Rebalancing the economy:
Unlocking the potential of
the fastest growing smaller
companies in the UK
HIGH GROWTH
SMALL BUSINESS
REPORT 2018
Third Edition
Follow the conversation: #HighGrowthSmallBiz
Disclaimer
While every effort has been made to ensure the accuracy of the material in this document, neither Centre for Economics and Business Research Ltd
nor the report's authors will be liable for any loss or damages incurred through the use of the report.
Authorship and acknowledgements
This report has been produced by Cebr, an independent economics and business research consultancy established in 1992. The views expressed herein
are those of the authors only and are based upon independent research by them.
The report does not necessarily reflect the views of Octopus Investments.
London, March 2018
CONTENTS
Executive Summary
2
Foreword
4
1 Hidden potential: A snapshot of HGSBs in the UK
5
2 Opportunity everywhere: HGSBs as growth drivers
8

2.1 HGSBs are flourishing right across the UK
11

2.2 HGSBs can help build the UK's Industrial Strategy
12
3 The high growth effect: Employment and skills development
14

3.1 Employment
16

3.2 Training
16

3.3 Skills shortages
17
4 Unlocking HGSBs' potential: Infrastructure
20

4.1 Infrastructure policy in the UK
21

4.2 HGSBs and regional demand for infrastructure
22

4.3 The National Infrastructure Pipeline and HGSBs
24
5 Supporting businesses to start and grow
26
6 Policy Recommendations
35
7 Contact us
44
3
2
This is the third Octopus High Growth Small
Business Report. The UK's high growth small
businesses (HGSBs) have the power to drive the
UK's economy, increase productivity, skills and
employment. They make up less than 1% of UK
companies, yet in 2016 they accounted for 3% of
total UK jobs, creating an average of 3,000 new
jobs every week.
Three out of five HGSBs are located outside London
and the South East and are a vital part of the
regional economy wherever they are found. Our
findings highlight the need of HGSBs for skilled
labour and high-quality infrastructure. No region
of the UK can afford to be left behind, and in this
report we have outlined the importance of HGSBs
in helping to deliver the Government's aims and
objectives, as set out in the Industrial Strategy.
KEY CONCLUSIONS OF THE REPORT:
HGSBs make up only 1% of UK businesses, yet
account for 3% of UK total jobs in 2016 (22,074
out of 5.6 million companies). HGSBs created an
average of just over 3,030 new jobs every week
this represents about 20% of all jobs created.
While making up only 3.6% of the UK's Gross
Value Added (GVA), HGSBs have made a
significant contribution to economic growth.
Between 2015 and 2016, the UK's GVA grew by
over 41 billion 22% of this growth is estimated
to have come from HGSBs.
HGSBs can be found spread across all industrial
sectors. The Professional, Scientific and Technical
Activities sector accounted for 11% of HGSBs,
supported almost 95,000 jobs (4% of the sector
total) and contributed 7.4 billion to the overall
sector's GVA in 2016 (6% of the sector total).
Interestingly, fewer than one in ten HGSBs is
in the technology sector.
Regional diversity
Although London is the region with the largest
concentration of HGSBs, nearly three in five
HGSBs are located outside London and the
South East, and more than 50% of HGSBs'
GVA comes from other regions.
We calculate that a 10% increase in the number
of HGSBs in the North East would create more
than 2,700 new jobs for the region.
In Northern Ireland, the share of GVA growth
from HGSBs reaches 51%. Yorkshire and The
Humber, and the East of England also have
impressive shares of GVA growth from HGSBs,
34% and 28% respectively.
74% of HGSBs surveyed feel more confident or
have the same confidence level in the economic
prospects over the next 12 months compared
to last year.
Skills focus
60% of HGSBs surveyed consider finding talent/
skills shortages to be an "important" or "very
important" constraint on their business growth.
Conversely, 8% of HGSBs consider it not to be
at all important.
41% of HGSBs surveyed consider skills shortages
to be the policy area where UK Government
action could make the biggest difference for
their businesses.
EXECUTIVE SUMMARY
90% of HGSBs say that they face some form of
skills shortages. This is even more remarkable
when placed in the context of the UK average of
just 17% of companies that say they have a skills
gaps or skill shortages vacancies.
84% of HGSBs funded or arranged formal
training for at least one member of staff over
the past 12 months; this compares to the UK
average of 66%.
Across all regions, 61% of the HGSBs consider
technical or practical knowledge related to
the job to be a difficult skill to obtain when
hiring staff.
Infrastructure
One in three HGSBs considers digital
infrastructure to be one of the biggest
constraints on the growth of their business.
53% of HGSBs in London say poor
transport links with other regions
is a hindrance to their business
and something that the
Government could do
more to alleviate.
69% of HGSBs consider the UK Government's
Digital Communications infrastructure
programme (as described in the Industrial
Strategy Green Paper) to be "important"
or "very important" to their business. Just
3% consider it not to be important at all.
84%
of HGSBs funded or arranged formal
training for at least one member
of staff over the past 12 months.
1 in 3
HGSBs considers digital infrastructure
to be one of the biggest constraints
on the growth of their business.
20%
Between 2015 and 2016,
HGSBs created 158,000 new
jobs, representing 20% of
employment growth in the UK.
Out of the 5.6 million companies that
exist in the UK, only 22,074 of them
are HGSBs. They can be found in every
region of the UK.
22,074
3
2
CHRIS HULATT, CO-FOUNDER OCTOPUS GROUP
High growth small businesses (HGSBs) are once again leading the
way in employment, economic growth and productivity across all
regions of the UK. Despite making up less than 1% of UK registered
firms, they account for 3% of jobs and have been creating about
3,000 new jobs every week. In this, the third HGSB Report from
Octopus, we show the enormous impact that these growing companies are having
on the UK economy.
The Government's Industrial Strategy has
highlighted the importance to UK plc of support
for fast-growing businesses and its ambition to
become one of the best places in the world not just
to start, but also to scale a successful company.
We are proud that our previous reports have got
people championing HGSBs at both local and
national level, and once again we are encouraging
MPs to get out there and engage with the HGSBs
in their own constituencies.
HGSBs may form only a numerically small
segment of the new and small business sector,
but they are disproportionately important. It is
from among their ranks that the future market
leaders will emerge, capable of competing globally
and significantly adding to the country's future
economic prosperity. Such firms need investment
and support to help them grow and scale up over
the longer term.
Our survey of some of the UK's most
entrepreneurial companies has a particular focus
on skills this year, with 90% of those we spoke
to saying they face some form of skills shortage.
HGSBs are also leading the way in tackling this,
with 84% of them having funded or arranged
formal training for staff over the past 12 months,
against a national average of 66%. This year's
report looks at some of the options open to the
Government and other policy makers for tackling
what is a growing issue for HGSBs, as Britain looks
to a future outside the European Union.
Octopus is one of the most active investors in
HGSBs in the UK and so we know the economic
and social difference that these businesses make,
wherever they are found. We are proud to once
again highlight some of their great work in this
report and call on everyone to get behind the high
growth small businesses who are bringing jobs and
prosperity to all parts of the country.
FOREWORD
HIDDEN POTENTIAL:
A SNAPSHOT OF HGSBs
IN THE UK
1
We define high growth small businesses (HGSBs) as those with
more than 20% annual average growth over a three-year period,
and an annual turnover of between 1 million and 20 million.
5
4
35%
30%
25%
20%
15%
10%
5%
0%
Employment
GVA
Share of total
Share of growth
Figure 1: HGSBs' share of total UK employment and employment growth, and HGSBs' share of total GVA and GVA growth, 2016
THEY ARE A SMALL GROUP
As well as being small in size, HGSBs are few in number, representing a tiny proportion of all UK
businesses. Out of 5.6 million companies in the UK, there were only 22,074 HGSBs in 2016, representing
less than 1% of the business population.
...BUT THEY PUNCH WELL ABOVE THEIR WEIGHT
HGSBs make a disproportionately large contribution to our economic wellbeing, creating jobs and driving
growth at an exceptional rate, as shown in Figure 1 below.
Source: FAME, ONS, Cebr analysis
EMPLOYMENT
One in every five new jobs was created last year by an HGSB. Between 2015 and 2016, HGSBs created
158,000 new jobs, representing 20% of employment growth in that period. This amounts to just over
3,030 new jobs every week.
ECONOMIC GROWTH
Despite making up only 3.6% of UK's GVA, HGSBs made a disproportionate contribution to economic
growth. From 2015 to 2016, UK's GVA grew by over 41 billion 22% of this growth is estimated
to have come from HGSBs.
