The Quoted Companies Alliance (QCA) has called on the Sheffield-based British Business Bank, the UK government’s economic development bank, to broaden its remit and build a portfolio of shares in smaller listed firms.

The QCA said allocating just 4% of the British Business Bank’s £25.6 billion capacity into sub-£100 million stocks would “directly bridge a funding gap for many and indirectly drive valuations higher for many more.”

In a landmark research report, Banking on Britain, the QCA calls for the British Business Bank to assemble a £1 billion portfolio of smallcap investments.

“Following expansion, the BBB has financial capacity of £25.6 billion and is deploying around £2.5 billion a year, but all of that in private companies, not public,” said the QCA.

“The QCA calculates that a small allocation of 4% of capacity would have a material effect on hundreds of scaling smallcaps, which operate in innovative, fast-growing sectors right across the UK.

“Many experience a funding gap, where start-up reliefs tail off and before institutional interest takes up the baton.

“The proposed move would broaden market liquidity and improve price discovery for smaller companies, as well as energise the IPO pipeline. Maintaining a share quote is a proven anchor to the UK, ensuring jobs and intellectual property are more likely to remain here.”

The QCA said small and mid-sized publicly traded companies represent 91% of the quoted sector. They employ around 2.1 million people and contribute more than £25 billion in annual taxation.

Quoted Companies Alliance CEO James Ashton said: “The British Business Bank has been a very welcome addition to the UK funding landscape since its creation in 2014.

“And yet with a mission to encourage smaller businesses to start, scale and stay in the UK, it should not be absent from one very visible and valuable portion of the British economy: small, stockmarket quoted companies.

“We believe this is an oversight that should be addressed, given the government’s continued focus on reforming the UK capital markets, including moves to channel in capital from pensions and retail investors.”