UK efforts to foster bigger small and medium-sized enterprises (SMEs) – those with turnovers of £10m to £100m – have lagged behind countries such as the US and Germany, which have deployed tax incentives and funding to create a bedrock of growth firms that have transformed their economies.
In the UK these firms are a “forgotten army” crying out for a better supply of growth capital, greater incentives and more support to make the leap from small businesses to large employers, the Confederation of British Industry (CBI) argues in a new report with McKinsey.
Accelerating growth in these “key dynamos of growth” could add £50bn to the economy or 0.2 per cent to GDP every year by 2020 at a time when the government is searching for ways to kick-start the private sector, CBI director-general John Cridland said.
Cridland said the UK should aim to develop both the high-growth “gazelle” companies cultivated in Silicon Valley in the US, and the steady, solid exporters of Germany’s Mittelstand. If more UK companies grew in both these ways, the impact on the economy would be “truly phenomenal,” he said.
But he warned that banks, capital markets and investors needed to be freed up to provide bigger tranches of funding to firms such as fuel cell maker Ceres Power, which has needed more than £25m since its launch.
“These companies have had few non-bank options in the UK in recent years,” Cridland said. “We need to look at the various points in the growth cycle of these businesses where they need extra capital.”
Growth businesses make up less than one per cent of UK companies but employ 16 per cent of the workforce and supply more than a fifth of economic revenue.
They grow at about five per cent a year, but should aim for more like 6.8 per cent, while their job creation could also be far higher, the CBI said.
To tackle the pressure points holding them back, the CBI says chief executives need to be given the support and capabilities to aim higher.