New analysis published today by the National Endowment for Science, Technology and the Arts (NESTA) shows that the UK's vital 'high-growth' businesses were more resilient than slower growing businesses during the recession, making them even more important than previously thought to the UK's economic recovery.

The report, Vital growth: the importance of high-growth businesses to the recovery, argues that because of their crucial role in creating jobs and their resilience during hard times, the government must put high-growth firms at the heart of the plan for growth. 

The research follows on from NESTA's previous work which shows that just 6 per cent of UK businesses are classed as high-growth, yet they are responsible for creating over half of all new jobs. This new analysis looks at how these high-growth businesses performed during the recession (2007 - 2010), what they need to survive and flourish and how government can create the right conditions for them to grow.

Key findings show:

• High growth businesses perform better in a recession than other businesses.
• They are the most important source of growth in recessionary times as they continue to create jobs and are less likely to become insolvent.
• They are a vital and robust source of growth for the UK and the government's policy for fostering economic growth must have them and their needs at its heart.

However the report issues a stark warning about the difficulties these businesses have in accessing finance. Whilst they have a greater need for capital than lower growth firms, they may be rated as disproportionately bad credit risks, even after a period of high-growth, by the kind of systems used to make commercial lending decisions. This is especially concerning given the sharp decline in risk capital funding seen in the UK since 2008.

Stian Westlake, director of policy and research at NESTA, says: "High-growth businesses have an even more vital role to play in the UK's economic recovery than we first thought. Not only do they hold up remarkably well in tough economic times but because of their innovative nature actually have the capacity to expand and increase wealth and jobs. It is critical that they receive the support they need to continue to flourish.

The report makes clear that whilst it is not easy to identify the high growth businesses of the future - as they are found across all sectors and business sizes - a common trait amongst them is innovation. By creating the right conditions for innovation to flourish, the authors argue that government can help these critical businesses continue to grow. This includes:    

• Removing obstacles to growth such as regulatory barriers eg. labour market regulation and barriers to setting up a new business
• Improving access to finance
• Investing in a skilled and creative workforce
• Improving networks between businesses and universities
• Overhauling government procurement to encourage innovation.

The analysis covers all UK businesses and compares high-growth with non-high growth businesses during the recession in four areas: Job creation, insolvency rates, productivity and debt ratios and finance requirements.

Other key findings for high-growth businesses during 2007-2010 are:

• The share they had of the market remains same during this recessionary period
• They are more resilient than non-high growth businesses and have markedly less insolvency rates.
• They are more likely to increase sales and employment
• They remain the most important source of job creation (still half of all jobs)

- Ends -

Notes to editor:

For further information, case studies and to arrange interviews, please contact:

Jan Singleton: 020 7438 2606/ [email protected]
Ruth Attride: 020 7438 2609/ [email protected]

About NESTA:

NESTA is the UK's foremost independent expert on how innovation can solve some of the country's major economic and social challenges. Its work is enabled by an endowment, funded by the National Lottery, and it operates at no cost to the government or taxpayer.

NESTA is a world leader in its field and carries out its work through a blend of experimental programmes, analytical research and investment in early-stage companies. www.nesta.org.uk

About the research:

The analysis is based on the ONS Business Structure Database which covers all UK businesses, with the exception of some very small businesses operating without VAT or PAYE schemes (self employed and those with low turnover and without employees) and some non-profit organisations. It is based on the Interdepartmental Business Register (IDBR), which contains records of over 2 million businesses from all sectors of the economy, representing nearly 99 per cent of UK economic activity. Analysis compares high-growth with non-high growth businesses between 2007 and 2010 in two areas: Job creation and growth rates. This is coupled with new analysis conducted by Experian pH for NESTA that looks at insolvency rates and business finance requirements.

NESTA estimates that there are approximately 11,000 high-growth businesses in the UK which include businesses such as Brompton (the bicycle manufacturer), Double Negative (which created the visual effects for films such as Harry Potter and Inception) and Imagination Technologies (which designs the chips in the iPad and iPhone, as well as making Pure digital radios).

The OECD definition of a high-growth company is one with 10 or more employees which experience employment growth averaging 20% or more per year over a three year period.