30 November 2015

  |  CBI Updates Team

Update

Director-General's speech at MSB Summit

Leveraging more MSB potential can propel even stronger economic growth for the UK

The CBI's director-general delivers the opening address at the CBI's MSB Summit. London, 2015

 

The CBI's director-general said

I’ve been lucky enough to work with a number of great MSBs over the years. Most recently an outstanding manufacturer called The Vitec Group. Vitec is a British MSB and is the world’s biggest manufacturer of camera supports, exports 75% of what it makes and is a true global success story. It was a super company to be part of. 

But I’ve seen how tough life can be too. 

Smaller firms can have more agility but less resilience. Exchange rate movements can be crippling. Growth can bring strains – new governance, new systems, new financing challenges. All need careful thinking and can be helped or hindered by quality of public policy.

Countries like Germany have understood the importance of medium sized businesses for years. They have a great word for them – the Mittelstand. It doesn’t really translate into English, so forgive me if I use the rather less inspiring term MSBs. 

But even if the description doesn’t inspire, the performance does. 

While the UK’s MSBs make up just 2% of firms, they’re responsible for 1 in 6 jobs and generate nearly a quarter of private sector revenue.

The CBI, under my predecessor John Cridland, was one of the first organisations to talk about this and put MSBs on the map. 

We have campaigned for changes to support them, and forged links to connect them. Over 250 MSBs have joined the CBI in the last 5 years. 

We’ve been doing three main things.

  • We’ve been helping build export confidence, working with UKTI to offer ‘MSB only’ trade missions to Brazil, Russia and Turkey. 
  • We’re helping expand capabilities, creating CBI M clubs, where growing business can swap experiences and ideas. This year, we’ll reach an important milestone with the creation of the 100th M Club. 
  • We’re helping medium-sized businesses access capital more easily, by successfully persuading the government to increase the supply of long-term capital. 

These will remain a priority for the future. Today is about the next chapter – what next. And on this I want to share with you the findings from our recent research.

Today we are publishing a new report into MSBs – “Life in the Fast-lane.” 

Produced in partnership with Experian and Lloyds Bank, the focus of our new report is on scale-ups. That is, the high flying MSBs whose revenues have grown by 20% or more for three years in a row. 

The team interviewed 50 scale up leaders face to face and analysed data from thousands of other MSBs across the country. 

Let me highlight two key findings.

First – the report shows that – in the three years from 2010 – 11% of MSBs were scale-ups and that they were the difference between recession and recovery. 

Without the 59 billion pounds generated by these fast-growth firms from 2010-13 the UK would have been in recession during this time. The rest of the economy declined by 39 billion pounds. 

Instead of growing by 2.7%, the economy would have shrunk by 1.3%. 

Quite some difference, and all this from only 3000 firms. 

It’s clear that fast-growing medium-sized businesses are the unsung heroes of our economy. 

It’s important that we tell this story, loudly and clearly – an extraordinary contribution to growth, prosperity and living standards. 

The second finding is that – when it comes to scaling-up – there are no rules about who’s included. 

Scale-ups include firms of all ages, all sectors and all regions.

Reading the media you can sometimes be tempted to think that all this growth is coming from high tech, that London is the epicentre, and that only young businesses grow.

Not true. 

We found that seven in ten scale-ups are located outside London – from tech companies in Cambridge, to manufacturers in the Midlands and gaming industry in Dundee. 

It just goes to show that scale-ups have the potential to bring recovery to every corner of the UK. 

Our report also covers businesses from a whole range of sectors, from infection control product company Quadralene, to ‘home exchange’ firm Love Home Swap and Southampton FC – the world’s fastest growing football brand. 

And we found that you’re never too old for ambition. 

The report includes AirBnB, founded in San Francisco in 2008 and Weston Cider, founded in the Herefordshire countryside in 1880. 

Two firms of very different ages, with very different scale-up journeys ahead of them, but who are united by much of the same thinking.

