If all UK businesses were as productive as those backed by private capital, the UK would see a £100bn boost to the economy by the end of this parliament – that’s an increase of £3,000 in economic output per worker.

New analysis by Public First for BVCA – the British Private Equity and Venture Capital Association – examined the evidence for private capital’s impact on productivity growth, and found that studies suggest annual productivity growth gains of 1.1% among private capital-backed firms. That might not sound like much. But it substantially outstrips productivity across the rest of the UK economy. 

Our productivity growth has been poor since the financial crisis. It was already lower than in peer economies, and it hasn’t caught up. In 2024:

• The average German worker produced 9% more than a British worker.
• The average French worker produced 18% more.
• The average American worker produced 40% more.

In other words three American workers are roughly equivalent to four British workers in terms of the amount produced. And the productivity gap with America has more than doubled since the financial crisis. American workers produced 18% more in 2007. 

That 1.1% annual productivity growth boost, if achieved across all UK businesses, would soon make a massive difference. Across a decade from 2025 to 2035, it would amount to a £250bn increase – that’s an 8% increase in the size of the economy, equivalent to the total current size of the UK’s manufacturing sector. The £7,000 increase in economic activity per worker over that period would make worker earnings on average £4,000 a year higher by 2035, in today’s prices. And it would return the UK economy to the trend line it was on before the financial crisis.

In addition, it would see the UK’s productivity overtake Germany’s in 2038.

Of course, UK businesses in general are not about to start realising productivity gains on the scale of those backed by private capital. For one thing, private capital invests in those businesses that it judges to have the most potential to deliver a return on investment – that is to say, businesses with the most potential to realise productivity gains. Not all businesses are sound investment propositions.

So this is an illustration of the difference private capital makes, not an economic forecast or a solution to the UK’s long-standing productivity weaknesses.

But it still helps to prompt reflection about what it is that private capital does that helps the businesses it invests in to grow more quickly – because private capital investment isn’t passive, and productivity growth isn’t inevitable. It involves active support and management of portfolio companies. Previous work by Public First for BVCA’s Investment Commission in 2024, based on a survey and interviews with investors, identified ten specific ways in which private capital investment supports productivity.

• Putting in place a strategic plan, so that management understands what the company’s goals are and how it intends to achieve them, to support decision-making and enable performance to be properly measured against meaningful benchmarks.
• Providing management and leadership support, to help managers lead their businesses through the changes required for a company to grow.
• Introducing new ways of measuring productivity so that portfolio companies can use data to understand where they are performing well and where there are areas for improvement, and so that they are properly accountable to their investors.
• Giving portfolio companies access to specialist networks, in some cases through the appointment of an advisory board, to provide expertise and advice which it would otherwise be difficult for a single company to reach.
• Growing a company through strategic M&A, enabling more efficient supply chains and an expanded customer base, drawing on expertise which is more likely to exist within a PE or VC firm than within a single, often smaller or medium sized, company.
• Encouraging and facilitating internationalisation, helping portfolio companies to identify and access export opportunities and expand their customer base, as well as to source talent from a much wider pool.
• Investing in tech enhancement, drawing on expertise within the PE or VC firm to support portfolio companies to use technology, from accounting software to CRM systems to new ways of using AI, to drive productivity gains.
• Providing access to capital and financial investment in a business to support its growth.
• Enabling portfolio companies to draw on commercial support and expertise from the PE or VC firm on specialist areas such as PR, branding and pricing, which they would find it difficult to access elsewhere.
• Helping portfolio companies demonstrate their compliance with regulatory requirements and improve their ESG performance.

The Investment Commission also looked at some of the barriers that get in the way of enabling UK businesses to attract private capital investment: policy uncertainty, planning delays, poor public infrastructure, skills shortages and more. Tackling these would help to unlock more private capital investment into the UK, generating some of the productivity gains set out here, and support as many businesses as possible to be as productive as possible. You can read the Investment Commission report here.

Methodology

We reviewed a range of literature on the productivity impacts of private capital, and used a median figure for productivity growth impacts from these studies to examine the implications of all UK businesses benefiting from a similar “productivity growth boost”. We used ONS business population estimates to estimate private sector gross value added (GVA) and GVA per worker. We used EY research on the GVA of venture capital-backed companies to produce an estimate of private sector GVA excluding VC-backed companies which already benefit from the productivity growth premium. We used Office for Budget Responsibility forecasts to produce baseline projections for economic growth, and contrasted this with a counterfactual in which productivity growth is higher and in line with the premium seen in the literature from VC backing. And we used IMF forecasts and historical data for international comparisons. International data is expressed in purchasing power parity-adjusted dollars, which account for differences in purchasing power across countries.