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Small firms fuel economic growth

More than a third of economic growth in 2013 was created by fast growing small firms, a report by Octopus Investments and the Centre for Economics and Business Research (Cebr) has found.

The study found that high growth small businesses (HGSBs) were responsible for 36.2% of last year's economic growth, despite representing just 1% of UK businesses and 3.4% of the total UK economy.

HGSBs also created 68% of all employment growth from 2012 to 2013 - more than 250,000 jobs across the UK.

The Cebr defines HGSBs as:

  • firms that have an annual turnover of between £1 and 20 million
  • firms that have an average annual growth of more than 20% over 3 years.

The report found that:

  • there are 30,000 HGSBs in the UK, an 18% rise between 2011 and 2013
  • more than a third are located in London and the South East
  • almost 1 in 25 employees in London are employed by a HGSB
  • the retail and manufacturing sectors have the highest density of HGSBs.

The report also made several policy recommendations to help HGSBs realise their full potential. These include:

  • allowing firms to defer their corporation tax payments to stimulate capital investment 
  • continuing to use tax breaks to encourage investment
  • measures to combat the growing skills shortage
  • a rethink of regional funding and infrastructure spending.

Commenting on the findings, Simon Rogerson, CEO of Octopus, said:

"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. We often hear about the value and importance of enterprise and high growth companies but for the first time this report quantifies the sheer size of the contribution made by these companies."

Graham Brough, CEO of the Cebr, described the economic contribution made by HGSBs as "staggering".

John Allan, national chairman of the Federation of Small Businesses, said:

"These findings underline the critical role small businesses play in the UK economy. The report shows that some small firms play a disproportionately large role in creating growth, innovation and new jobs."

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