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Supporting High Growth Firms: Easier said than done?

Authors: Dr Neil Lee Neil Lee

21 October 2010

One of the themes of the Spending Review was a focus on growth. Yet while it is good to aim for growth, its not easy to achieve it.

Policy makers have recently focused on the creation of High Growth Firms – fast growing companies which are highly important for employment growth. There’s a neat statistic about them from NESTA: only 6% of firms are responsible for half of all employment growth. Because of this, we’ve been arguing for some time that policy needs to focus on supporting these companies.

So we were intrigued to see a note on High Growth Firms hidden away in the spending review (page 52, for the geeks). It announced £200 million to be spent by 2014-15 on supporting “manufacturing and business development, with a focus on supporting potential high growth companies and the commercialisation of technologies…”

We’re not complaining about this. But there are some problems with this approach – in particular, how can policy makers identify “potential high growth companies”? As part of the Cities 2020 and Knowledge Economy programme we’re currently working on the difficult issues of support, rather than simply measurement.

It’s easy to identify firms which are growing – and even easier to identify those which are not. But it’s hard to tell which firms would grow (or grow faster) with government support but wouldn’t have done well without it. Because of this, existing support is currently often targeted at firms which were growing anyway. They may be grateful for the support, but is this a good use of taxpayer money? And what support is best anyway?

The growth paper (due early next week) will no doubt have tackled these difficult issues. But we’ve seen little on the support issue and much more on the characteristics of these firms. These firms may lead to growth, but unless we can identify them there’s no guarantee that the taxpayer can make more of them.

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