So – Britain’s scale-ups come from many walks of life – and they’ve made a huge contribution to our economic recovery.

And – looking forward – fast-growing medium-sized firms will also be crucial to our future economic prosperity. 

Our report found that from 2010-13, 11% of medium-sized businesses were fast-growing scale-ups. 

Yet back in 2005-08, the hit rate was significantly higher – at 15%. 

If the MSB scale-up rate in 2010-13 had matched the 15% level of the earlier years, the addition to GDP I mentioned earlier would have been £27 billion higher – a staggering uplift.

This just illustrates how raising the proportion of scale-up ‘MSBs could make an even greater contribution to our future prosperity. 

Of course, this will be no simple task. 

Our report sets out themes that draw on the lessons from successful MSBs. 

For example, Tony Austin - CEO and Co-founder of data firm Beauhurst – noted how his company attracted potential employees not by competing on salary, but by selling their company culture and the chance to be part of an exciting journey. 

And TestPlant advised firms to think global from day one. They started with the aim of creating an international software business with the US as a key market, and – today – exports make up 85% of their sales. 

But while ‘scaling-up’ is all about innovation, leadership and entrepreneurship, creating the right policy environment will be crucial. 

The CBI will be campaigning for five main priorities, several of which are highlighted as issues by the scaleup leaders in our report.  

First, skills and access to talent. Companies of all sizes are facing acute skill shortages. We need to solve this problem. 

We applaud the government’s ambition to create 3m new apprentices by the 2020. 

However, its new Apprenticeship Levy, announced last week, will affect all businesses with a payroll over £3m, so many of the UK’s MSBs will now face a new payroll tax. It will cost a total of £3 billion. 

It’s a big number so it needs to deliver big results. 

It must prioritise quality over quantity. It must not get swamped in bureaucracy. And it must be led by business to get the best outcome. 

One of our top goals over the next few months will be to help ensure this happens. 

At the same time we’ll be calling for Tier 2 visa cap to be lifted to bring in the best talent from around the world. 

Our second policy priority is world class infrastructure – roads, rail, aviation, broadband. The UK stands 24th in the world for its quality of infrastructure, despite having the 5th largest economy. For smaller businesses, fast and reliable broadband speeds and good transport links really matter. 

And in too many parts of the UK just don’t have them. 

We welcome the government’s on-paper commitment to £120 billion of spending on infrastructure over the next 5 years.

Now it needs to get on and build it. 

Third, business needs globally competitive tax and regulation. We will be campaigning for business rates reform as part of the Business Tax Roadmap promised by the Chancellor for 2016. 

And also for the creation of Long Term Lending Trusts, giving tax incentives for individuals offering long term loans to business. This will be a particular boost for medium sized firms. 

Fourth, innovation spending. The UK is bottom of the G7 for spending on R&D. We will be calling for the government to increase its commitment and welcome recent moves in science, aerospace and automotive. 

And finally, on exports, government needs to join up across departments to support smaller businesses in expanding into new markets. 

This is not just about action on the national stage, it’s increasingly about engaging locally, regionally and with the devolved nations. 

The UK is changing and the CBI is changing with it. 

We will be using our networks across the UK to bring a strong voice of business to devolution debates across the country. 

Our scaleups outside London hold the key to future prosperity across the country. 

Their voice needs to and will be heard.     

So, to bring my thoughts to a close…

Medium-sized businesses really matter. 

And today’s report is an invitation to MSBs of all ages, regions and sectors to do even more. 

In the past, scale-ups helped pull us into recovery.

And in the future they can propel us into prosperity. 

To do this, we’ll need to grow the ranks of Britain’s fast-growing scale-ups.  

We’ll need to learn from the successes and mistakes of those who are already there. 

We’ll need to push for the right policy priorities at national and regional levels – on skills, on exports, tax, regulation, innovation and infrastructure.

And we’ll need to get firing on all cylinders – creating specialised hubs of private sector excellence all across the country. 

As Director-General of the CBI, I look forward to working with all of you to make this happen.