High-growth small businesses account for 20% of UK’s economic growth

Report from Octopus Investments shows huge value added by high-growth small businesses across the UK.

Products and services provided by high-growth small businesses (HGSBs) account for around 20% of the UK’s economic growth, according to a paper by Octopus Investments.

The High Growth Small Business Report 2015 report looks at the impact of the 22,470 HGSBs in the UK. Despite their large economic impact they still only account for less than 1% of the 5.3m companies in the country.

HGSBs are defined as companies achieving more than 20% average annual growth in turnover over a three-year period and with an annual turnover of between £1m and £20m. The report reveals that 70% are from outside of London – indicating a strong regional presence.

It also suggests these companies created one in three jobs in the UK in 2014 – three times the number created by FTSE100 companies.

Surprisingly, only one in ten HGSBs are from the technology sector. The construction sector had the highest number of HGSBs in 2014 (3,577), followed by admin & support (3,016) and manufacturing (2,490).

Geographically there is a fairly even spread across the country. London is predictably the highest with 6,500, along with the North-West (1,900) and Scotland (1,300). The areas with the lowest number are Wales (600) and Northern Ireland (400).

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The report proposes ways the government can harness the high economic growth value of HGSBs – especially in stimulating regional growth and reducing geographic economic inequality.

“This report gives a compelling case for doing more,” a section from the paper reads. “The challenges HGSBs face and the potential they have to unlock regional growth have clear implications for policymakers.”

“Geographical inequalities will always exist, and the UK’s regional diversity is a great asset. But by narrowing the gaps – creating the right conditions for HGSBs across every region – we can enable a more balanced and prosperous economy, getting behind our high growth success stories while creating many new ones. This is the big idea that shapes our policy recommendations.”

Potential benefits outlined by  increasing the number of HGSBs in each region by 25% include an additional 170,000 jobs across the country and £22.5bn in additional turnover.

CBI head of enterprise Tom Thackray praised HGSBs for having “a disproportionate effect on both the economy and community around them”.

“We need to encourage more businesses to grow and create the right ecosystem across the country in which both current and future high growth small businesses can reach their potential,” he continued.

Praseeda Nair

Praseeda Nair

Praseeda was Editor for GrowthBusiness.co.uk from 2016 to 2018.

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