A concern exists at the centre of Britain’s economy that explains to some extent its recent poor performance. Despite the country being a welcoming place to start a business, it seems to offer a difficult environment in which to grow one. That short-coming raises a threat to future success and the government will do well to focus on overcoming it.
Britain remains a big attraction for ambitious start-up companies and London in particular, is regularly rated as one of the best places to set up a new firm. Global tech entrepreneurs come across continents to exploit Britain’s favourable environment for start-ups.
However, as researcher at the Social Market Foundation, John Asthana Gibson points out, those entrepreneurs often struggle to scale their businesses to become highly productive and sizeable companies. This should give policymakers cause for concern as a vibrant start-up culture is of little benefit to the wider economy if start-ups fail to grow, or if successful ones go elsewhere to expand.
There has been no shortage of reviews and reforms over the past decade seeking to help businesses to grow. Yet all too often, their focus has been all too narrow, prioritising access to capital above all else.
Without a broader approach, throwing money at firm will not do the job. They need support across a whole range of ideas to ensure they can use that finance effectively. Although access to finance is certainly important, it is not always the most pressing issue. What ranks higher for many businesses are availability of suitable premises, bad taxes and regulation.
Greatest problem for growing companies in many cases is proper manpower. UK scale-ups have to compete with international rivals in an increasingly competitive race for global talent. Issues with availability of suitable domestic skilled workers as well as non-skilled due to lack of proper training, made worse by a housing crisis that prevents skilled workers to move to be near good jobs.
Immigration rules compound the problem of getting talented specialists from other countries that high growth firms need. Although there are strict criteria for these rules to be relaxed to allow such staff into the country.
There are areas where the government can help more. Chancellor Jeremy Hunt has been reticent to use levers such as tax cuts to any great extent while inflation remains high, so one needs to look at more regulation-driven solutions which can be easily implemented.
Intervention in education, housing, infrastructure and immigration will be key to resolving the ‘skills problem’. As Gibson points out, there shouldn’t be a risk of repeating the same mistakes of the past decade with an equally narrow focus on skills alone. The government needs a thoroughly considered and coordinated approach across the different arms of the state.
To make this a reality, a ‘scale-ups unit’ should be established and placed at the centre of government, with the charge of identifying the areas where British firms have the potential to be genuinely world-leading.
It should coordinate government interventions, from planning reform to training improvements, that will enable scale-ups in these industries to truly reach their potential. Such interventions should be carried out with a place-based focus, developing clusters of world-class industries in cities up and down the country.
The benefit from this will be huge. Despite making up just one per cent of SME firms, their combined turnover is already equivalent to two annual NHS budgets (nearly £400bn). All of government, in fact all political parties, should get behind efforts to help these companies succeed. This issue of business growth is too important, too intertwined with the future of the country, to be ignored. Innovative scale-ups already do so much for the UK, they should be given the help they want to do more. (The writer is our foreign correspondent based in the UK)
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