The adoption of digital financial tools by UK SMEs could add more than £25 billion to the country’s economy and help close its productivity gap with the likes of France and Germany, according to new research.

A new study of 1,000 small business owners from Starling Bank found that UK SMEs, which account for around 99 per cent of the country’s businesses, spend an average of £69,000 annually managing their finances.

According to Starling, if more SMEs were to use digital solutions for functions such as invoicing, tax returns and bookkeeping, the time and money that they save could be used for innovation and attracting new customers.

Adeel Hyder, Managing Director of SME Banking at Starling Bank, said that, while SMEs are “the backbone of the British economy [...] they are being held back by a ‘hidden tax’ on their time.”

Hyder continued: “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.”

84 per cent of SME owners report that they already use digital solutions for certain financial tasks. However, 48 per cent say they don’t expect to increase their usage, with respondents reporting that they feel held back by cost concerns and entrenched processes. This is despite SMEs reporting that using digital tools generates an average time saving of 41 per cent compared to manual processes.

Starling Bank estimates that increased usage of digital tools could generate a gain of up to £25.3 billion for the UK economy. This would help to close the UK’s productivity gap with other G7 nations, while providing a significant boost to the Treasury.

In order to unlock these benefits, Starling is presenting the government with five key recommendations:

Dismantling the affordability gap perception though the creation of a new online ‘Financial Tool Cost Calculator’ within the Government’s Business Growth Service, showing SMEs the true cost of adopting digital financial tools.

Prioritising support for microbusinesses and female-led companies in all digital adoption pilots.

Collaborate on support ecosystems with accountants and industry bodies, the intermediaries most trusted by SMEs.

Prioritising the adoption of core digital financial tools, particularly those that can save small businesses the most time and money.

Integrating adoption into National Mentoring Programmes and making digital adoption a core focus of mentoring support for microbusinesses.

Michelle Ovens CBE, CEO and Founder of Small Business Britain, commented: “The digital gap is not just about technology; it is about trust and community.”

“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. This report’s recommendation to build a ‘trusted support ecosystem’ is vital for all small businesses.”

“There is huge opportunity for digital technology to boost UK growth, innovation and resilience, as well as levelling up opportunity for all. To do this effectively we need to meet business owners where they are, through their accountants, mentors, and local and peer networks, to give them the confidence to take that next digital step.”