Fast-growing small firms power UK economic growth, says report

A major chunk of the UK’s growth is coming from a small number of high-potential firms, figures show.

It’s well-known that small and medium-sized enterprises (SME) are the engine behind economic growth as the UK begins to recover. It’s hardly surprising either, given that they comprise the vast majority of UK firms. But new data suggests that within the SME sector, a few firms are truly punching above their weight.

A report published today (November 6th) by Octopus Investments and conducted by the Centre for Economics and Business Research (Cebr) shows that a small proportion of high-growth firms and making a major contribution to the UK’s overall economic improvement.

This tiny sub-section of the UK economy is made of firms with annual turnover between £1 million and £20 million, with average annual growth of more than 20 per cent per year over the past three years. They’re also rapidly increasing, with the number having increased by 18 per cent from 2011 to 2013. Yet the figures show this rapid growth is seeping into the broader UK economy.

In fact, even though they constitute just one per cent of UK companies and 3.4 per cent of the total UK economy, these few businesses generated 36 per cent of the nation’s economic growth last year. What’s more, they generated 68 per cent of all new jobs between 2012 and 2013 – more than 250,000 in total.

“This report shows just how vital these companies are to our economy – they are not just the lifeblood but the lifeline to our economic growth and recovery,” said Simon Rogerson, Octopus chief executive.

Over a third of these firms are based in London and the south-east – which may be expected, given the rapid growth of many of the capital’s tech and finance firms among others. Across these two regions, nearly one in every 25 people work for one of these high-growth small businesses.

“I don’t think enough people realise just how important this segment of our small business community is for jobs and growth in our country,” said Chuka Umunna, shadow business secretary.

“We need to get the environment right for HGSBs and to do this we need to think long term. We need to get our infrastructure right, we need to ensure that people with the right skills are coming forward and we need to ensure these businesses can access the finance they need to grow and are in every region in the country.”