SME Manufacturers' Growth Ambitions could add £83bn to UK Economy
A boost which could propel the UK from 12th to 7th in the global rankings of manufacturing economies, according to a new report from Make UK/ Civitas and the ERA Foundation.
04.03.2025
Small and medium-sized businesses are the backbone of the UK economy. There are 250,000 active manufacturing businesses in the UK, with 99% of these micro and small to medium companies. Almost two-thirds (64%) of these SMEs have the ambition to grow into large businesses which could deliver £83 billion to manufacturing GVA over the next decade.
This would in turn propel the UK from our current 12th placed to becoming the 7th largest manufacturing economy in the world having recently dropped out of the top 10.
A new Make UK/Civitas report, The Growth Mission: A Blueprint for Scaling up SME Manufacturers recommends that Government must ignite growth by introducing a super-growth allowance (150% capital allowance) and create an enhanced Growth Enterprise Scheme (GEIS) to turbocharge Britain’s small and medium sized enterprises (SMEs.) Such tax reliefs would encourage SME businesses to reinvest in their growth, improve productivity, and adopt new technologies, helping them scale-up, create jobs, and boost progress towards the government’s growth goal.
Today’s scale up report reveals that a very large proportion of manufacturers are unaware of key support schemes designed to help businesses to grow. 33% of SMEs do not know about the Business Growth Fund, while 37% are unaware of the British Business Bank, amongst others. Were those SMEs who currently do not engage with these government support bodies to access them at the normal rate, investment by Britain’s manufacturers would go up by £9.2billion.
- 2 out of 3 SME manufacturers want to grow into large businesses in the next 5-10 years
Top barrier to growth is the current labour deficit with both engineering and leadership skills shortages and 4/5 of SMEs say they struggle to find access to finance in the critical seed to early growth stages
Government should introduce a super-growth allowance (150% capital allowance) and create an enhanced Growth Enterprise Scheme (GEIS) to deliver SME boost
- Government should create an Estonia-style British business Bürokratt software to pool data collected by HMRC and ONS to micro-target identified companies
In the drive to turbocharge economic growth through AI, Estonia is the world-leader in e-government, providing all government services through an AI enabled online portal. The UK Government should learn from this example by creating an Estonia-style British business Bürokratt software to streamline supports in one place. It would also allow of leverage the data collected by HMRC and ONS to micro-target companies with relevant information about these schemes at the exact point it is most relevant for their growth.
The scale-up report further reveals that four out of five SMEs say they struggle to access finance during the ‘make or break’ seed to early growth stages of investment. Solving the challenges to accessing finance could increase UK manufacturing investment again by £9.2bn annually.
Current support for SMEs comes in the main from The Seed Enterprise Investment Scheme (SEIS) and the Enterprise Investment Scheme (EIS). Both government initiatives are intended to encourage investment in small and early-stage companies by offering tax reliefs to investors, but businesses must be less than 7 years old to access them. However, setting up a factory and recruiting and training staff takes more than 7 years, so most start-up manufacturers are never in a position to access the funds aiming to help them grow. Removing the age limit would open-up the potential for investors to consider manufacturers with genuine scale up potential to access capital that was not previously available.
Exporting into new markets is again proving difficult for SMEs, stalling scale-up potential. If the UK economy is to achieve the government’s ambition of highest growth in the G7 list of countries, we need to increase exports, but just under a quarter (22%) of manufacturers export directly. Our research showed that 38% of SMEs said a lack of understanding of local regulations and bureaucracy prevents them exporting, while 36% of SMEs say better communication from government is needed to improve awareness of export advice and export finance support already on offer.
Stephen Phipson, CEO of Make UK said:
“Using AI to leverage the wealth of data available in the UK to micro-target SMEs at exactly the right moment of their growth journey, where they will be most receptive to and benefit from the types of support to boost scale-up success will dramatically deliver quick-fire growth across the whole of the UK.
“Small and medium sized businesses already play a significant part in contributing to growth but, with the right support, they could do even more. Helping these firms to export and use data to pinpoint growth potential could result in huge dividends for the economy.
"To boost SME exports, Government should introduce an Export Development Scheme to improve access to trade finance and expand Export Finance services to incorporate additional risk management support. Business awareness is at an all-time low and a lack of awareness is the greatest barrier to SME engagement."
Other top barriers to growth include difficulties in adopting automation and lack of access to skilled labour, particularly skilled engineers and those employees with developed leadership skills. 41% SMEs want information/advice on adopting digital technologies/automation while 43% of SMEs want better support for apprenticeships to train the next generation of engineers and technicians. This shows why government must improve accessibility to skills funding provision with the transition to the Growth and Skills Levy.
Jim McConalogue, CEO, Civitas said:
"Government and industry must put the pedal to the metal to unleash the growth and export potential of Britain’s great SME manufacturers. This will mean resolving the blockages where more than a third often lack awareness of existing programmes available across finance, tech adoption, trade or skills, and then improving accessibility, so SMEs can be geared towards growth.
"Let’s propel investment by starting with a proposed new super-growth allowance and tearing up the rulebook for scale-up companies, hemmed in by tired old, age limit rules. Bring in a new Growth Enterprise Investment Scheme to give homegrown scale-ups a fighting chance through tax relief for their investors who are prepared to take the necessary risks.
"As we invest in our economic potential, to reach for that £83 billion prize, the skilling of the next generation of leaders, engineers and technicians will be essential. The benefits of a fully reformed and SME-accessible skills funding through the government’s Growth and Skills Levy could be remarkable, if pursued correctly."
Andrew Everett, CEO, ERA Foundation added:
“Small and Medium sized manufacturing companies are the lifeblood of the UK economy. In particular, the high-tech manufacturing companies that were the focus of this study have the potential to grow rapidly and deliver significant economic benefit.
"Many are oblivious of the support mechanisms available to them and the Government should work with industry to increase the awareness so that the growth potential is realised.
"Support for skills development, capital expenditure, finance for growth, exports and operational costs are critical for our high-tech manufacturing sector to deliver the economic benefit that we know they can. We look forward to seeing progress on the recommendations from this report.”
Business Secretary Jonathan Reynolds said:
“Small businesses are the engine of our economy, and our manufacturing SMEs are vital to delivering growth and keeping the UK at the forefront of innovation.
“For our Plan for Change to succeed we need SME manufacturers to be exporting and expanding, which is why we announced our Business Growth Service in December to bring all our support for exporters under one roof.
“And with our modern Industrial and Small Business Strategies launching this year, we’re backing our small firms for the long term to give them the certainty they need to thrive.”