Patchy progress despite some local hot spots

With some notable exceptions, growth in Britain has been fastest in London and south-east England, as James Dean discovers

If you were to tell a Wearsider that Britain isn’t the carmaking power it used to be, they would probably respond with a confused look. After all, they made half a million motors in Sunderland last year.

At a sprawling industrial estate, just north of the River Wear, is Nissan Motor Manufacturing. In 2013, the hi-tech plant built 286,000 Nissan Qashqai models, the country’s best-selling home-built marque.

Some 275 miles south on the M1 is DeepMind Technologies. DeepMind is a London-based artificial intelligence company set up two years ago by Demis Hassibis, a 37-year-old computer programmer.

The company has engineered a cutting-edge form of artificial intelligence that was able to work out the rules of old arcade video games and complete them without any help from humans. Mr Hassibis last month sold the company to Google for a rumoured £400 million.

While carmaking at Nissan in Sunderland and computer programming at DeepMind in London appear to be at opposite ends of the spectrum, they do share two traits that are valued so highly by the Chancellor of the Exchequer – they are growing fast and they are creating jobs.

Across the country, growth is uneven. Recent figures from StartUp Britain, a collective of British entrepreneurs and big businesses, showed that 137,000 companies were created in London in 2013 – a quarter of the 526,000 created across the UK last year. In stark contrast to the capital, just 16,000 new companies were created in Birmingham, 12,000 in Manchester and 8,000 in Glasgow.

The government’s growth policy rests heavily on smaller businesses succeeding wherever they are in the country

There is also a great imbalance in terms of investment from overseas. Research by EY, the professional services firm, says London attracts 45 per cent of all UK projects that are financed with foreign money. At the other end of the scale, the South West attracts just 2 per cent of projects, as does the East Midlands.

The government’s growth policy rests heavily on smaller businesses (SMEs) succeeding wherever they are in the country, but for small businesses to grow quickly, they need access to free flows of capital. To this extent, the government and the Bank of England have turned the financial taps on full blast – yet somewhere in the pipes, there is a blockage.

Created in 2012, the Funding for Lending Scheme has pushed billions of pounds of cheap government money towards the banking sector. The scheme has dual ideals – to get credit to cash-starved small businesses, wherever they are in the country, and to make mortgages cheaper. On the latter it has succeeded; on the former it has not.

Net lending to small businesses fell by a staggering £1.2 billion in December, according to the latest figures on the scheme. Nick Clegg, the Deputy Prime Minister, complained that the major banks were still not lending enough to small companies, despite their insistence they were ready and willing to lend. Meanwhile, banks and building societies were handing out mortgages at the fastest pace since January 2008, the figures showed.

However, the British Bankers’ Association claimed that some of this was down to perception rather than tight-fistedness, while António Horta-Osório, the chief executive of Lloyds Banking Group, recently pledged more than £1 billion for loans to small businesses.

Iain Moffatt, UK head of regions at KPMG, the professional services firm, says this was “yet another positive sign the economy is getting back on its feet and that growth is the order of the day”. Nonetheless, a poll by KPMG found that the many mid-market businesses were unwilling to take the risks associated with external financing. Small businesses, Mr Moffatt says, remain unconvinced about the banks, which they perceive as having been unsupportive through the recession, when they needed investment the most.

“Despite positive economic signs, many SMEs are not entirely convinced that the economy is out of the woods yet,” he says. “If the economy doesn’t do as well as predicted or interest rates increase too early, the risk of potential insolvency could be heightened for many businesses that intend to fund growth via new debt.”

Mr Moffatt says it is important that small businesses looking to borrow money are able to “accommodate bumps in the road as the economy repairs itself”.

To take the banks out of the equation, the government created the £3.2-billion Regional Growth Fund (RGF) in 2010, with the aim of creating hundreds of thousands of jobs across the country by financing growth businesses.

It has had its problems. The RGF was criticised by the National Audit Office as “slow to create jobs” and as facing “a significant challenge to produce the number of jobs expected”. Mr Clegg has said that there is “no one magic-wand answer” to the funding problems faced by small businesses.

Nevertheless, the money is there and many businesses have benefited. The RGF recently handed a £9.3-million grant to Nissan in Sunderland, which in turn coaxed a £125-million cash injection into the plant from Nissan itself. As a result, the plant’s workforce is expected to swell to more than 7,000 – a far cry from the 430 who put together the first Bluebird back in 1986.

CASE STUDY

DECONTAMINATING FUNDING

Archimedes discovered the theory of displacement while lying in a public bath. When Charlie Gamble, an employee at the Hughes Group, accidentally stepped into a tank containing sulphurous material, John Hughes, the company’s then managing director, had a similarly vivid “light bulb moment”.

More than 50 years later, and in the care of the founder’s son Tony, the company is one of the world’s leading manufacturers of safety showers, baths and decontamination equipment. It employs 88 people in Stockport, Greater Manchester, and 27 abroad in Canada, the United States, Germany and the Middle East. This year it is set to open an office in Shanghai.

Its growth is underpinned by innovative thinking. Financial director Stephen Dootson says: “Two years ago, we felt our business was treading water. We couldn’t get access to bank funding, and focused on research and development to improve our products. We got involved with UK Export Finance and UK Trade & Investment, looked away from the high street banks, and started banking with Handelsbank, Close Brothers and Trade & Export Finance Ltd.”

The company’s products are used in the energy and chemical sectors, where they’re subject to stringent health and safety standards, as well as in emerging markets. The business turns over £15.5 million and, thanks to new overseas orders, is hoping to grow to £25 million by 2016. It received the Queen’s Award for Enterprise in 2012 for international trade.

As Mr Dootson points out, the company’s growth would not have been possible without access to alternative funding.

CASE STUDY

AGENTS OF DIGITAL GROWTH

Founded in 2003 by four computer science graduates in Bournemouth, the past decade has been one of continuous growth for Adido Digital, an agency that now employs more than 30 staff and counts Orange, easyJet, Volkswagen, Marks & Spencer and Bournemouth AFC among its clients.

The company started out as the producer of a content management system, which was sold to thousands of businesses and helped finance its breakneck growth. With changing economic times, Adido decided to streamline its offering, becoming one of the most awarded and respected digital service providers in the region.

The company’s turnover has grown by more than 200 per cent in the past two years, with chief executive Andy Headington, one of the four founders, confident of doubling it again in the coming years.

“We focused on digital marketing from 2008 onwards to combat changes in the market and the global recession,” he says. “Our aim is to be seen as the leading agency in the UK, instead of just on the south coast. We believe there are thousands of amazing businesses that are based outside London which we can, and do, work with. However, we realise that London still has huge opportunity for us so we plan to maintain a presence in the area.”

Perhaps the most remarkable thing about Adido’s growth is that it’s been self-liquidating. The only debt the company accrued in ten years was a £3,000 startup loan from the Prince’s Trust, which was quickly repaid. Everything since has been achieved organically, “through great cash management and tenacious business development”.