Member Article

Why a Regional Industrial Policy is Vital

Six per cent is not a large proportion of the whole – to achieve this result in a SAT or other examination would be disappointing but in the context of kick-starting economic growth it appears to be a vital statistic.

The National Endowment for Science, Technology and the Arts or “Nesta”, published research in 2009 which concluded that, “a small number of high-growth businesses are responsible for the lion’s share of job creation and prosperity”. This conclusion is not radical and confirms the common wisdom as evidenced in the USA that new growth companies, Facebook, Apple, Microsoft being good examples drive job creation and growth when compared with industrial companies like GM. However, perhaps the Nesta conclusion has lain dormant for too long and should be re-visited.

The vital statistic Nesta identified was that high growth companies represent only six per cent of all UK firms employing ten or more people and an even smaller proportion of all UK firms. However, those high-growth companies created the majority of jobs. In the three years to 2009, high growth companies created 1.3 million new jobs from a total of 2.4 million.

High-growth firms include start-ups and early stage businesses but a significant number (70%) have been established for at least five years. The sectors in which such companies are to be found include technology but also manufacturing, business services and even real estate – a cross-section of the UK’s industrial base.

The distribution of high-growth companies across the UK is uneven. The majority of these companies are based in Scotland although the South-East and London score highly and together represent the largest concentration by far.

If an industrial policy is required to promote growth and jobs then such policy should be built around high-growth companies and the employment benefits they bring. Combining this with a regional emphasis would also be important.

The right industrial policy could be for qualifying high-growth companies established and with the majority of business in say the North-East, to receive favourable tax status including the ability of shareholders to receive dividends and capital gains tax free.

Rather than Government or regional grants and other non-productive support combining a regional industrial policy around tax policy, would be a real spur to growth and job creation.

This was posted in Bdaily's Members' News section by Tim Stocks .