COMMONS

Business scale-up inquiry launched

20 March 2017

The Business, Energy and Industrial Strategy Committee has launched an inquiry investigating the question of how to help UK start-ups and potential high-growth small businesses overcome the hurdles to become "scale-ups".

Scale-up companies

This inquiry into scale-up companies looks at the progress that has been made in overcoming barriers to scale-ups and how potential high-growth small businesses throughout the UK can be better identified and encouraged to grow.

The UK lags behind other countries in the extent to which our companies scale-up, with research suggesting that many of our companies have stagnant growth despite their best aspirations. The Industrial Strategy Green Paper highlights OECD research which found that while the UK ranks third for start-ups, it ranks only 13th for the number of businesses that scale up successfully. Research has shown that fewer than 3 per cent of start-ups both survive for a decade and enjoy a single year of high growth. By one estimate, if expanding small businesses were boosted by just 1 per cent, they could generate 238,000 new jobs within 3 years and an extra £38bn for the economy.

The 2014 Coutu Report identified several barriers to companies scaling-up, including accessing skilled talent, developing leadership capable of managing rapid growth and financing scale-ups. The Committee's inquiry explores the impact of the Coutu report, the effectiveness of the Government's proposed measures and solutions, and how potential scale-ups can be better identified and encouraged to grow to create greater economic activity and employment.

The Committee is expecting to hold its evidence sessions for this inquiry in May and June.

Written submissions

The Committee is seeking evidence on the following points:

  • How effective have recent Government measures been in supporting scale-ups in the UK? What has been the impact of the Coutu review in overcoming barriers to scale-ups, particularly relating to accessing skilled talent, developing leadership and financing scale-ups?
  • What more needs to be done to improve management and business skills necessary to support scale-ups? What are the barriers here?
  • How accessible and joined-up is business support, for example between LEPs, Growth Hubs, the banks and others?
  • What data should be collected and made available to better identify potential scale-ups, including businesses led by women?
  • What steps should the Government take, if any, to improve and incentivise the provision of patient capital? What distribution mechanisms are in place to ensure that businesses throughout the UK can access this capital?
  • Are there other regulatory or economic interventions that the Government should make to achieve the objective of increasing the number of successful and high-growth businesses in the private sector?

As a result of the General Election, the cut-off point for written submissions was brought forward to midday on 27 April 2017.

Chair's comment

Iain Wright MP, Chair of the Business, Energy and Industrial Strategy Committee, said:

"The UK has a thriving and growing entrepreneurial culture and an excellent track-record on start-ups but we lag behind our international competitors when it comes to ensuring these potential high growth small businesses go on to become larger businesses, creating more prosperity and employment opportunities.

These businesses face barriers to growth such as access to finance, the need to develop better leadership and management skills, and availability of skilled talent. As a Committee, we want to examine what progress has been made to overcome these and other obstacles to growth. Is finance and support, for example, still too London-centric? What can Government do to help improve the provision of patient capital? Does bureaucracy get in the way?

Businesses up and down the country will face these challenges but there's a big prize to be won if the UK economy can unlock this potential. We want to see what Government action, as part of an Industrial Strategy will help achieve the goal of increasing the number of successful and high-growth businesses in the private sector."

Background

1. The term 'scale-up' refers to a small group of rapidly expanding companies which account for an above-average proportion of the UK's economic growth. They are usually defined as being enterprises with average annualised growth in employees (or in turnover) greater than 20 per cent a year over a three-year period, and with 10 or more employees at the beginning of the observation period.

2. Sherry Coutu CBE produced a report "Scale-up Report on UK Economic Growth" in November 2014, setting out a strategy to secure economic growth by supporting businesses across Britain in their ambition to "scale-up" more quickly. The report noted that:

  • According to analysis carried out by RBS, closing the Scale-up gap could create 238,000 additional jobs and £38 billion in additional annual turnover in the UK within three years.
  • According to analysis carried out by Nesta, closing the Scale-up gap could help boost Britain's productivity, which would be worth up to £96 billion per annum to UK economic output.
  • According to analysis carried out by Deloitte, the implementation of the report's recommendations could deliver a potential £225 billion in additional GVA and 150,000 net new jobs over the next 20 years.
    Coutu report news release: "Whichever analysis is considered, closing the Scale-up gap will bring a significant benefit to the UK in terms of jobs and wealth creation. The estimates above point to an additional one million jobs on a gross basis or 150,000 jobs net. Meanwhile, additional turnover from customer orders alone would amount to £1 trillion on a gross basis or £225 billion on a net basis."

3. In April 2016, the Cambridge Judge and Oxford Said Business Schools, published their "Scale-up UK: Growing Business, Growing our Economy" report picking up on issues raised by the Coutu report. "Most SMEs experience zero or little growth," says the Cambridge Judge section of the report. "Although 'gazelles', the companies that grow turnover by 20 per cent for three consecutive years, are much talked about they are in fact a rare species: they are responsible for most of SME growth but they amount to only two per cent to four per cent of SMEs."

Further information

Image: iStockphoto

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