A new report released today by the Business Growth Fund (BGF), a major UK investor in growing businesses, and academic Sir Anthony Seldon calls for urgent action to recapitalise 21,000 businesses – the UK’s growth economy companies. According to the report, backed up by data from accountants PwC, there is a persistent shortfall in growth funding, which has a profound impact on the long-term prospects of the UK economy. This ‘growth economy gap’ is made worse by the UK’s regional disparities and there is a risk the Covid-19 crisis will turn this gap into a chasm.
The report determines it is the job of private actors to drive capital to growth economy companies, but the government must also play a more active role to crowd that capital in by convening, liberalising, incentivising and co-investing when appropriate.
BGF and Sir Anthony Seldon, who is Vice-Chancellor of The University of Buckingham, are proposing an overarching £15bn National Renewal Fund. This pool of capital will be comprised of equity investment from the pensions industry, insurance companies, quoted investment trusts, private clients and, as an effective extension of the Future Fund, UK government funding for the wider population of growth companies.
In a first move, Coutts – the Private Banking arm of NatWest – together with BGF is announcing the launch of its fundraising for The UK Enterprise Fund. The fund will enable Coutts’ clients to invest in diverse and high-potential growth economy companies across all regions of the UK, with specific programmes for female-led businesses and aimed at increasing the diversity of management teams. The partnership will build on Coutts and BGF’s existing platforms, drawing on the combined scale and financial firepower of the two organisations.
According to exclusive research undertaken by PwC for BGF, the findings of which are unveiled in this report, there are more than 21,000 growth economy companies in the UK. Growth economy companies are those businesses that turnover between £2.5 million and £100 million – the majority are fast-growing and profitable, with total turnover rising 4 per cent a year on average (between 2013-18), compared with average GDP growth of 2 per cent a year over the same period.
Recommendations outlined in the report follow interviews with 30 influential figures from the fields of finance, business and Government, such as Andy Haldane (chief economist at the Bank of England), Lord Karan Bilimoria (President of the Confederation of British Industry), Sherry Coutu (entrepreneur, investor and founder of the Scale Up Institute), and Paul Johnson (director of the Institute for Fiscal Studies), amongst others.
It lays out specific mechanisms for raising the capital required for a National Renewal Fund. These include:
- £3 billion invested through a quoted vehicle/s or comparable vehicles like the UK Enterprise Fund, to channel private client money to the growth economy.
- £3 billion of investment from defined benefit (DB) pension schemes run by the UK’s largest companies.
- £3 billion of investment from defined contribution (DC) pension schemes. To open up this source of funding, the report proposes a much-needed change to the fee charge cap situation.
- £3 billion from large private sector investors such as the insurance industry, sovereign wealth funds and other actors.
- £3 billion from Government in the form of co-investment that essentially extends the concept of the Future Fund and turns it into a long-term agent of change.
The solutions put forward in this report and the ambition to tackle the equity funding gap is in line with stated Government objectives — particularly to ‘level up’ the economy by tackling regional disparities, but also to increase national focus on R&D and to give pension holders greater control over their assets.
Sir Anthony Seldon, Vice-Chancellor of The University of Buckingham, said: “An economy in decline is a complex problem, and a solution focused on closing the funding gap currently faced by growth economy companies has become an urgent imperative. Growth across these businesses will be under serious threat unless decisive action is taken this autumn.
“Whilst the report details informative diversity of views and proposed solutions amongst the experts I interviewed, it is widely held and crystal clear that companies need appropriate support, and that debt will not be a long-term solution. Indeed, too much debt will be crippling. Without equity investment, businesses – and the country as a whole – will not meet its growth potential, and the opportunities of a post-Brexit world will be squandered.”
Stephen Welton, Executive Chairman, BGF said: “The economy requires a strategy for channelling funding specifically to the viable and high potential companies that are the engine room of this country. This is not a bail-out fund. The drive towards a National Renewal Fund is about the private sector, with the convening support of Government, coming together to invest in the future and back growth economy companies as they scale up.
“This strategy must be deployed locally, it must be patient and it must be led, and delivered, by commercial organisations. This will ensure that UK growth economy companies and entrepreneurs have access to the equity funding they need to invest and employ through this period of economic decline, as key actors in the investment industry step forward to make this a reality.”
Alison Rose, Chief Executive of NatWest said: “Growing companies are an essential part of the entrepreneurial ecosystem, and providing the right type of financing to these businesses is fundamental to the recovery of the UK’s economy. Last year I published the Rose Review into Female Entrepreneurship, and indeed the most significant barrier certainly where women in business are concerned, remains awareness and access to capital. I am proud that Coutts, the Private Banking arm of NatWest, together with BGF is highlighting and supporting the need for growth capital, by launching its fundraising for The UK Enterprise Fund. Through the Fund, Coutts’ clients will be able to invest in diverse and high-potential growth economy companies across all regions of the UK, with specific programmes for female-led businesses. This Report outlines the measures that can be taken to give the growth economy the support it needs not merely to survive, but also to thrive.”
Stephen added: “The launch of the UK Enterprise Fund is a demonstration, not just of the commitment from BGF and Coutts, but of the level of demand. The nation has focused on debt so far — now it’s time to think beyond survival, to how we will grow and thrive, towards equity, and so properly deliver the UK’s recapitalisation needs and future wealth and job creation.”
“This not about plugging a few financial holes, but about making the kind of visionary decisions that will define who we are as a country, and what our economy will look like in the coming decades.”
The report can be downloaded in full here: ‘From survive to thrive – Funding the growth economy to kickstart an investment-led recovery’.