Lack of access to finance hampering support for these vital businesses
New analysis published today by the National Endowment for Science, Technology and the Arts (NESTA) shows that the UK's vital 'high-growth' businesses were more resilient than slower growing businesses during the recession, making them even more important than previously thought to the UK's economic recovery.
The report 'Vital growth: the importance of high-growth businesses to the recovery' argues that because of their crucial role in creating jobs and their resilience during hard times, the government must put high-growth firms at the heart of the plan for growth.
The research follows on from NESTA's previous work which shows that just 6 per cent of UK businesses are classed as high-growth, yet they are responsible for creating over half of all new jobs. This new analysis looks at how these high-growth businesses performed during the recession (2007 - 2010), what they need to survive and flourish and how government can create the right conditions for them to grow.
Key findings show:
- High growth businesses perform better in a recession than other businesses.
- They are the most important source of growth in recessionary times as they continue to create jobs and are less likely to become insolvent.
- They are a vital and robust source of growth for the UK and the government's policy for fostering economic growth must have them and their needs at its heart.
However the report issues a stark warning about the difficulties these businesses have in accessing finance. Whilst they have a greater need for capital than lower growth firms, they may be rated as disproportionately bad credit risks, even after a period of high-growth, by the kind of systems used to make commercial lending decisions. This is especially concerning given the sharp decline in risk capital funding seen in the UK since 2008.
Stian Westlake, director of policy and research at NESTA, says: "High-growth businesses have an even more vital role to play in the UK's economic recovery than we first thought. Not only do they hold up remarkably well in tough economic times but because of their innovative nature actually have the capacity to expand and increase wealth and jobs. It is critical that they receive the support they need to continue to flourish.
The report makes clear that whilst it is not easy to identify the high growth businesses of the future - as they are found across all sectors and business sizes - a common trait amongst them is innovation. By creating the right conditions for innovation to flourish, the authors argue that government can help these critical businesses continue to grow. This includes:
- Removing obstacles to growth such as regulatory barriers eg. labour market regulation and barriers to setting up a new business
- Improving access to finance
- Investing in a skilled and creative workforce
- Improving networks between businesses and universities
- Overhauling government procurement to encourage innovation.
The analysis covers all UK businesses and compares high-growth with non-high growth businesses during the recession in four areas: Job creation, insolvency rates, productivity and debt ratios and finance requirements.
Other key findings for high-growth businesses during 2007-2010 are:
- The share they had of the market remains same during this recessionary period
- They are more resilient than non-high growth businesses and have markedly less insolvency rates.
- They are more likely to increase sales and employment
- They remain the most important source of job creation (still half of all jobs)