OakNorth, the neobank for entrepreneurs, by entrepreneurs, has published new research with the Social Market Foundation, a cross-party think tank, revealing the outsized impact of scale-up businesses on the UK economy by region, country and sector.
Small but mighty
The new report, titled ‘The Scale of the Opportunity’, follows the recent publication of ‘Full Scale’, which reveals the barriers preventing more SMEs in the UK from reaching scale-up stage and provides recommendations to government on how to overcome them. This new research has found that while scale-ups represent just one percent of all SMEs in the UK, they account for 22% of all SME turnover (£497bn), as well as eight percent of all SME employment.
The research reveals that almost one in ten (eight percent) of scale-up businesses across the UK are based in the manufacturing sector. With the right financial interventions, such as potentially using EIS/SEIS/R&D credit budgets and focusing on equity investment through the British Business Bank, the UK can create more clusters of successful scale-ups such as these.
Surprisingly, only two percent of scale-up businesses are from the real estate sector, so one of the recommendations to government is to reform planning to boost business expansion and home building, which would see this figure increase.
The Northern Powerhouse
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 one in five (20%) are located across the North of England (North East, North West, and Yorkshire & the Humber), less than ten percent are situated in Scotland and less than five percent are in Northern Ireland and Wales each.
These figures reveal that more needs to be done to create clusters of scale-up firms scattered more evenly throughout the country, and that government needs to identify key sectors to prioritise in each geographic hub. For example, the Scottish Government has identified the significant scaling potential in the construction industry, while the retail industry is particularly strong in Wales, as noted by the Welsh Government.
Rishi Khosla, Co-founder and CEO of OakNorth, commented: “We know the outsized contribution scale-ups have on the UK economy which is why we made it our mission to support and empower these businesses. Since our launch in September 2015, we have lent over £10bn 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 green/climate science, fintech, life sciences, data science/AI, therapeutic care services, hospitality/tourism, creative/performing arts, as well as boosting productivity and economic growth.”
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 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 need to change to improve scale-up growth and spread clusters of high-growth companies more evenly around the country.”
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