How can the UK deliver growth in every postcode?

When Andy Burnham walked through the door of Number 10 as Britain’s new Prime Minister, he promised to deliver “good growth in every postcode”.

That pledge to support growth across the country – not just in the South East – is exactly what small and microbusinesses have longed to hear.

But that growth needs to be nurtured. In order to do that, policymakers need to ask the right question and use the right evidence to measure their progress.

The current approach tracks and celebrates the number of ‘scale-ups’. These are companies which are classified as ‘High-Growth Firms’ by the Organisation for Economic Co-operation and Development (OECD) because they have achieved an average annual growth of more than 20 per cent over a three-year period.

This is the wrong measure because it rewards a small group of firms that are already in the middle of a growth spurt. It tells ministers nothing about the much larger population of business owners whose ambition to grow is real, but remains unrealised.

It also offers them no way of knowing whether policies to support business growth are actually reaching the postcodes that the Prime Minister has pledged to include.

Why don't businesses grow consistently?

One reason that ministers are using the wrong measure is that for years we have been asking business owners the wrong question.

We have tended to ask business leaders: “How’s it going – still growing?”

But that question often assumes that growth is linear and that once business begin to grow, they continue to do so year after year. That’s simply not how it works.

At the Enterprise Research Centre (ERC) we have spent years tracking what happens to UK small business. We found that fewer than 15 per cent of firms manage to grow every year for several consecutive years.

And the number of companies that manage that feat has shrunk over the last two decades.

However, approximately one third of all businesses experienced a growth spurt at some point during the three-year cycle. Instead of continuous growth, this was followed by a plateau, then by a dip or another burst of expansion. In reality, this number is far more significant.

What is a 'high growth' firm?

If you combine the two numbers, you begin to see the real picture. There is no such thing as a High-Growth Firm. There are only businesses which are currently experiencing a growth episode and those which are not.

A business is not losing its way, simply because it plateaus or chooses to consolidate its position following a period of expansion. This is what growth looks like for almost everyone who’s ever done it. Today’s High Growth-Firms are simply not those of tomorrow.

To assert that we need to increase the number of high-growth firms year-on-year is to totally misunderstand the reality for all small business owners.

This is why the ERC has been arguing against the use of the OECD High-Growth Firm definition when measuring the success of policies designed to support business growth.

This definition has been visible in various policy announcements since July 2024, but it is a distraction that misdirects policy discussions and interventions.

With the new Government promising to support small and micro businesses, we have the opportunity for a significant reset.

There are many groups of firms that are capable of generating rapid growth, but one group in particular always gets overlooked: those micro-enterprises employing fewer than five people.

These businesses have the ability to create tens of thousands of jobs and millions of pounds in revenue over the medium to long-term.

Why support should focus on 'average firms'

That is why my ERC colleagues Kevin Mole and Vicki Belt recently highlighted the importance of the ‘everyday economy’ and argued that improving the performance of ‘average firms’ was crucial for the UK’s economic future.

If growth comes in episodes, then at any moment businesses are moving through a cycle of four states: active scaling; pauses between episodes of expansion; periods where owners choose to park growth by design; and periods where ambition may have faded for a variety of reasons, (such as international conflicts, the cost of doing business, poor payment practices, and difficulties in hiring people and obtaining finance).

We must recognise this and understand that very different policy responses are required for businesses at each stage of that cycle.

Much of the current support to encourage business growth has been built around whichever firms happen to be in the middle of a growth spurt right now.

This quietly favours particular places – usually London and the South East – and certain sectors over others.

Meanwhile, nobody is tracking the much bigger group of business owners (roughly 70 per cent) who say they want to grow.

Protecting ambition when growth plateaus

The real problem we are facing in the UK is that we are not translating that ambition into performance and you cannot fix a problem that you are not measuring.

If the promise of “good growth in every postcode” is going to mean anything, this is where it needs to start.

It is positive that SME lending has more than doubled in recent months and the new guarantee facilities run to ten-year terms (long enough to span a growth spurt, a plateau, and the following spurt). For the first time, the finance pipeline matches how businesses grow.

Mr Burnham’s devolution agenda and his proposal for a ‘Number 10 North’ has also created a natural opportunity to redress the balance and direct more of the support for business growth away from London and the South East.

Hopefully this will not be confined to the 11 mayoral authorities in England. Postcodes in the 'shadowlands' which have been overlooked by previous policies also need to be in the mix.

As Burnham’s team gathers in Number 10, we would urge that watching how businesses move between the four states should underpin a more realistic strategy for small business growth.

The priority should be to support businesses during periods when growth plateaus and protect their ambition. The growth episodes will look after themselves.

We need to stop counting ‘scale-ups’ as a measure of a successful policy outcome. This misreads the evidence and concentrates support on those firms that already have momentum on their side, while giving ministers no visibility of the much larger group whose ambition is quietly eroding.

The latter are the group with the most headroom to create growth in every postcode – if policymakers provide them with the support they need.

• This article is adapted from a blog originally published by the Enterprise Research Centre.

Further reading:

Growing pains: How to help small businesses scale

How to improve UK productivity

The key leadership skills for small business growth

How small businesses can achieve net zero

Mark Hart is Deputy Director of the Enterprise Research Centre and Professor of Entrepreneurship and Enterprise Policy at Warwick Business School.

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