Gross value added (GVA) measures the contribution to the economy of each individual producer,
industry or sector in the UK. It is used in national income accounts to measure productivity, or the
value of goods and services produced by different sectors of the economy. It is calculated as the
total value of goods and services produced, less the cost of all materials and other inputs used
directly for that production.
HGSBS ARE GROWING IN EVERY BUSINESS SECTOR
About 67% of HGSBs operate in the service sector. The largest single sector is Construction, with 15%
of UK HGSBs, followed closely by Wholesale and Retail trade, which accounts for 14% of all UK HGSBs.
Contrary to common perceptions, fewer than one in ten HGSBs is in the Technology sector.
Figure 2: Number of HGSBs in the UK by sector, 2016
Source: FAME, ONS, Cebr analysis
Construction
Wholesale and retail trade
Administrative and support service activities
Manufacturing
Professional, scientific and technical activities
Information and communication
Financial and insurance activities
Real estate activities
Transportation and storage
Human health and social work activities
Accommodation and food service activities
Other service activities
Education
Other
Agriculture, forestry and fishing
Arts, entertainment and recreation
Water supply; sewerage and waste management
Electricity, gas, steam and air conditioning supply
Mining and quarrying
Public administration and defence
3,214
3,145
2,831
2,723
2,450
1,370
1,018
746
630
617
581
500
477
460
442
317
269
183
86
15
AND BRINGING NEW BUSINESS TO EVERY REGION
Significantly, HGSBs are found in every part of the UK. In the subsequent sections we explore this
regional pattern.
BUT THEY STILL STRUGGLE TO BE SEEN AND HEARD
The HGSBs segment comprises businesses spread across a broad range of industries, which do not make
for a cohesive group. This, and their small size, help explain why they are easy for policymakers to miss
within the wider SME (Small and Medium-sized Enterprise) population.
7
6
OPPORTUNITY EVERYWHERE:
HGSBS AS GROWTH DRIVERS
2
HGSBs thrive wherever opportunity lies; every region of the UK
has a high growth success story to shout about. While this is
encouraging, there is a great deal more to be done if the UK
is to unlock the full growth benefits HGSBs offer.
In the UK, we currently have businesses, people and places whose level of productivity
is below what can be achieved, and it is this regional disparity which accounts for much
of the UK's inequality. The latest ONS figures show that the US and France are nearly
30% cent more productive than the UK, while Germany outstrips the UK by 35%.
HGSBs are more productive than other companies and can play a key role in seeing
the UK address its lagging productivity levels.
HGSBS ARE MORE PRODUCTIVE THAN THE UK
AVERAGE BUSINESS
Britain's productivity problem is largely the result
of the "long tail" of productivity, which was
specifically highlighted as a key concern in the
Government's recent Industrial Strategy. While the
UK has some of the most productive businesses,
people and places in the world it also has a "long
tail" of underperformance. If the "long tail" of
lower productivity is not dealt with, it will hold back
UK growth, wages and living standards.
The Government can help to tackle this by
promoting HGSBs in all regions. In 2016, excluding
businesses operating in the financial and insurance
sector1,HGSBs' productivity (measured as GVA
divided by the number of employees) was just
under 65,000. This figure is significantly above the
national average of just under 55,000. Our survey
finds that in some sectors, such as retail, HGSBs
have three times the average levels of productivity
at 118,300 compared to all UK businesses.
AND DRIVE PRODUCTIVITY IN EVERY REGION
The CBI's 2016 Unlocking Regional Growth Report
observed that since the global financial crisis, only
in London and the South East is GDP per head
above its pre-crisis peak. As a result, the most
productive area of the UK is now almost three
times more productive than the least.2 If each
local area could improve at the same rate as the
top-performing HGSBs in their respective region,
the increased productivity would lead to more jobs,
more exports and higher standards of living across
the UK. HGSBs should, therefore, be an important
consideration in all future local industrial strategies
and City deals.
1. It is difficult to measure GVA for businesses in the financial and insurance sector, and typically requires the use of proxy measures. For the purposes
of this productivity comparison, businesses operating in this sector have therefore been excluded. 2. CBI, 2016 Unlocking Regional Growth.
This report reinforces that scaling businesses are across all areas and sectors of the
UK. They add value and generate jobs across local economies, as well as being highly
productive enterprises. Increasing their numbers, and building up local capabilities to
support them, is critical for improving UK productivity and national economic growth.
This report provides further insights into their key needs across talent, infrastructure
and finance. We hope that the recent announcements on the UK's Industrial Strategy,
alongside the expanded role of the British Business Bank in relation to Patient Capital,
lead to these issues being positively addressed by the public and private sectors
working closely together.
Irene Graham
CEO of the ScaleUp Institute
9
8
80,000
70,000
60,000
50,000
40,000
30,000
20,000
10,000
0
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
25
20
15
10
5
0
50,000
45,000
40,000
35,000
30,000
25,000
20,000
15,000
10,000
5,000
0
London
London
London
East of
England
Yorkshire
and The
Humber
Yorkshire
and The
Humber
Yorkshire
and The
Humber
Scotland
Scotland
Scotland
South
East
South
East
South
East
East of
England
East of
England
West
Midlands
West
Midlands
West
Midlands
North
West
North
West
North
West
East
Midlands
East
Midlands
East
Midlands
South
West
South
West
South
West
Northern
Ireland
Northern
Ireland
Northern
Ireland
Wales
Wales
Wales
North
East
North
East
North
East
HGSBs
2014
2014
Wales
North West
UK
2015
2015
2016
2016
West Midlands
South West
East of England
Northern Ireland
Yorkshire and The Humber
South East
London
Scotland
North East
East Midlands
Figure 3: HGSBs' and total economy productivity by region (GVA per employee)
Figure 5: Number of HGSBs per region4
Figure 6: HGSBs' GVA per region, billion
Figure 4: Correlation between HGSBs' location and regional economic performance
Source: FAME, ONS, Cebr analysis
Source: FAME, ONS, Cebr analysis
Source: FAME, Cebr analysis
Source: FAME, ONS, Cebr analysis
Figure 4 below highlights the number of HGSBs as a share of all businesses in each region, plotted
against the level of regional GVA in 2016. This supports the theory that there is a higher likelihood of
finding HGSBs in areas performing more strongly economically.3 It also underlines that the places where
HGSBs are less common are often the areas that depend most on them, and are likely to benefit more
from their growth.
Regional GVA per head ()Number of HGSBs as share of total business population by region (%)
0.2%
0.3%
0.4%
0.5%
0.6%
0.3%
0.4%
0.5%
0.6%
0.7%
3. It is important to note that while there is evidence of correlation, it cannot be concluded that HGSBs are a cause of stronger regional performance.
However, this correlation identifies the potential of HGSBs to drive regional growth. 4. The total number of HGSBs does not add up to the sum of
across regions, because a very small number of HGSBs have been removed since their region was not able to be identified through the data available.
2.1 HGSBS ARE FLOURISHING RIGHT
ACROSS THE UK
HGSBs are to be found in every part of the UK, and significantly, almost three in every five HGSBs
are outside London and the South East. Figure 5 below shows the number of HGSBs located in each
UK region.
BUT SOME REGIONS ARE LAGGING BEHIND
Although HGSBs are succeeding in every region, some parts of the UK have relatively few. Wales,
Northern Ireland and the North East have the lowest number of HGSBs, with fewer than 1,000 in each
region. All three of these regions fall within the bottom five least productive regions by average GVA.
HGSBS IN LONDON AND THE SOUTH EAST ADD THE MOST TO UK ECONOMIC OUTPUT
In 2016, HGSBs in London and the South East had a combined GVA of 27 billion, which equates to 44%
of the overall GVA contributed by all HGSBs across the UK.
11
10
2.2 HGSBS CAN HELP BUILD THE UK'S
INDUSTRIAL STRATEGY
The UK has a number of world-leading sectors that boast high productivity, competitive advantages
at a global level, and have further growth potential. Sectors such as aerospace, automotive, the life
sciences, the creative industries, digital, financial services as well as professional and business services
have generated significant growth for the UK in recent years, and some of these have been earmarked
for sector deals by the Government. HGSBs can help to accelerate their growth further and enlarge their
geographical footprint.
HGSBS HAVE AN IMPORTANT IMPACT IN SECTORS SUCH AS MANUFACTURING AND FINANCIAL
AND INSURANCE ACTIVITIES
In 2016, 12% of HGSBs were in the manufacturing sector and 5% in the financial and insurance sector.
