UK’s ‘forgotten middle’ powering economic recovery

THE UK’s mid-sized businesses (MSBs) are its ‘secret success story’, strongly outperforming smaller and larger companies and driving economic growth, according to the new Agents of growth report, from business and financial advisers Grant Thornton UK.
 
Over the last few months, Grant Thornton has held a series of Agents of growth summits that have brought together mid-sized business leaders to discuss their strategies for growth, as well as their barriers. What was heard at these events, combined with in-depth research, helped form a series of recommendations to leaders in government and medium-sized businesses which will, if implemented, help the UK’s mid-sized businesses to emulate the successful German Mittelstand and significantly boost growth. The proposed measures include tailored support for medium-sized businesses (as distinct from their small and large counterparts), further work to tackle the skills shortage and boost apprenticeships, and recommendations to increase access to finance for medium-sized companies.
 
In turn, Grant Thornton recommends that medium-sized businesses forge their own collective identity, think big on exports and take advantage of high growth economies in the Middle East and Asia, and explore a range of finance options if they are to compete with ambitious and growing counterparts sectors in Europe.
 
The firm’s research finds that overall mid-sized businesses contributed £270bn to the UK economy in gross value added terms, almost the equivalent of the real estate (£158bn) and financial services (£108bn) sectors combined. Total turnover is currently estimated at £712bn, up, by 7.5% year on year – ahead of the 6.5% growth for large businesses and 0.8% increase for small businesses.
 
In Yorkshire and the Humber, it is estimated that there are 2,775 mid-sized businesses which last year contributed a turnover of £47,586m to the regional economy with productivity (turnover per head) of £145,079.
 
The UK’s mid-sized business population has expanded by more than 5% since before the 2007 financial crisis, outpacing the number of larger (+1.6%) and smaller firms (-0.9%). The segment has also seen rapid productivity growth over the past two years, with turnover per employee increasing by 10.6% between 2011 and 2013, faster than the 6.5% growth seen by large firms and the 2.9% decline among small businesses.
 
Moreover, mid-sized business’ future projections from the report – now in its second year – reveal they expect growth to remain buoyant and outpace that of larger and smaller businesses. Over the next 12 months, medium-sized businesses also expect faster growth in turnover, exports and employment than the UK business population as a whole:
 
• Turnover per mid-sized business is projected to increase by 5%, which would translates into a further £35bn
• Average export growth is anticipated to be up 4.4% (up from 4.3% last year), which is ahead of the 4% growth expected by businesses as a whole
• Employment per mid-sized business is expected to rise by 1.6% (up from 1.4% last year), equivalent to 68,000 workers, which compares to 1.3% expected growth across the private sector.

Will Oxley, senior practice leader at Grant Thornton in Leeds, said: “The UK’s mid-market is an often neglected segment of the market, poorly defined and lumped together with SMEs or large corporates. It’s often the ‘forgotten middle’, yet when you look at the segment in relation to its larger and smaller counterparts, its importance in driving UK economic recovery is crystal clear. The shape and size of these businesses meant they were able to navigate the economic storm of recent years better than the rest of the market, and have made the most of the few growth opportunities that were out there. Impressively, they’ve been doing so with relatively limited government or peer support, and with little recognition of their efforts.”
 
John Cridland CBE, director-general, CBI added: “The dynamo of growth is mid-sized businesses. If we are to achieve our aim of growing the economy, the CBI recognises that we need to focus on this segment of business.
 
“The biggest barriers for UK MSBs is actually appetite and strategy, they have got to want to grow and they have got to get the partners to help them grow. We are arranging MSB export missions and running M-clubs around the country so that the mid-market is no longer the forgotten army. And along with Grant Thornton, we hope to persuade government to focus on MSB issues.”
 
Oxley said: “Documenting the sector is only the beginning. As well as conducting research, our Agents of growth summits held with MSB leaders, and other key local and political stakeholders, helped us to understand what the barriers to growth are and to start turning analysis into action. There are four key areas, which is why we have made key recommendations to both the government and MSB leaders as part of our report. With a better defined infrastructure and support network, mid-sized businesses could be making an even bigger economic contribution.”