Xero : 06/05/2021 - New economic analysis shows importance of UK small businesses to job growth

MEDIA RELEASE

New economic analysis shows importance of UK small businesses to job

growth

410,000 small business jobs need to be created to recover but trading conditions remain

challenging

London - 5 May, 2021 - Demonstrating the importance of small business to the UK's COVID-19 recovery, a new report from Xero, the global small business platform, shows 410,000 small business jobs need to be created by the end of the year to return to the pre-pandemic jobs trajectory.

Using anonymised and aggregated data of hundreds of thousands of customer records as part of the Xero Small Business Insights (XSBI) programme, developed in partnership with Accenture, the reportalso finds digitally connected small businesses faced far fewer declines in jobs (14.8%) than those with less connectivity (18.4%).

Small businesses that paid higher wages in each industry saw fewer job losses. In May 2020, higher paying companies saw small business jobs down 13.5% compared to lower paying companies with jobs down 22.3%.

The data also shows that younger employees and women, as well as those working customer contact-industries (such as hospitality), are more impacted by small business job losses.*

"We can see first-hand what's happening to small businesses and the impact on the whole economy and jobs. One thing we've noticed is that small businesses are so ofen overlooked by the Government. And this imbalance needs to be addressed. Only then will we see positive change," said Gary Turner, Managing Director, Xero UK.

State of small business

Xero's Small Business Index, a new single statistic that combines data on sales, jobs, time to be paid and wages, shows that trading conditions are still dificult for many. In March 2021, the index remained below 100, indicating that overall small business performance remains below average conditions in the UK.

On a more positive note, the index did increase by 8 points to 87 in March 2021, up 10.1% compared to February 2021, driven by improvements in jobs, sales, wages and time to be paid) during March 2021. The index gets broken down by the following:

• Sales rose 7.7% y/y, the strongest result since December 2019. But, this was inflated by the efects of weak sales in March 2020 (sales were up just 0.8% y/y in March 2020).
• Jobs fell 8.6% y/y as ongoing business restrictions limit the capacity of small businesses to start hiring.
• Wages, as measured by average employee hourly earnings, rose 1.9% y/y which was the largest year-on-year rise since the pandemic hit. However, this is still below the pre-pandemic 2019 monthly average growth rate of 3.4% y/y.
• Time to be paid, improved on average in March 2021, down 2.0 days to 28.5 days.

The'Job Ahead, small businesses and the global economic recovery'report, is based on data from Xero's newly launched Small Business Index, developed in partnership with Accenture, which uses the anonymised and aggregated data of over 300,000 customer records.

To read the full XSBI March results, including to download the data, go to www.xero.com/xerosbi.

To find out more about how the Small Business Index is constructed see the background informationand methodology.

-ENDS-

Media Contact

Xero UK

Clementine Stopford

Contact Number: 07779982378 [e-mail]

About Xero

Xerois a cloud-based accounting sofware platform for small businesses with 2.45 million subscribers globally. Through Xero, small business owners and their advisors have access to real-time financial data any time, anywhere and on any device. Xero ofers an ecosystem of over 800 third-party apps and 200 plus connections to banks and other financial partners. In 2020 and 2021, Xero was included in the Bloomberg Gender-Equality Index and in 2020, Xero was recognised by IDC MarketScapeas a leader in its worldwide SaaS and cloud-enabled small business finance and accounting applications vendor assessment.

About Accenture

Accenture is a leading global professional services company, providing a broad range of services and solutions in strategy, consulting, digital, technology and operations. Combining unmatched experience and specialised skills across more than 40 industries and all business functions - underpinned by the world's largest delivery network - Accenture works at the intersection of business and technology to help clients improve their performance and create sustainable value for their stakeholders.

*Further notes on key findings of the report:

1. Impact of the pandemic was worse for younger people, women, casual workers and those certain industries:
2. • Employment was down 23.1% y/y for under 30s when the pandemic impact was at its worst in May 2020, compared to being down 13.2% y/y for over 30s. Jobs recovered a little over the second half of 2020 for over 30s, to be +0.2% y/y by March 2021. But for under 30s jobs remain down 9.9% y/y.
   • Employment was down 21.9% y/y for women when the pandemic impact was at its worst in May 2020, compared to being down 14.3% y/y for men. Jobs recovered a little over the second half of 2020 for men, to be down 2.0% y/y by March 2021. But for women jobs remain down 6.1% y/y.
   • Employment was down 59.2% y/y for the hospitality sector when the pandemic hit in April, compared to being down 24.4% y/y for the economy overall. Jobs recovered

slightly over the second half of 2020 but were still down 8.6% y/y in March 2021 but in hospitality they remain down 17.2%.

2) More digitised small businesses lost fewer jobs

Analysis of all data from small businesses in Australia, New Zealand and the UK shows digitally connected small businesses experienced a less severe downturn and have recovered significantly stronger. At the peak of the crisis, those firms that had more than five applications attached to their Xero account had a 14.8% y/y decline in jobs, compared to a larger 18.4% y/y decline for those with no apps connected. During the recovery phase, in December 2020, firms using more than five apps had jobs down 1.8% y/y, compared to jobs being down 5.1% for those firms with no apps connected.

3) Small businesses that paid higher wages lost less jobs

Analysis of all data from small businesses in Australia, New Zealand and the UK shows small businesses that paid wages in the top quartile of each industry in 2019 saw substantially fewer job losses during the peak of the COVID-19 crisis. In May 2020, firms in the top wage paying quartile saw small business jobs down 13.5% y/y, compared to firms in the lowest wage paying quartile where jobs were down 22.3% y/y.