Combining the two, HGSBs contributed more than 124,000 jobs to the UK economy and are responsible
for generating almost 8 billion in GVA.
4.0%
3.0%
2.0%
1.0%
0%
Manufacturing
Financial and Insurance Activities
GVA
Employment
HGSBs' GVA share of the wider sector
HGSBs' employment share of the wider sector
Figure 7: HGSBs' contribution to GVA and employment in the Manufacturing and Financial sectors
Source: FAME, ONS, Cebr analysis
HGSBS MAKE AN IMPORTANT CONTRIBUTION TO INNOVATION
Innovation is a key aspect of the professional, scientific and technical sector and 11% of HGSBs work within
this area. HGSBs supported just under 95,000 jobs (3.5% of the sector total) and contributed 7.4 billion
to the overall GVA of the sector in 2016 (5.8% of the sector total). HGSBs' GVA and employment figures
in this sector also experienced considerable growth in recent years, as shown in Figure 8.
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
100
90
80
70
60
50
40
30
20
10
0
7%
6%
5%
4%
3%
2%
1%
0%
5%
4%
3%
2%
1%
0%
2012
2012
2013
2013
2014
2014
2015
2015
2016
2016
GVA ( million)
Employment (thousands)
Share of UK sector (RHS)
Share of UK sector (RHS)
Figure 8: HGSBs' GVA and employment contribution to the UK Professional, Scientific and Technical Activities sector
Source: FAME, Cebr analysis
HGSBS ARE AN IMPORTANT DRIVER OF GROWTH ACROSS THE COUNTRY
HGSBs have the potential to play a far greater role in driving growth and increasing productivity in
every corner of the UK. In Northern Ireland, the share of GVA net growth coming from HGSBs was 51%.
Similarly, Yorkshire and The Humber, and the East of England also have very impressive shares of GVA net
growth coming from HGSBs. The low share observed in Wales is somewhat driven by its corresponding
low share of HGSBs in its business population.
The North East and North West of England both have a below-average share of HGSBs, yet their HGSBs still
generated 7 billion in GVA in 2016 which equated to 11% of the total HGSBs contribution to the UK's GVA.
60%
50%
40%
30%
20%
10%
0%
Northern
Ireland
England
West
Midlands
Yorkshire
and The
Humber
East of
England
East
Midlands
North
East
London
North
West
Scotland
South
East
South
West
Wales
2014
2015
2016
Figure 9: Share of GVA net growth coming from HGSBs by region
Source: FAME, ONS, Cebr analysis
For the UK to achieve higher levels of prosperity, and for the economy to work for everyone, all parts
of the country must be firing on all cylinders. With the right investment and policy intervention, there
is considerable potential for regions, cities and towns whose performance has been lagging, to close
the gap on other areas. HGSBs are pivotal in accelerating this process.
13
12
THE HIGH GROWTH EFFECT:
EMPLOYMENT AND SKILLS
DEVELOPMENT
3
HGSBs create growth wherever they are found, but the impact
is strongest in exactly the places that most need a boost. The
Government recognises that more needs to be done to tackle
regional inequality, and HGSBs offer a clear, strong and viable force
for rebalancing the economy.
Research by the National Institute of Economic and Social Research in 20175 showed
that productivity, measured by GVA per head, is 72% higher in London than the national
average and is twice as high as in seven of the eleven other regions. In addition, skills
shortfalls in some parts of the country contribute to imbalances in productivity in the
UK, as shown in a recent CBI report6 highlighting education and skills as the biggest
determinants of regional variations in productivity. The Government's Industrial Strategy
also highlighted how the UK's poor performance in basic and technical skills is key to its
persistently lower levels of productivity, compared with other advanced economies.
HGSBs have the power to drive employment growth and upskilling the UK's workforce,
not just by creating jobs, but also by providing training to its employees. Our research
shows that HGSBs have a disproportionate impact in weaker-performing areas of the
UK outside London and the South East, and that HGSBs also invest more time and
resources into training their workforce.
5. NIESR, (2017) 'Regional inequality in productivity in the UK: a closer look'. 6. CBI, (2016) 'Unlocking Regional Growth: Understanding the drivers of
productivity across the UK's regions and nations'.
15
14
3.1
3.2
3.3
EMPLOYMENT
TRAINING
SKILLS SHORTAGES
HGSBs make up only 1% of UK businesses, yet account for 3% of UK total jobs in 2016 and incredibly, one
in every five new jobs was created last year by an HGSB. Between 2015 and 2016, HGSBs created 158,000
new jobs, representing 20% of employment growth in that period, amounting to just over 3,030 new jobs
every week.
The Government's aim to drive productivity was central to the Industrial Strategy, and it identified
'people' or human capital as one of the five key pillars.
"We recognise that people, and the skills they have, are a key driver of productivity. Having the right
skills increases people's earning power. Investing in our people across their lifetimes is fundamental to our
shared success, from strong foundations for children and young people in schools and relevant, high-
quality education and training in our further and higher education systems to career-long learning and
enabling employers to invest in their workforce."7
While part of this is achieved via the formal routes of education, businesses raise skills levels by providing
training to their employees, and HGSBs not only invest significantly above the national average in their
workforce, they also face specific shortfalls.
SKILLS SHORTAGES ARE A UK-WIDE PROBLEM AND PRESENT IN EVERY REGION
It is widely recognised that the UK needs to tackle skills shortages, but our survey shows that an
incredible 90% of HGSBs say that they face some form of skills shortages, and 61% of HGSBs consider
it to be a policy area where there is a need for Government intervention. This is even more remarkable
when placed in the context of the UK average of 17% of companies that consider they have skills gaps
or vacancies due to skills shortages.
7. HM Government (2017). 'Industrial Strategy: Building a Britain fit for the future.' p.93.
HGSBS ACROSS THE UK INVEST IN THEIR WORKFORCE
84% of HGSBs funded or arranged formal training for staff over the past 12 months, compared to a UK
average of 66%.
Over the past 12 months, HGSBs spent, on average, 18,958 per business on training. 36% of HGSBs
spent more than 10,000 on staff training/skills development over the past 12 months. This is well above
the UK average investment in training, which is just under 8,000.
350,000
300,000
250,000
200,000
150,000
100,000
50,000
0
5%
4%
3%
2%
1%
0%
London
Yorkshire
and The
Humber
Scotland
South
East
North
West
West
Midlands
East of
England
East
Midlands
South
West
North
East
Wales
2014
2015
2016
Share of total employment in 2016 (RHS)
Figure 10: Number of people employed by HGSBs by region and share of total regional employment
Source: FAME, ONS, Cebr analysis
5%
3%
3%
3%
3%
3%
3%
3%
2%
2%
Northern
Ireland
2%
2%
The Staffline Group has two business divisions: Staffline Recruitment, market leaders in industrial
temporary recruitment supplying up to 52,000 workers per day to more than 1,500 clients; and
PeoplePlus, a leading provider of skills and apprenticeships which supports tens of thousands of
people each year to transform their lives, get into work and progress their careers.
In the past five years, Staffline has seen significant and rapid growth, with an underlying operating
profit compound annual growth rate of 29% and an increase in turnover of 591 million. Developing
our people has been key to this success. Since becoming a listed company in 2004 we have
continued to enjoy the support of Octopus Investments, our largest shareholder.
17
16
KNOWLEDGE RELATED TO THE JOB IS A COMMON SKILL SHORTAGE
61% of HGSBs consider "Technical or practical knowledge related to the job" to be a difficult skill to
obtain when hiring staff. This is universal across all regions in the UK, and also reaches non-HGSBs.
The second most selected skill shortage is "Computer / Software literacy" (25% of HGSBs), with
"Knowledge of product(s) or service(s)", coming in third, at 24%.
TIME AND FUNDING ARE THE MAIN BARRIERS TO PROVIDING MORE TRAINING
When asked about the barriers to providing more training, 55% of HGSBs state that they could not spare
more time, 45% mention it was hard to find the time to organise training and 36% mentioned lack of
funds for training or that training was expensive.
This reflects a general feeling across all companies and regions in the UK. According to the UK
Commission for Employment and Skills (UKCESS)survey, these are the top three reasons constraining
companies' provision of training.
An important difference, however, is that HGSBs in Scotland, Wales, and Northern Ireland seem to face
relatively higher barriers to training than England.
