Budget 2010: Growth capital fund and green investment bank can rebalance the economy

24/03/10

Responding to the announcement of the £200 million Growth Capital Fund, Jonathan Kestenbaum, Chief Executive of NESTA comments: 'The road to economic revival will travel through innovative high growth firms. These businesses offer the best route to job creation and long-term sustainable growth but they must be able to access the funds without delay or we risk losing the potential it offers'.

Responding to the establishment of the Green Investment Bank, Jonathan Kestenbaum continues: 'The green economy will generate one million jobs in the UK and a market size of £46 billion within a few years. The new fund, alongside better use of Government spending power, positions this sector at the heart of a rebalanced economy'.

Further Information on High Growth Businesses and the potential of the UK's Green Industries:

The Chancellor's announcement of a £200 million Growth Capital Fund is a bold measure to promote economic recovery. Growth businesses hold the key to economic success - 6% of high-growth businesses in the last decade created 54% of new jobs. NESTA's research has also shown that these entrepreneurs need the right climate to thrive including access to venture and growth capital.

In addition, NESTA has identified green technology as a crucial area of growth and is an active investor in green tech start-ups. The UK has a competitive advantage in green technology built on historic manufacturing strength which we must build on to create new jobs. We welcome the establishment of the Green Investment Bank.

High growth businesses:

• The OECD definition of high growth companies are those with 10 or more employees which experience employment growth averaging 20% or more per year over a three year period.

• NESTA analysed for the first time business growth across the economy between 2005 and 2008. It found that:

-  6% of firms employing 10+ people are high growth - 11,530 companies

-  This figure is higher than for the United States where it is around 5%

-  These firms generated almost half of all new jobs in this period - 1.3millions, compared to 2.9 million jobs across all established firms (including those employing less than 10 people).

-  High-growth firms saw employment growth of 3.5 times over the 3 year period, compared to 1.2 times for modest growth firms.

-  Evidence from the United States suggests that this relationship holds in recessions too.

- These 'super companies' thrive across the country. The North West, Scotland and the East of England each host a high share of high growth firms, closely followed by the south West, Yorkshire and Humberside and the West Midlands. Almost a third of high-growth firms are located in Greater London and the South East.

- It's not just about start-ups: Although young firms are more likely to be high-growth, the majority of high-growth firms (70%) are at least five years old. Still, young high-growth firms are responsible for a fifth of the jobs created by high-growth firms.

- High growth businesses can be found in all sectors - what they have in common is that they are highly innovative. Around 6% of construction firms are high growth; around 8-9% of business services firms (which includes consulting firms) are high growth. What they all have in common is that these businesses are highly innovative and grow twice as fast as their non-innovative businesses. Wherever firms invest in innovation is where we can expect growth.

Potential of green industries:

The US and China are storming ahead in green tech investment. Last year's US stimulus package included $50 billion for energy programmes, much of it focused on energy efficiency and renewable energy, and $20 billion in tax incentives for renewable energy and efficiency. This dwarfs the UK's £2billion investment. China is focused on low-cost manufacturing of solar, wind and batteries and building the world's biggest market for these products.

NESTA estimates that by 2013 the green economy is forecast to grow annually by 7%, with a UK market of £46 billion; creating an additional 1,000,000 jobs. But public policy has an important role to play. To encourage growth, government needs to foster a supportive financial architecture (including a thriving venture capital sector), encourage effective links between business and universities, and use the clout of its £140bn procurement budget to support innovation.

The effects of not investing in green technology will cost the UK £28 billion in lost revenue. Failing to capture a share of the global market for clean technologies and environmental services, and falling behind with plans for renewable energy production could lead to a loss of over £28 billion in revenues.

This is not about picking winners it's about rebalancing the economy. 'Industrial policy' in the UK carries with it a heavy history. Previous industrial interventions in the 1960s and 1970s failed because they focused on sustaining existing industries, rather than encouraging new ones. In addition, governments focused on pet industries and technologies - such as Concorde - in which a costly technology was researched and promoted to meet an unclear customer need.

Notes to editors

For further information or to speak with an economist, please contact Chani Hirsch on 020 7438 2601. 

About NESTA

NESTA is the largest independent endowment in the UK. Its mission is to support innovation to drive economic recovery and solve some of the UK's major social challenges. NESTA is a world leader in its field and is in a unique position to support and promote innovation through a blend of practical programmes, policy and research and investment in early-stage companies.

With the largest portfolio of pre-revenue, high tech businesses in the UK, NESTA is an active investor in green technology.