Small but mighty: Scale-up firms make up just 1% of SMEs, but contribute £500b to the UK economy

Wednesday 8^th November 2023, London, UK:  OakNorth, the neobank for entrepreneurs, by entrepreneurs, has today published new research with the Social Market Foundation, a cross-party think tank, revealing the outsized impact of scale-up businesses¹ 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 1% of all SMEs in the UK, they account for 22% of all SME turnover (£497b), as well as 8% of all SME employment².

Kudos for the care sector

The research reveals that one in six scale-ups (17%) come from the health and social care sector, followed by professional services (13%), wholesale and retail (12%), and administrative and support services (11%)³. 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 2% 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 East⁴, and one in five (20%) are located across the North of England (North East, North West, and Yorkshire & the Humber), less than 10% are situated in Scotland and less than 5% 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 industry⁷, while the retail industry is particularly strong in Wales, as noted by the Welsh Government⁸.

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 £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 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.”

ENDS

Notes to editors

1. Defined in the research as small and medium sized enterprises growing at 20% on average each year between 2018 and 2021.
2. Figure 2: Scale-up employment and turnover as a percentage of all SMEs
3. Figure 8: Scale up and non-scale-up employment by sector, as a percentage of national SME employment
4. Figure 6: Scale up and non-scale-up employment by region, as a percentage of national SME employment
5. Innovate Finance – H1 2023 FinTech Investment Landscape
6. North East Evidence Hub – Employment by sector
7. Scottish Government – Businesses in Scotland: 2022
8. Welsh Government – Retail sector: position statement
9. The report is sponsored by OakNorth Bank. The SMF retains full editorial independence.
10. Data and research methodology: The research employs business demography data from the Office for National Statistics. With this data, we looked at high growth SMEs, establishing what proportion of firms, turnover and employment these high-growth firms account for relative to the whole population of SMEs.
11. The research provides a number of additional recommendations to government that were also highlighted in ‘Full Scale’ to help boost the number of scale-ups across the country and in certain sectors:

• Establish a cross-governmental Scale-ups Unit, charged with coordinating government policy and improving data on scale-up companies;
• Attract the best global talent by reforming immigration rules;
• Invest in the UK’s skill base;
• Make public and private sector procurement more favourable;
• Remove barriers to university spin-outs;
• Provide training and mentoring for leaders;
• Help promote increased ambition in the UK.

About OakNorth Bank plc

Launched in September 2015 and founded by entrepreneurs, OakNorth is a neobank focused on serving and empowering established businesses that are seeking to scale but are routinely underserved or overlooked by traditional banks: what we call the ‘Missing Middle’.

To date, the bank has provided over £10 billion to these businesses across a wide range of sectors, achieving performance metrics that place it amongst the top 1% of commercial banks globally. Its loans have directly contributed to the creation of 40,000 new jobs, and 29,000 new homes across the UK – the majority of which are affordable and social housing.

It is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority.

Visit www.oaknorth.co.uk for more information.

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