GOVERNMENT ACTION IS NEEDED
The message is clear. While HGSBs are strongly contributing to the UK skills stock, they need more help
to both attract those with the specific skills they need when recruiting, as well as train their existing
workforce. 72% of HGSBs consider skills shortages to be a common challenge businesses face, and 39%
of HGSBs consider developing a skilled workforce to be an area where the Government could provide
more assistance.
Figure 12: Share of HGSBs that find skill shortages to be common when hiring staff
Source: FAME, ONS, Cebr analysis
Technical or practical knowledge related to the job
Computer/Software literacy
Knowledge of product(s) or service(s) provided
Administrative/Management
Communication
Analytical/Numeracy
Language skills
Writing literacy
Creativity
61%
25%
24%
21%
16%
16%
15%
13%
10%
Lack of funds for training/training expensive
A lack of appropriate training/qualifications in the subject areas we need
Difficulty finding training providers who can deliver training where or when we want it
Staff now fully proficient/don't need the training
Lack of knowledge about training opportunities and/or suitable courses
High levels of staff turnover
A lack of good local training providers
Lack of provision (eg courses are full up)
Can't spare more staff time
Hard to find the time to organise training
Figure 13: HGSBs' barriers to provide more training by region
70%
60%
50%
40%
30%
20%
10%
0
England
Scotland, Wales and Northern Ireland
Source: ICM, Cebr analysis
Figure 11: Share of HGSBs reporting any skills shortage(s) versus share of total companies in the region reporting any skills
shortage(s) or vacancies
100%
80%
60%
40%
20%
0
West
Midlands
East
Midlands
London
South
West
East of
England
South
East
North
West
Scotland,
Wales and
Northern
Ireland
Yorkshire
and The
Humber
North
East
HGSBs
Regional average
Source: ICM, UKCESS, Cebr analysis
19
18
UNLOCKING HGSBS'
POTENTIAL: INFRASTRUCTURE
4
Wherever they spring up, high growth small businesses encourage
energy and confidence in local economies. They bring new activity,
commerce and employment; increase demand for services and
infrastructure; set off new cycles of innovation and opportunity;
and generate or attract other enterprises like them. However,
infrastructure is an area where the UK fails to keep pace with its
counterparts; with the areas of digital connectivity and transport
concerning HGSBs the most, whichever region they are in.
4.1 INFRASTRUCTURE POLICY IN THE UK
The Government's Industrial Strategy acknowledges that investment in the UK's infrastructure is crucial
in growing regional economies and creating the right environment for businesses to thrive. In pledging
to increase the National Productivity Investment Fund to 31 billion and investing over 1 billion in
digital infrastructure to include the roll-out of full-fibre networks and 5G the Government knows it
has a critical role to play in supporting businesses to grow and prosper. Over the next five years, the
Government plans to spend over 239 billion in infrastructure projects across the UK.
The quality of infrastructure whether it be transport, communications, energy or water varies by region,
in the same way the number of HGSBs varies according to geographical location. Our research shows
that HGSBs are concentrated in regions with the best infrastructure, and the regional growth of HGSBs
can be fuelled by providing better infrastructure. The results of our survey of HGSBs suggests there is
evidence to back these theories, with positive correlation between the regional infrastructure quality
and the regional breakdown of HGSBs. If we exclude London, the positive correlation is even stronger.8
8. A likely reason for this outcome is that while most HGSBs are concentrated in London, the majority are located in Central London. The "London"
region presented here includes local authority districts outside Central London with a lower infrastructure quality.
HGSBS HAVE A CLEAR NEED FOR BETTER INFRASTRUCTURE AND RANK DIGITIAL
COMMUNICATIONS HIGHLY
Our survey asked businesses to rank which infrastructure programmes they would like to see more
investment in. On average, HGSBs ranked digital communications as the most important Government
infrastructure programme in relation to their business (4.0), followed by roads (3.6).
30%
25%
20%
15%
10%
5%
0%
Wales
North West
West Midlands
South West
East of England
Northern Ireland
Yorkshire and The Humber
South East
London
North East
East Midlands
Figure 14: Correlation between HGSBs' location and regional economic performance
Source: FAME, Cebr analysis
Regional allocation of HGSBsInfrastructure quality score
4.20
4.30
4.50
4.70
4.90
4.40
4.60
4.80
5.00
5.10
5.20
Scotland
21
20
Poor digital and transport infrastructure from slow broadband speeds to bottlenecks on key arterial
roads inhibits innovation, economic and social growth. Improving these can raise productivity by
enabling towns and cities to achieve agglomeration effects, and thus support the rebalancing of the
UK's economy.
4.2 HGSBS AND REGIONAL DEMAND FOR
INFRASTRUCTURE
THE NORTH-SOUTH DIVIDE IS NOT AS EVIDENT IN TERMS OF HGSBS' DEMAND FOR DIGITAL
INFRASTRUCTURE IMPROVEMENT
The South West has the highest share of HGSBs that consider the quality of digital infrastructure as a
"very important" or "important" constraint on growing their business, with the North East having the
lowest share.
The Government published its Digital Strategy in March 2017 consisting of seven strands, the first
being "building world-class digital infrastructure for the UK".9 Significantly, the Strategy signposted
independent research that identified that increased broadband speeds alone could add 17 billion to UK
output by 2024.
In the Autumn Budget 2017, DDCMS announced that as part of the Government's 740 million National
Productivity Investment Fund (NPIF), a Local Full Fibre Networks (LFFN) Challenge Fund of 190 million
would be available with the aim of helping "locally led projects across the UK leverage local and
commercial investment in full fibre".10
A component of the LFFN programme is the Gigabit Voucher Scheme, which will provide vouchers worth
up to 3,000 "to support the capital costs of getting new gigabit-capable connections for businesses".
The scheme is currently being tested in four areas of the UK: Aberdeen and Aberdeenshire; Bristol,
with Bath and North East Somerset; Coventry and Warwickshire (North Warwickshire, Nuneaton and
Bedworth, Rugby, Stratford-on-Avon, Warwick); and West Yorkshire and York (Bradford, Calderdale,
Kirklees, Leeds, Wakefield and York).
When comparing the areas identified by the Government with the areas in Figure 18, we can see
that more often than not, the Government's support appears well targeted; at 65% of HGSBs in the
South West, the region where HGSBs most needed digital infrastructure, which corresponds with the
Government's own decision to trial the scheme in Bristol and Bath. Similarly, the West Midlands (or
Coventry and Warwickshire in the Government's assessment) was the region with the third highest
proportion of HGSBs which felt that digital infrastructure was important. However, Yorkshire and The
Humber featured sixth (out of ten) on ranking the importance of digital infrastructure to HGSBs, with
the North West and South East six and five percentage points higher respectively.
BUT IT IS CLEAR IN TERMS OF HGSBS' DEMAND FOR BETTER TRANSPORT INFRASTRUCTURE
On average, in London only about one in three HGSBs considers transport infrastructure to be a "very
important" or "important" constraint on their growth. In the North West, almost two in three HGSBs
consider this to be the case.
Figure 17: HGSBs' average rank of Government infrastructure programmes' importance to their business (where 1 is
"Not important at all" to 5 is "Very important")
Source: FAME, ONS, Cebr analysis
Digital communications
Roads
Energy
Social infrastructure (eg hospitals, schools and prisons)
Airports and ports
Housing and regeneration
Science and research
Rail
Water and waste
Flood and coastal erosion
4.0
3.6
3.5
3.1
3.0
2.9
2.9
2.8
2.8
2.3%
Figure 18: Share of HGSBs that consider digital infrastructure a "very important" or "important" constraint on the growth of
their business
80%
60%
40%
20%
0
South
West
Scotland,
Wales and
Northern
Ireland
West
Midlands
North
West
South
East
Yorkshire
and The
Humber
East of
England
London
East
Midlands
North
East
Source: ICM, Cebr analysis
9. https://www.gov.uk/government/publications/uk-digital-strategy. 10. https://www.gov.uk/guidance/broadband-delivery-uk#contents
Figure 19: Share of HGSBs that consider transport infrastructure a "very important" or "important" constraint on the growth
of their business
80%
60%
40%
20%
0
South
West
Scotland,
Wales and
Northern
Ireland
West
Midlands
North
West
South
East
Yorkshire
and The
Humber
East of
England
London
East
Midlands
North
East
Source: ICM, Cebr analysis
23
22
4.3 THE NATIONAL INFRASTRUCTURE PIPELINE
AND HGSBS
The National Infrastructure and Construction Pipeline (NICP) is a comprehensive forward-looking
assessment of the planned investment in UK economic infrastructure across both the public and private
sectors. Over the next four years, the UK Government plans to spend over 240 billion in infrastructure
projects across the UK. The highest share will be allocated to the Energy sector (49%), followed by the
Transport sector (37%).
