bank. "Our research shows that a large number of SMEs believe digital tax software alone costs nearly £12,000 a year, when in reality, that's fifteen times the price of some high-end solutions. For our part, Starling's Making Tax Digital for Income Tax tool will be free from launch in March, so we can help entrepreneurs swap admin hassle for productivity gains."
The potential £25.3 billion economic gain is nearly double the UK agriculture sector's contribution, underscoring the critical importance of supporting small business digital transformation. This growth could also generate £10.4 billion in new tax receipts—exceeding the revenue that would be raised by adding 1p to the basic, higher, and additional rates of income tax combined, based on the Office for Budget Responsibility's estimated tax-to-GDP ratio of 41.2% for the coming fiscal year.
To address these challenges, Starling Bank has presented five key recommendations to the government: dismantling the affordability perception gap through a new online Financial Tool Cost Calculator; targeting support toward microbusinesses and female-led companies; collaborating with industry bodies and accountants to co-develop advisory tools; embedding digital financial tools in government digital adoption initiatives; and integrating digital adoption into national mentoring programmes through the new Business Mentoring Council.
Michelle Ovens CBE, CEO and founder of Small Business Britain, emphasized the importance of building trust. "The digital gap is not just about technology; it is about trust and community," she said. "We know that small businesses are keen to adopt AI, but can be held back by barriers like lack of support, which can be particularly challenging for under-represented entrepreneurial groups. There is huge opportunity for digital technology to boost UK growth, innovation and resilience, as well as levelling up opportunity for all."