Why we need a National Renewal Fund to kickstart an investment-led recovery

The long-term effect of this economic blow cannot be overestimated. That is why we need to act now and protect this country’s economic dynamism – in particular the small and medium-sized businesses across Britain needed most for our economy to tick, who are currently being denied the financing to flourish.

I’m really proud to say we have invested £300m in Yorkshire-based companies. These span a wide range of sectors, from fast growing retailer Buy it Direct to leading leisure destination Yorkshire Wildlife Park. They include education firms such as Operam Education Group and 365 Response, a Wakefield-based technology business that provides essential transport management software to the NHS.

These are all dynamic, innovative, well-run businesses. They have the potential to grow to become national and international champions. They simply need funding to help them get there.

The companies concerned are those that comprise what we call the “growth economy”. There are roughly 21,400 businesses across the country in this category. They report turnover of between £2.5-100m a year and they have, on average, grown at twice the pace of GDP in recent years.

These are precisely the companies BGF was set up to support when, following the global financial crisis, we were established to provide equity finance nationwide for firms that were struggling to access the funding they needed due to the credit crunch. Since then, we have backed about 350 companies from all across the UK, investing £2.5bn, providing long-term, patient funding to help companies grow at a pace that’s right for them.

Here’s where Covid-19 comes in. Sadly, there was already a significant shortfall in funding available for growth economy companies prior to the pandemic. This is not a new problem. In a report I have co-authored with the eminent historian Sir Anthony Seldon, we show that the shortfall has been recognised as a national challenge for more than 90 years.

However, due to the pandemic, the already limited sources of funding available for the growth economy are fast drying up. This comes at the same time as businesses are being forced to take on more debt just to see them survive through the crisis. Because of weaker trading conditions and additional borrowing, it has been estimated that by March 2021, small and medium-sized businesses will owe a staggering £33-36bn of unsustainable debt, according to a report by the industry group TheCityUK.

There is now a real risk that growth economy companies will be severely constrained and unable to fulfil their potential. That means missing out on the innovation, imagination and job creation these businesses are capable of.

But there is another way. If we unlock funding for the growth economy, and allocate it effectively around the country by a network of regional specialists, arranging investment solely on commercial terms, then we have a fantastic opportunity. Supporting the growth economy means nurturing entrepreneurship. It means putting our faith in human ingenuity to solve global problems. It means defining who we are as a country, and what our economy will look like in the coming decades.

In our report, Sir Anthony Seldon and I have outlined our plan for a £15bn National Renewal Fund made up of contributions from the pensions industry, insurers, quoted investment vehicles and Government.

At BGF, we’re making the first move alongside NatWest’s private banking arm, Coutts, by launching fundraising for the UK Enterprise Fund. This fund will channel investment from Coutts’ clients into diverse and high-potential growth economy companies across all regions of the UK, with a special focus on doing more to promote female entrepreneurs.

Yorkshire businesses will be a crucial part of this national effort to not only get our economy back on its feet, but to back the businesses that will drive prosperity well into the future.

We see this fund as the first step on what I hope will be a collaboration between Government, business and investors to channel equity funding to the growth economy, and propel a nationwide and sustained upwards trajectory in economic growth. Yorkshire has been one of the most active investment areas for BGF over the last 10 years; our aim is to make sure we don’t lose that momentum, ensuring this crisis is one that can be met and overcome. With the right funding to match the obvious talent, there is reason for real optimism, not blind hope. But it means those with the risk capital put it to work, now.