HGSBS HAVE DIFFERENT PRIORITIES FROM THE PLANNED NATIONAL INFRASTRUCTURE
AND CONSTRUCTION PIPELINE
In our survey of HGSBs, business leaders backed the spending on transport and energy, but there was
a clear divergence on the communications sector. 69% of HGSBs consider current communications
infrastructure to be an important constraint on the growth of their business. However, it is important
to recognise that while only 3% of total Government funds in the NICP is allocated to this sector,
investment in digital infrastructure has shifted away from the public purse. Therefore the bare figures do
not reflect overall investment, or the crucial role Government has in creating the right policy framework
to encourage the further private investment needed to meet HGSBs' needs.
NICP FUNDING DISCREPANCIES REMAIN AT A REGIONAL LEVEL
HGSBs are also concerned that London (11%) and the South East (4%) continue to get the majority of
non-national infrastructure spend.
While these figures undoubtedly reflect London's role as the UK's financial and business hub, and the
capital's numerous ongoing transport infrastructure projects, they will do nothing to assuage concerns
about the "London-centric" nature of policymaking and funding decisions.
Figure 22: Allocation of NICP funding across regions over the next five years
14.0%
12.0%
10.0%
8.0%
6.0%
4.0%
2.0%
0.0%
East of
England
Offshore
North
West
London
Yorkshire
and The
Humber
South
East
West
Midlands
Scotland
North
East
Wales
South
West
East
Midlands
Overall, 55% of HGSBs surveyed consider poor transport links with other parts of the UK to be a common
challenge facing businesses, with 43% saying the same about within-city transport links. With this view
widespread across all regions of the UK, there is clearly work for the Government to do in order to address
these issues, and a number of HGSBs would agree, with 42% of HGSBs considering infrastructure to be a
policy area where there is still room for Government intervention.
Source: ICM, Cebr analysis
Figure 20: NIP funding allocation across projects
Energy 49%
Waste 0%
Transport 37%
Water 8%
Communications 3%
Science and research 2%
Flood 1%
Source: National Infrastructure and Construction Pipeline, Cebr analysis
60%
50%
40%
30%
20%
10%
0%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Communications
Energy
Transport
Science and research
Water and waste
Flood
NICP project value share
Share of HGSBs that consider the Government infrastructure programme
"very important" or "important" to their business
Figure 21: NICP funding allocation across sectors, and share of HGSBs that consider the given Government infrastructure
programme "very important" or "important" to their business
Source: National Infrastructure and Construction Pipeline, ICM, Cebr analysis
25
24
SUPPORTING BUSINESSES TO
START AND GROW
The UK has one of the world's most successful markets for
entrepreneurial small companies, with the UK ranked third in the
world as the best place to start up a business according to the
Organisation for Economic Co-operation and Development (OECD).
However, as the Government's Industrial Strategy recognised, the
UK is only in 13th position for scale-ups. Octopus was founded in
2000, and in the last 18 years has scaled up to become the largest
venture capital investor in the UK, with 890 million of funds under
management, representing a fifth of the UK market.
5
The Octopus High Growth Small Business report
has established itself as one of the most important
publications for entrepreneurship policy. Once again
the report makes a strong case for supporting this
dynamic and geographically dispersed collection of
companies. Politicians and policymakers across the
political spectrum should sit up and take note.
Philip Salter, founder of The Entrepreneurs Network
27
26
THE OCTOPUS STORY
Scale-up funding provides the visibility that allows entrepreneurs to focus 100% on growing revenue,
productivity and jobs, as opposed to focusing on survival and the next round of fundraising. We are
proud of our track record in helping many successful start-ups navigate the scale-up process, some
of which have become household names, such as Zoopla and Secret Escapes. Unconstrained by short
time horizons and holding periods, we can support companies for the long term, helping them to grow.
Thirty-three of our 39 AIM listed companies that we have invested in have been part of our portfolios for
more than five years, 16 for more than ten years.
Secret Escapes is an online travel club and among the fastest growing holiday businesses in
Europe. Members are offered options to purchase luxury holidays at significant discounts for
a limited period, and these deals are guaranteed to be better than can be found elsewhere.
Octopus first invested in Secret Escapes in 2011, when the company had five members of staff.
Since then, Secret Escapes has expanded internationally to countries across Europe, the US and
the Far East, and now employs over 480 people. Yet it wasn't just financial backing that Octopus
provided, and Secret Escapes was able to draw upon the network and expertise of the fund
management team at Octopus, so that it could meet the challenges of growing and succeeding
in a very competitive market.
What Octopus are doing with their support in helping us in Asia is actually
operationally helping people explore possibilities and take first steps in probably
the toughest market in the world. They are organising the meetings, sorting
visa letters, doing the market research to find relevant targets it's several steps
on from anything we've seen on this front before. I can't stress enough that I
think the difference is that there's a strong element of real work here, actual
execution, not just firing off a couple of intro emails. You not only have people
with all the contacts but those who will also roll their sleeves up and actually
make things happen.
Alex Saint
CEO and co-founder of Secret Escapes
Venture capital investors such as Octopus can provide management expertise, invest in tools, networks
and resources to help companies scale and compete globally in new markets and geographies, providing
a range of support in areas such as IT, operations, management and financial guidance.
Largest venture capital investor in
the UK, with 890 million of funds
under management, representing
21% of the market
890 million
funds under management
7.2 billion
100 million
Octopus Ventures invested
100 million in the last year
in 8 companies

Supported over
450
smaller businesses
45%
overall growth in Octopus
Ventures portfolio revenues
Invested in start-ups such as
Zoopla, Secret
Escapes and Graze
before they became famous
Octopus Ventures has
26
companies active in the US
29
28
HELPING COMPANIES TO EXPORT
We want to share what we learnt as a business. The Octopus Ventures team recently invested in an office
in New York for the sole purpose of helping UK portfolio companies enter the US market, and navigate
its complexities, as smoothly as possible. Arranging trips to Silicon Valley for UK entrepreneurs has shown
them that there should be no limitations on their ambitions for their businesses.
In the US we are focused on helping the entrepreneurs we have backed in Europe to scope, enter and then
scale in this market. This often involves both basic operational activities (incorporating a US company,
discovering the optimal location to have a base) as well as more strategic decisions (determining who
first to hire, which go-to-market strategies to leverage, when and how to fundraise). About 40% of our
portfolio has a presence or operational reach in the US.
Semafone provides secure voice transactions for call centres, allowing consumers to enter
their payment card details and other personally identifiable information (PII) securely via
their telephone keypad, while still engaged in a conversation with the call centre agent.
Headquartered in the UK with US offices in Boston, Semafone works with more than
80 organisations in 14 countries on five continents.
Semafone wanted to establish a second support team location away from the UK, and
reached out to Octopus' US team to help assess North America's viability, as part of a
global review of possible support locations, which also included Asia and Australia.
Semafone chose Australia for its new support team location with greater confidence and
expediency, as Octopus' support allowed the company to understand additional risks and
challenges in the US before they were material, including talent leaching in certain parts
of the country, cost inflation in target regions and recruiting costs, among others. Now,
Semafone can deliver unparalleled customer support, 24x7, around the world and is well
positioned for its continued global growth.
In our search for a new support team location, Octopus provided us with helpful
information, answered our most difficult questions, and introduced us to a
community of insightful connections to address our challenges. One CEO even
offered us additional help setting up and renting office space. Semafone values
the Octopus team's time and assistance it was truly enjoyable to work with
them on this project. Every communication was full of positivity, encouragement
and cheerfulness, which is much appreciated.
Christine Redmond
Customer Support & Services Manager, Semafone
Fluidly is a financial technology company that combines machine learning and AI with financial
modelling, which transforms the way businesses manage their cash flows.
Octopus provided an initial round of seed funding, allowing the company to grow to 16 staff and
kick-start its commercial activity. Along with funding, Octopus' expert team provided invaluable
practical and strategic advice, as well as unique access to key industry stakeholders, including
a trip to Silicon Valley to meet leading American tech entrepreneurs. With a rapidly expanding
customer base, Fluidly is confident it can capitalise on its initial success, and has ambitious plans
for major growth over the next few years.
