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Charles Levy
Senior Economist
Charles  Levy

A budget for high growth firms?

Authors: Charles Levy Charles Levy

23 March 2011

The focus on growth in Osborne’s second budget is certainly right, and provides a sharp contrast in tone to the Coalition’s first budget. But, we know that job creation in the recovery will be driven by a tiny core of high performance firms – if the budget is going to succeed in laying the foundations for sustainable economic growth then it must be assessed in terms of how well it meets the needs of these firms.

Last week we published the report Ready, Steady, Grow? How the government can support the development of more high growth firms. Drawing on interviews with entrepreneurs from current and potential high growth firms, the report identified the key needs of such organisations. The ‘basics’ of economic development – recruitment, skills the planning system and access to finance are absolutely fundamental to the success of these organisations. We can therefore warmly welcome many of today’s announcements – changes to the planning system and a stronger package of financial reforms for SMEs will help to create a better entrepreneurial environment for many potential high growth firms. Expanding the Entrepreneurs’ tax relief is particularly positive, and was something that we called for in our paper.

But, the government should have focused greater resources here rather than spending on expensive, high profile initiatives such as the extra 1% cut incorporation tax. The business cases of potential high growth firms are not made or broken by small (but expensive) tweaks such as these. This type of policy will therefore do little for potential high growth firms. Similarly, the focus on using modest financial instruments to create Enterprise Zones is of limited relevance for most high growth firms.

Alongside these ‘basic’ needs our research also found that high growth firms face ‘special’ problems around management and leadership, which are more acute for high growth firms than other businesses. There is a strong economic case for policy to support small and medium enterprises in overcoming these management and leadership related barriers to their growth. There is an urgent need to reconfigure business support arrangements to deliver meaningful, specialist and targeted business support that can help those who are running high growth firms to develop their leadership and management skills so that they can sustain the growth of their business. The announcement earlier this year of plans for a ‘Business Coaching for Growth’ service is a step in the right direction, but here Osborne has missed an opportunity to deliver on what the high growth firms of the future urgently need today.