Super-SMEs are Britain’s growth dynamo: They deserve our support
A NEW report from Octopus Investments and the Centre for Economics and Business Research reveals that high growth small businesses (HGSBs) are the driving force behind recent growth in the economy and employment.
The High Growth Small Business Report shows that HGSBs – firms with an annual turnover of between £1m and £20m, growing at more than 20 per cent over three years – generated 36.4 per cent of economic growth in 2013, as well as 68 per cent of all new jobs between 2012 and 2013. This is despite comprising of just 30,000 businesses.
London is leading the charge. In 2013, 139,703 jobs were created by HGSBs, more than any other region. And this great city boasts the highest absolute number of HGSBs, with almost one in 25 workers in the capital employed by one of these fast growing companies. In contrast, just one in 80 workers in Wales work for HGSBs.
Off the back of the findings, the report puts forward a host of policy recommendations to support HGSBs. Here are three that policymakers should be particularly alert to.
First, it proposes allowing fast growing companies to defer paying corporation tax. The UK certainly appears to be reaping the benefits of the reduction in corporation tax from 28 per cent in 2008 to its current 21 per cent top rate, but more could be done. Letting entrepreneurs keep hold of their profits for longer would make for a more dynamic economy. To offset potential losses to HMRC, the report suggests setting interest rate repayments higher than gilt yields.
Second, the report recommends allowing private company shares to be held in Isas. Venture Capital Trusts (VCTs), the Enterprise Investment Scheme (EIS), and the Seed Enterprise Investment Scheme (SEIS) have unquestionably delivered huge investment to entrepreneurial companies. And opening up Isas to Aim shares last year was another step in the right direction. Allowing Isas to be invested in private companies would be a further sign that Britain is serious about ensuring entrepreneurs get the risk capital they need.
Third, the report suggests granting UK pension funds a 30 per cent tax credit on their UK dividend income. The thinking behind this is to align it with incentives already available to VCT and EIS investors. There is a lot of talk in the entrepreneurial community about investors still not taking the long view in their investment decisions. Requiring pension funds to hold investments for 10 years to qualify for the credit would go some way to ensuring that investments are made and managed in companies in sectors where success doesn’t come overnight.
All three of these policy recommendations are easily deliverable. And it’s encouraging that Vince Cable, Chuka Umunna and Nadhim Zahawi have all endorsed the findings. Let’s hope these ideas make it into next year’s manifestos – we’ll all benefit if they do.
Philip Salter is director of The Entrepreneurs Network. tenentrepreneurs.org