As highlighted by the OECD figures, the challenge for UK entrepreneurs is in accessing the long-term
finance required to scale up. This can be a particular problem for companies that outgrow the caps on
VCT and EIS financing, as their companies grow to over 15 million or have already received 12 million
in VCT / EIS money over their lifetime.
At this point, the companies are forced to bring in external funders, typically from the US, or even sell
out their whole company to a big US corporate buyer which integrates the intellectual property into
its core business. In the worst cases, we have seen businesses who have had to slow down their growth
trajectory, reducing hiring and even laying off staff until they can secure further capital.
With many innovative, highly productive companies, it can often be a race to scale up quicker than
the competition or become obsolete. The competition is often based in other countries with deeper pools
of scale-up capital, putting our world-leading ideas and scientists at a competitive disadvantage.
If the UK were to make available deep pools of capital to support UK firms scaling up, our world-beating
universities and entrepreneurs would be able to compete more effectively on the global stage. It would
ensure that the FTSE 100 will still host world-leading companies in another 20 years when oil, traditional
banking and telecoms will no longer be as relevant to the world we live in.
SUPPORTING THE AIM MARKET
So much more could be achieved with the right conditions. The Alternative Investment Market (AIM)
has provided over 100 billion in growth capital to over 3,700 firms since it was established more than
any other stock market in the world and is firmly recognised as one of the most attractive markets for
a company to seek capital support once it reaches a sufficient scale.
31
30
Elvie is a British femtech company, with a mission to build extraordinary products that improve
the health and lives of women everywhere and at all stages of life. Its first product, Elvie Trainer,
is an award-winning pelvic floor trainer backed by over 1,000 health professionals and stocked
at major retailers such as John Lewis and Boots. Investment from Octopus has allowed it to
take on ten more staff and develop a second product line for new mothers that is set to launch
this year. Support from Octopus has also been vital to managing the firm's dizzying growth, as
sales increased 100% year on year and it expanded to the US market, with the Elvie Trainer even
included in the 2017 Oscars nominees' goody bag.
The combined backing from Octopus and AllBright (an organisation that
supports and funds female entrepreneurs) was a huge mark of credibility for
Elvie. Octopus is the leading consumer tech investor in the UK and we're proud
to partner with such an experienced investor with strong expertise in taking
British brands to the US.
Octopus has brought so much more than just capital to our business.
Simon King and the team have become our trusted advisors, helping us with
the team, strategic and operational decisions and avoiding common pitfalls
of scaling up.
Andrea Zitna
CRO, Elvie
Our US team invest significant time and effort understanding how the very best companies expand
internationally. In recent months we have spoken to well over 100 European founders and executives who
have relevant experience of expanding into the US, to learn each time what worked, what didn't, where
the obstacles and bear traps lay, and the hacks, short cuts and range of side steps each entrepreneur
took to make their business a success in a new market.
We're not closed or proprietorial about this knowledge either we believe that we can all help each
other and this is far from being a zero sum game so we have established a European founders group
to encourage collaboration between European executives in the US and regularly write about what we
have learned and see as best practice.
In the US, we partner with other venture investors, advisers and groups with a mission similar to ours
in the US to help entrepreneurs have access to world-class resources. Those range from exclusive
conversations with industry leaders and corporates, advice from successful executives and expert service
providers, events bringing entrepreneurs together and introductions to appropriate partners.
As this report demonstrates, HGSBs are fundamental to current economic growth, delivering 22% of GVA
growth between 2015 and 2016. HGSBs deliver growth and jobs in all regions of the UK, but more can
and must be done to ensure that these growing businesses receive the support and finance that they
need to continue their journey to become great scale-ups. The businesses highlighted in this report, as
well as the thousands of HGSBs all over the country, are thriving already, and with the right support and
infrastructure they have the potential to bring employment and prosperity to every area of the UK.
We're proud to back these companies and to give them a voice through this report, and ask that
Government and other policymakers join with us to make this happen.
33
32
POLICY RECOMMENDATIONS
6
High growth small businesses (HGSBs) are pivotal to the
Government's Industrial Strategy in addressing the long-term
challenges facing the UK economy and achieving its aims of
building on existing strengths and ensuring that every region meets
its potential. The Government has committed to closing the gap
between the most productive places, companies and industry
and the least, and to making the UK one of the most competitive
places in the world to start or to grow a business.
To encourage balanced growth around the country, the full potential of
HGSBs needs to be unlocked. Against the backdrop of the UK's withdrawal
from the European Union, it is important now more than ever for SMEs, the
backbone of the UK economy, to flourish. We welcome the Government's
enthusiasm and effort in supporting the UK's innovators and entrepreneurs
as they contribute to our growing economy.
We call on the Government to ensure that the whole of the UK fully benefits
from the economic growth and productivity of HGSBs, as it is crucial that no
region is left behind.
35
Policy Recommendations34
ACCESS TO CAPITAL AND SUPPORT IS CRUCIAL IN ORDER
FOR HGSBS TO SCALE UP
Although our funding environment for start-ups is among the best in the world, these
growing businesses find it difficult to access the finance they need for the longer-term
process of scaling up. This finance gap hinders the development of HGSBs and needs to be
closed if they are to drive growth and productivity across the country. The Government has
recognised this weakness in the UK's funding environment and commissioned the Patient
Capital Review to explore ways to close the finance gap. The Autumn Budget contained a
number of promising measures, but we think there is still more that can be done to channel
large pools of existing capital to businesses looking to scale up.
WE RECOMMEND:
Allowing corporations to invest in VCTs in
return for having 30% of the investment
deducted from their corporation tax bill
There is significant potential to channel the excess
cash held by corporations into innovative HGSBs
seeking finance. 14 billion in excess capital is held
by owner-managed UK corporates alone, and we
recommend that the Government incentivises
corporations to invest this excess cash in innovative
HGSBs by extending the tax-advantaged Venture
Capital Trust (VCT) scheme to corporations.
By allowing corporations to claim back 30% of the
value of any investment in VCTs from their corporation
tax bill, we believe it is reasonable to forecast that
within three years there would be 1 billion additional
inflow into VCTs. Such a change would unlock much-
needed additional finance for HGSBs, which are
significantly more productive than normal businesses.
Mandating public sector pension funds
to allocate 1% of their assets to venture
capital investment
Pension funds manage about 2 trillion of capital
in the UK, but in comparison to other countries the
UK has been poor at channelling these large pools
of capital into the ambitious businesses that need it
to scale up. Pension funds in the United States play
a pivotal role in the development of high-growth
businesses and have invested in some of the US'
most successful companies. Even a small increase
in the proportion pension funds invest in venture
capital could unlock billions in extra cash and make
a real difference to HGSBs across the UK.
The Government recognised this huge potential
in its Patient Capital Review consultation, and set
out a number of measures in the Autumn Budget
designed to incentivise pension funds to increase
investment in venture capital. While these were a
welcome first step, we think that there is scope for
the Government to be more ambitious and lead by
example, mandating public sector funds to invest a
small portion (1%) of their assets into venture capital.
1
Allow existing Stocks and Shares ISAs to invest
equity in unlisted shares
There is 315 billion held in Stocks and Shares ISAs,
and if just 1% of this capital were invested in small,
unlisted companies, it would unlock 3.15 billion
of extra investment for HGSBs. We therefore
recommend permitting existing Stocks and Shares
ISAs to invest into the shares of unlisted companies.
As investors tend to retain assets in their ISA
indefinitely, only removing money from their ISA
as a last resort, such a reform would make it one
of the most patient forms of capital.
The change would allow funds to be invested in
earlier-stage smaller companies as well as in AIM
and FTSE listed companies. The Government's
decision to enable AIM shares to be held within an
ISA wrapper has been a significant success story.
Since the rules changed in 2013, Octopus has raised
and deployed 500 million into AIM companies
with a growth mandate, comprising both new ISA
investments and the transfer of existing ISA portfolios
that would previously have been invested in large
FTSE listed companies or cash.
Currently investors can make loans from their
ISAs to unlisted companies as a result of the
Innovative Finance ISA, which often results in their
taking equity-type risk (due to smaller early-stage
companies being more poorly capitalised and
having few assets) without having any potential
to qualify for the incremental upsides attached to
equity investments. We would expect the enabling of
unquoted companies to be held in an ISA to be easily
understood and therefore start to deliver benefits
very quickly. It would also provide an additional
source of financing for companies that have
exceeded the VCT investment limits, and start
to create an investment environment more akin
to the US system.
