The new study Growing Pains, published by insurance firm RSA, examines the shape of the UK business economy and the biggest barriers to achieving growth. A key finding is that UK businesses are increasingly “micro” in size – and this is having a large impact on the economy.
High-growth companies are defined as those achieving on average 20 per cent annual growth in employment for three consecutive years.
While the high proportion of SMEs in the UK is well documented, the research found that micro-sized businesses are the only size category to have grown their proportion of the UK business stock since 2000 – compared with small, medium and large-sized businesses – rising sharply by 1.4 million or 43 per cent.
What looks like an increase in entrepreneurship is actually a new generation of “micropreneurs” or sole traders. When looking at more detailed size band information, the number of zero-employee firms has increased by 21.4 per cent since the recession, making this the fastest growing business size category analysed.
“The UK has long been regarded as a great place to start a business, but the recent recession has had a significant impact on the business economy, with companies becoming smaller in size,” says David Swigciski, SME trading director at RSA.
“Unfortunately, continuing along this road isn’t an option if we want a sustained recovery from the economic downturn. Getting back on track and strengthening the economic recovery is a case of redressing the balance between start-ups and growth.
“This can be done by encouraging investment in growth and helping – as well as ensuring – SMEs reach their full growth potential.”
According to the study, turnover per worker climbs steadily in line with employee numbers, with companies employing 250-499 people yielding the highest turnover per employee (£186,100 on average). Therefore, helping more businesses to grow should reap greater economic benefit.
Yet, since 2005, the share of firms that were classified as high-growth plummeted across all geographical regions except London.
The decline was greatest in Wales, where the proportion of high-growth businesses fell by more than half, and Scotland, where it was down by more than a third.
Looking ahead to 2017, the number of high-growth enterprises is expected to recover as a result of improving economic conditions.
However, the proportion of businesses that are classified as high-growth is expected to remain below 2005 levels in all regions except London, which will continue to outperform the rest of the UK.
“Our research shows that the number of high growth businesses is expected to recover, yet the proportion will remain below pre-crisis levels,” adds Swigciski.
“This suggests that the Government’s business growth package is focused on the right kinds of support, but this needs to be sustained and built upon further. Small businesses are crying out for more support and better access to information.”
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