About the report

LSEG foreword

Policymakers of all political persuasions are clear: small and medium-sized enterprises (SMEs) are the heartbeat of our economy, driving jobs and growth. Their dynamism plays a huge part in the UK’s ability to innovate and export, and, in doing so, creates high-quality jobs for the next generation, while addressing stubborn structural economic issues, such as low productivity.At London Stock Exchange Group, we agree and are proud to publish the fifth annual edition of our groundbreaking report: 1000 Companies to Inspire Britain, which identifies the United Kingdom’s fastest-growing SMEs and high-growth companies across multiple sectors and regions.

Key findings from the report

The service sector contributes about 80% of UK GDP, but our research paints an encouraging picture of diversity among the country’s fastest-growing SMEs. The top five industries represented, accounting for 40% of the list, includes Financial Services but the biggest industry by far is Engineering & Construction, followed by Information Technology. The UK can be confident in its economic potential in both traditional and newer business sectors.

While London and the South East are traditionally regarded as the engine of British economic growth, more than 60% of businesses on our list are located outside that region. Companies in the North West and the West Midlands also see the highest growth, with turnover increasing by more than two and three times the national average, respectively.

"The service sector contributes about 80% of the UK GDP, but our research paints an encouraging picture of diversity among the country's fastest-growing SMEs" - Nikhil Rathi, CEO, London Stock Exchange plc

This is against a strong national average of 71% turnover growth – similar to the 2016 figure and up from 50% the year before.

Edinburgh is one of the top ten cities for average turnover growth at 83%, while the number of firms from Northern Ireland has doubled on last year. In Wales, innovative clinical healthcare providers, including to the NHS, operating across a multitude of cutting-edge health disciplines, make up 15% of the companies featured, three times the national average. Given that six out of ten private sector workers across the UK are employed by small or medium-sized businesses, the picture painted by our latest study is grounds for optimism.

The question is will we capitalise on this opportunity or let it slip away?

How do we reach our post-Brexit potential?

Brexit has highlighted many issues, which businesses large and small are working to address, along with UK and EU Governments, in order to ensure the continued economic well-being of all citizens. From friction-less access to markets and movement of skilled labour, to reducing trade barriers through appropriate and cooperative standards of international regulation.

But some issues pre-date Brexit, including ensuring dynamic SMEs like those in our report can realise their potential and scaleup into the global leaders of tomorrow. This means having a healthy growth finance market that works for all companies and investors. The vast majority of SME finance, however, comes in the form of debt. Debt may not always be the right financing vehicle for start-ups, which need to invest permanent capital in growing their business instead of servicing a loan every month.

Over-reliance on debt means too many entrepreneurs are scaling back their ambitions rather than scaling up their businesses. According to the Bank of England, a third of UK SMEs see themselves as having made too little investment, across the range of funding options open to them. More than a fifth of these businesses either ran into onerous collateral requirements or were unable to obtain funding for the duration they required – barriers that are unique to the debt market.

Yet, while the Government incentivises debt through tax-deductibility, equity growth finance is taxed several times over from capital gains tax to dividend tax to stamp duty. In economies like the US, equity in-vestment is more fiscally viable and prevalent. This may explain why 60% of the world’s most valuable companies come from America, while less than 15% come from Europe – down from 30% a decade ago. China, by the way, is catching up fast.

Despite the fiscal bias against it, the potential of equity finance is clear. When the Government made shares in high growth companies eligible for ISA inclusion, £4bn flowed into them, helping them to grow and invest. The exemption of AIM shares from stamp duty, ensuring a fairer cost of capital for growth companies, was also very welcome. As we seek to build an export-led economy, it is notable that companies quoted on AIM – the UK’s globally successful capital growth market – are five times more likely to export than the national average.

And the potential of SMEs is just as clear. Research has shown, on average, the most dynamic of these can lay claim to eight patents or trademarks each. Innovation like this means the jobs they create tend to be high quality and well paid, helping to address our productivity problem and giving the next generation the economic future they deserve.

"SMEs are the heartbeat of our economy, driving jobs and growth. Their dynamism plays a huge part in the UK's ability to innovate and export" - Nikhil Rathi, CEO, London Stock Exchange plc

Last year, the UK created a record number of start-ups. Some studies estimate just a 1% increase in the number of high-growth companies would drive an additional 238,000 jobs.

An economy that truly works for everyone should see capital flow bottom up to risk takers and entrepreneurs who create the jobs of tomorrow, not just top down to a few major corporations. So, we welcome the Government’s recognition when setting out its Industrial Strategy that more must be done to support innovative businesses to scaleup. We fully supported the Patient Capital Review and the £2.5bn British Business Bank fund will ensure billions of extra pounds of vital investment flows into our dynamic SMEs.

The Government should be commended for engaging with this problem while other issues compete for its attention and we look forward to continuing to work with policy makers to continue to widen access to patient capital.

If we seize this opportunity, the economic rewards could be huge.

Our supporters

Our sincerest thanks go to our sponsors, without whose backing this report could not be possible. Cenkos and the Business Growth Fund’s unwavering support over five years is testament to their dedication to UK SMEs. We are delighted to also welcome the British Business Bank as a sponsor this year.

DueDil – who itself has featured in one of these reports – has been instrumental in identifying and auditing the participating companies, while our media partner The Telegraph continues to demonstrate its long-standing commitment to highlighting the cause of SMEs and the wider role UK markets play in supporting entrepreneurship and innovation around the world.

I am grateful to a wide range of expert contributors: BCC, UK BBA, BVCA, CBI, FSB, Scottish Chambers of Commerce, Tech City UK, ScaleUp Institute and QCA for their unique and insightful perspectives on the SME and growth finance landscape.

Finally, I would like to extend my personal thanks to the Prime Minister, The Rt Hon Theresa May MP; The First Minister of Scotland, The Rt Hon Nicola Sturgeon MSP; and the Shadow Economic Secretary to the Treasury, Jonathan Reynolds MP. This cross-party recognition of the need to support our dynamic SMEs to scaleup will be crucial to the economic future of our country.

I hope you are inspired.