The legislation required to achieve this would be
straightforward to implement, and some of the
existing anti-avoidance legislation employed for Self-
Invested Personal Pensions (SIPPs) could be borrowed
to prevent special-purpose vehicles from qualifying.
Reform the Advance Assurance process
At present, before investing, venture capital schemes
must seek assurance from HM Revenue & Customs
(HMRC) that their investment will qualify. According
to rule changes announced in the 2017 Autumn
Budget, this process should take a maximum of
15 days. However, a recent survey by the Venture
Capital Trust Association showed that this process
on average takes about 71 days, with some deals
already waiting for over 20 weeks. This system is
unsustainable, and businesses must have the access
to capital or in some cases risk going out of business.
Currently all venture capital trusts must apply for
advanced assurance when making an investment in
a business, or risk the complete loss of status for
making an inadvertent non-qualifying investment
as a penalty. This penalty is intended to prevent
abuse, but the unintended consequence has been
that VCT funds are proceeding only with investments
which have prior HMRC advance assurance approval.
This places enormous pressure on HMRC inspectors
and results in long approval processes which
lengthen the time it takes for eligible companies
to receive investment.
The current penalty for a breach whereby the whole
fund is disqualified is disproportionate. We propose
that the Government should increase resources to
HMRC to deal with the backlog and should also
amend the law to state that in the event of a breach
on an individual company investment, the sanction
could be the clawback of the VCT tax relief for that
investment. Reducing the disproportionate breach
penalty will lead to VCTs investing on the basis
of professional opinion and dramatically reduce
HMRC's advance assurance workload, saving scarce
Governmental resources and speeding up the
deployment of patient capital.
37
36
Policy Recommendations
2
11. BEIS Select Committee (2016), 'First Report of Session: Access to Finance'. 12. HM Govt (2017), 'Financing Growth in Innovative Firms Consultation
Response'.
13. HM Govt (2016), 'Digital Skills for the Economy'.
Assisting start-ups and SMEs to navigate the
system of provision
In our last report, we suggested that the Government
should use the Local Enterprise Partnership (LEP)
network to ensure that HGSBs get the support they
need. Since then, the Business, Energy and Industrial
Strategy (BEIS) select committee has found11 that
SMEs remain largely unaware of the finance options
available, or do not understand which ones are most
appropriate for their needs.
The Government acknowledged this in its response
to the Financing Growth in Innovative Firms
consultation12, recommending that a new commercial
investment programme be developed through the
British Business Bank to support developing clusters
of business angels outside London. While this is
welcome, the nature of devolution across the UK
means that there is a patchwork quilt of support,
where businesses remain unaware of the resources
available for entrepreneurs. We welcome Government
support of business angels, and recommend that
Growth Hubs are better promoted to businesses and
have a clear strategy for supporting HGSBs.
We also endorse the BEIS Select Committee's call
for the Government to "add value by working with
the major business groups and finance providers to
make sure they have mentoring schemes or events
specifically aimed at passing on the experience of
successful business people on how to secure finance
to grow a business."
AS THE GOVERNMENT RIGHTLY IDENTIFIES IN ITS
INDUSTRIAL STRATEGY, THE UK NEEDS TO ADDRESS ITS
SKILLS SHORTAGES BOTH IN EXISTING JOBS, AND ALSO
ENSURE THAT THE UK'S WORKFORCE IS TRAINED FOR THE
JOBS OF TOMORROW
As some of the country's most innovative firms, it is unsurprising that 90% of HGSBs
acknowledge that they face skills shortages, compared to a national average of about 18%.
This disparity needs addressing in order for HGSBs to be fully equipped to scale up.
WE RECOMMEND:
Continuing to invest in digital skills to ensure
the UK remains competitive
We welcome the Government's commitment to
improving the UK's digital offer. The creation of a
Minister for Digital and Creative Industries and the
prominence of digital connectivity in the Industrial
Strategy is testament to the emphasis Government
is placing on the importance of digital infrastructure
to a successful UK economy. Furthermore, the
Government has demonstrated the importance of
digital to the future of the UK in its Digital Strategy,
published in 2017.
The Government recognises that a shortage of
digital skills exist within the UK labour market, and
that this poses a major risk to business growth and
innovation.12 It is imperative that this skills gap is
filled, as this is not only detrimental to UK business,
but also impacts the UK's attractiveness as a place
to invest and do business.
Successive governments have been instrumental
in encouraging the next generation to study STEM
subjects, but too many leave the profession, resulting
in a waste of talent in vital industries. Universities
and businesses must now support the Government
in its aim to close the skills gap by incentivising
graduates to pursue STEM careers. This can be done
by expanding schemes such as students undertaking
a year in industry, having extensive networking
opportunities and introducing mentoring schemes.
Taking a twin approach between
technical disciplines and more traditional
academic courses
Entrepreneurship should not be studied in isolation,
as new businesses can be born from any discipline,
and indeed often combine a variety of areas. The
University of Bristol offers an Innovation programme
which combines in-depth subject specialisms
in areas including history, computer science,
management, physics and psychology with
entrepreneurial skills. Most crucially for HGSBs, the
courses are heavily integrated into the local business
environment, as students solve real-world challenges
for local partners and are mentored by local
stakeholders and business leaders.
The University of Huddersfield offers a BA in Enterprise
Development, and is supported by visiting professors
and entrepreneurs in residence. It also has the
3M Buckley Innovation Centre, home to over 100
start-ups, which facilitates access to finance for
entrepreneurs and businesses; the centre combines
the skills and expertise of University staff and partners
to transfer knowledge between tenant companies.
We recommend that the Government should work
with universities to encourage more interdisciplinary
courses that combine teaching subject specialisms
to a high standard, with the essential skills needed to
succeed as an entrepreneur, or find innovative ways
to combine entrepreneurship with teaching on site.
39
38
Policy Recommendations
Encouraging school career services to partner
with HGSBs and ensuring teachers have
the time to see how technology is changing
the world of work
It is during secondary school that students make
decisions that essentially begin their future careers;
from their choice of GCSEs, the decision to attend
university or not, or whether they wish to pursue a
more technical qualification. 16 to 18-year-olds need
a much more balanced education in order to be
successful in the workplace.
It is at this stage in young people's lives that they
need to be exposed to as many different options as
possible in order to choose the right path for them.
Ada, the National College for Digital Skills, puts the
emphasis on a much more balanced education in
order to teach a mix of tech, entrepreneurship and
creative skills to all students. It works closely with
businesses, taking the time to do outreach work with
employers. This is enabled by recruiting more teachers
than it needs, and fundraising to top up the money
it receives from the Government to do so.
We recognise that not all schools and colleges will be
able to do this, but we encourage the Government
to work with the education sector to find ways in
which school and college leaders can take the time
to see how technology is changing the world of work.
This could be by carving out a small amount of time
each term enabling them to do outreach work, and
taking the time out of the classroom in order to meet
businesses, or by developing a specific course.
As technology develops, so must the skills required
to be successful in the workplace. It is not enough to
keep looking overseas for the talent required to work
in start-ups and HGSBs. Schools and colleges must
be supported to teach the necessary coding and
other digital skills that will be necessary for the
economy of the future.
Alongside the traditional career path of employment,
we encourage the Government to ensure that
entrepreneurship and the skills needed to set up
and run your own business receive a much greater
exposure in the career advice services within all
schools. Careers advisers need to better understand
the current world of work, how tech is changing it,
and what this means for school leavers, so they can
better advise on the options available for students.
Reforming the current Apprenticeship Levy to
become a wider, more general Skills Levy
While we welcome the Government's commitment to
increasing technical training with the implementation
of the Apprenticeship Levy and the introduction of
T Levels, there is still the opportunity to go further,
particularly in more effectively utilising the funds
from the Apprenticeship Levy. A key component of
improving the success of the Apprenticeship Levy
is allowing employers, particularly HGSBs, a longer
timeframe to spend their Levy vouchers. It is also
imperative that consideration is given to how the
process of approving new skills standards across
industries can be accelerated.
Expanding the current Apprenticeship Levy to evolve
into a more flexible Skills Levy would allow the Levy
to benefit a wider group of recipients and allow for
the retraining and upskilling of the UK's workforce.
Closing the skills gap is not solely dependent on
creating more apprenticeships; it is also intrinsically
linked to longer-term careers and throughout one's
career, keeping pace with the skills demands of the
UK's economy. The reform of the Apprenticeship Levy
would need to incorporate a focus on the skills that
are of strategic importance to the nation, particularly
following the UK's departure from the EU.
