Only 1% of UK’s SMEs are ‘scale-ups’, generating nearly £500bn a year, new research shows today. With 1 in 6 of them being in health and social work, and IT also dominating, it highlights the strengths and potential of the UK economy.
New research published today by the Social Market Foundation think tank, and sponsored by OakNorth, utilises restricted access data from the Office for National Statistics to identify the fastest growing small and medium-sized firms, and their characteristics.
It highlights the contribution scale-ups – firms with high-growth potential – make to the economy. Scale-ups (defined in the research as small and medium sized enterprises growing at 20% on average each year between 2018 and 2021) are 1% of all UK SMEs, but account for over a fifth (22%) of all SME turnover, amounting to £497bn.
The analysis shows that scale-ups are concentrated in a few broad sectors such as health and social work, IT, and wholesale and retail trade (see notes). Nearly a fifth (17%) of the UK’s scale-up employees are employed in health and social work, whilst about 7% of them are employed across the creative sector, real estate and transport and storage, all put together.
To grow the number of scale-ups in key sectors, such as in real estate activities – which accounts for just 2% of scale-up employment – the research recommends reform planning to boost business expansion and home building.
On average, each scale-up employs over seven times as many workers as their non-scale-up SME equivalents. However, scale-ups are not spread evenly across the country – while 38% of scale-up employees work in the capital and the South East, and 20% are located across the North of England, only 12% are across Scotland, Northern Ireland and Wales combined (see notes).
The analysis highlights the need for the Government to identify key sectors to prioritise for scale-up growth and seek to develop geographical hubs for each sector. These hubs should receive concerted policy attention – such as assistance with visas to attract the best global talent to the hubs, and investment in local skills, infrastructure and research spending.
Such a holistic approach is needed to move beyond the singular focus on particular issues (especially access to finance), that have left other key barriers to growth – regulations, planning restrictions on development, and a less entrepreneurial culture – untouched, the analysis argues.
John Asthana Gibson, Researcher at Social Market Foundation, said, “Our inability to scale the many high potential businesses that have started here, and ensure that they are found across sectors and spread throughout the country, is holding the entire economy back.
“But there is no silver bullet to the situation. Both the UK’s business infrastructure and culture needs to change in order to unlock scale-up growth.”
Rishi Khosla, co-founder and CEO of OakNorth Bank, added, “We know the outsized contribution scale-ups have on the UK economy which is why we have made it our mission to support and empower these businesses.
“Since our launch in September 2015, we have lent over £10b to scale-ups, directly supporting the creation of more than 40,000 new jobs and 29,000 new homes across the UK – the majority of which are affordable and social housing.
“Yet despite their significant contribution to the economy, SMEs still face significant barriers to scaling. Addressing these barriers is vital for ensuring the UK maintains its pole position across sectors such as fintech, life sciences, and social care, as well as boosting productivity and economic growth.”