Boris Johnson and Rishi Sunak back investment in UK SMEs

Boris Johnson and Rishi Sunak have called on British institutional investors and asset managers to help the UK’s long-term potential by shifting their investment focus. In a letter signed by the Prime Minister and the Chancellor, investors are urged to move capital away from short-term equity and into long-term positions in unlisted early-stage companies and green infrastructure. This comes as research from IW Capital shows that 45% of investors are looking to back green and sustainable companies in the next year.

The letter sets out plans that form part of the government’s “investment big bang” which will be key to driving economic recovery and growth post-pandemic. The goal, to provide investment capital driving growth, also focuses on infrastructure projects such as rail which, traditionally, asset mangers in other nations such as the US have backed where those in the UK have not.

Key to this growth, however, will likely be the growth capital available for small and early-stage growth companies that are not yet listed. SMEs in the UK make up 99.9% of the UK’s private sector businesses while employing nearly 60% of the workforce, making it a key sector for the overall economy.

Luke Davis, CEO of SME investment specialist IW Capital, comments:

“It is encouraging to see that this government recognises the importance of growing small firms for the overall growth of the economy. Investment in small firms, in our experience, is often used for the kind of growth that drives the economy, by hiring more staff, scaling production or adding exporting capabilities to the business.

“There is, however, more that could be done to drive this investment. For instance if the Enterprise Investment Scheme (EIS) were to be extended there would likely be a large jump in investment for these SMEs. The EIS encourages private investors to back growing firms and the last time it was extended investment grew by around 80% in a single year through the scheme.

“Several of IW Capital’s investments through the pandemic have gone on to grow significantly, including a paper-packaging firm that since our backing pivoted to PPE manufacture and has nearly doubled their staff. It is success stories like this that will drive economic growth in the medium and long-term, so any further support will be welcomed by many.”