Allowing larger companies to transfer
their Apprenticeship Levy funds to smaller
companies in their supply chain
This report has highlighted that 90% of HGSBs face
skills shortages, compared to the national average of
17% for other businesses, and that one of the biggest
barriers to providing more training was the cost of
doing so. Larger companies, which are less likely than
HGSBs to suffer from skills shortages and have more
money available to pay for training, also benefit
when staff in their supply chain are properly trained.
Currently they can transfer only 10% of their Levy
to smaller companies in their supply chain, but we
believe that there should be no limit. The Government
should consult on how the transfers should work and
what controls would need to be put in place.
Investing in localised versions of the National
Apprenticeship Service, and providing small
amounts of funding for businesses to
understand what training is available
Although the introduction of the Apprenticeship
Levy was an important step in addressing the
skills shortages in the UK economy, businesses are
struggling to navigate the centralised, national
database from which they access apprenticeships.
The report shows that, along with strains on time
and funding, many HGSBs have difficulty finding
training providers who can deliver the training that
they need. This suggests a more localised system that
is responsive to the specific needs of businesses in the
region and linked closely to local college, universities
and technical schools, would be much more effective
at helping HGSBs get the skills they need to succeed.
There are already examples of how this might work,
such as the Nottingham Jobs Hub, where specialist
staff offer a tailored training needs analysis for
small businesses, and then help to meet these needs
through their partnerships with local universities and
colleges. We commend this as a good model for a
local apprenticeship service, that can complement
the National Apprenticeship Service, by providing the
local knowledge and stakeholder links that HGSBs
direly need.
The Federation of Small Businesses in Wales has
secured a 40 million package, offering small
businesses up to 3,900 of funding towards an
apprenticeship's salary in the first 12 months, and
up to 500 per business for administration costs,
such as identifying the most appropriate training or
researching the options available. The FSB also found
one in three small businesses said that a greater
financial incentive would encourage them to employ
an apprentice. Making HGSBs more aware of the
support available, and offering small amounts of
financial assistance, would go a significant way to
improving access to training.
41
40
Policy Recommendations
14. Speech by Minister for Digital Matthew Hancock MP to Broadband Stakeholder Group 2017 Conference. 15. HM Government (2018), Broadband Delivery
UK Strategy.
3 FOR HGSBS TO THRIVE IN THE 21ST CENTURY,
THE CONNECTIVITY OF BUSINESSES MUST BE IMPROVED
While Government investment is vital to upgrading the UK's infrastructure as a whole,
improving some aspects of the infrastructure network such as digital communications
is no longer the sole responsibility of the Government and requires input from the private
sector, local authorities and regional business networks, through the Super Connected
Cities Programme, the Connection Voucher Scheme and launching a review into
Telecoms Infrastructure.
WE RECOMMEND:
Increasing powers in City Deals to give Metro
Mayors more power over digital infrastructure
requirements
The creation of Metro Mayors is an exciting political
innovation with the potential to transform these
regions, as power is handed to local leaders with
the drive and knowledge to affect real change.
Many of these new mayors are attempting to meet
the challenges of the 21st-century economy head
on, spearheading initiatives to help their regions
capitalise on technological change.
Andy Burnham in Manchester held the first-ever
Greater Manchester Digital and Tech Summit, while
West Midlands Mayor Andy Street has pledged
to develop new spin-off start-up ventures from
existing industries, such as an automotive start-up
accelerator with Jaguar Land Rover.
However, this early promise will come to nothing
if Mayors don't have the power to build the digital
infrastructure they need to support a high-tech
economy. Although there are a number of promising
national initiatives, the devolution deals did not
specifically address digital infrastructure, and we
would urge the Government to develop tailored,
regional plans, in partnership with Metro Mayors, that
will enable them to upgrade digital infrastructure and
realise their ambitious plans for the digital economy.
Accelerating and broadening current
digital initiatives, particularly the Gigabit
Voucher Scheme
Rapid improvement in digital connectivity is vital
for the prosperity of HGSBs, and due credit should
be given to the Department for Digital, Culture,
Media and Sport, which has been at the forefront of
driving this. However, the UK's digital infrastructure
system currently lags behind those of other countries,
and was acknowledged when the then Digital and
Creative Industries Minister, Matt Hancock MP,
referenced that "UK full fibre coverage is just 3%".14
The Government's Gigabit Voucher Scheme, which
will provide vouchers worth up to 3,000 "to support
the capital costs of getting new gigabit-capable
connections for businesses" is currently being tested
in four areas of the UK: Aberdeen and Aberdeenshire;
Bristol, with Bath and North East Somerset; Coventry
and Warwickshire (North Warwickshire, Nuneaton
and Bedworth, Rugby, Stratford-on-Avon, Warwick);
and West Yorkshire and York (Bradford, Calderdale,
Kirklees, Leeds, Wakefield and York).15
We encourage the Government to expand this trial
to areas which have identified digital infrastructure
to be of the greatest importance, such as the North
West, and target their investment accordingly.
Following the trial, we also call on the Government
to rapidly roll out this initiative across the entire
UK, so every region can reap the rewards of
digital connectivity.
Increasing awareness of new digital
technologies among business, local
Government and public bodies, and informing
small businesses about the benefits and
availability of better digital connections
Businesses must be more aware of, and better
prepared for, the speed of technological
developments and the impact they have on
companies, but they do not always have the time
to do this. We recommend the Government considers
partnering with bodies such as the Institution of
Engineering and Technology, to educate training
providers and local authorities so they are best
placed to assist and provide advice to local
businesses. The UK's businesses must be able to
harness technology to drive efficiency, which in turn,
increases productivity.
Encouraging the public sector to embrace new
technology as an early adopter, such as using
fibre over copper cables
Research commissioned by the Department for
Digital, Culture, Media and Sport found the country
gains 20 in net economic benefit for every 1 of
public investment in digital infrastructure. Cutting-
edge digital infrastructure requires full fibre networks
that can operate at speeds 100 times faster than
most current broadband links. However, replacing
existing digital infrastructure is expensive, and can
often see upgrades that claim to be "fibre broadband"
but still involve copper cable.
This technology is known as "Fibre to the Cabinet",
but it relies on a final leg of copper wire, from the
cabinet into the premises. This slows data down
and causes congestion. While these so-called
"fibre" services are undoubtedly better than older
technology, they cannot compare with the new
era of gigabit speeds and are woefully inept at
supporting the crucial uploading of data, leaving
businesses unable to access the speeds they need.
The Government should put more pressure on BT
Openreach to accelerate its "Full Fibre" programme
even further, beyond its unambitious target of
reaching 3 million homes and businesses by 2020.
Large public-sector organisations, such as schools,
hospitals and local councils, can ensure that
investment in fibre infrastructure is commercially
viable by agreeing to act as "anchor tenants" for
full fibre broadband services. This provides certainty
for private companies who build fibre infrastructure
and ensures that other private companies in the
area can then access this infrastructure once it
has been built. The Government has said it would
support projects that propose the use of public
sector anchor tenancies as part of its Local Full Fibre
Network Programme, but we feel the Government
could be more proactive in exploring the use of
anchor tenancies.
43
42
Policy Recommendations
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7
For further information about the methodology and research
data included in this report, please contact Beatriz Cruz at the
Centre for Economics and Business Research (Cebr).
Beatriz Cruz, Senior Economist
Cebr
+44 (0) 20 7324 2873
bcruz@cber.com
Cebr is an independent consultancy which advises some of
the world's largest companies. Cebr's reputation for insightful
economic analysis, award-winning forecasting and decisive
business advice is based on innovative research by a renowned
team of macro and micro-economists.
Since its foundation in 1993 by former CBI and IBM Chief
Economist, Professor Douglas McWilliams, Cebr has been
"making business sense" by applying theoretical economics
backed by quantitative evidence to real-world decisions for FTSE
firms. It provides analysis, forecasts and strategic advice to major
multinationals, financial institutions, Government departments,
charities and trade bodies.
www.cebr.com
Nick Eul-Barker, Research Director
Walnut Unlimited
+44 (0) 20 7845 8348
Nick.Eul-Barker@walnutunlimited.com
Walnut is an independent market research agency that makes
up the research arm of the Unlimited Group. We specialise in
aligning research findings to human and market behaviours, and
in so doing, trying to truly understand the science behind human
decision-making. Our work covers a roster of private and public
sector clients including various projects among the SME audience,
both in the UK and abroad.
Our UK call centre in Bedford has a specialist B2B research
team who conducted the interviews for this project.
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