The CBI’s John Cridland has today called on the government to provide stronger support for Britain’s “forgotten army” of middle-sized firms as a way of providing the economy with a boost of up to £50bn a year within the next decade.
“We should be championing, nurturing and encouraging our medium-sized firms so that more of them grow and create jobs. For too long these companies, which could inject tens of billions of pounds into our economy, have fallen under the radar of policymakers,” he says.
Cridland wants the UK to have its own version of the German “Mittelstand” – a backbone of medium-sized firms which export, innovate and generate growth.
“To achieve extra growth, medium-sized firms must have access to new kinds of finance,” he continues. “This means opening UK bond markets to medium-sized businesses, encouraging use of venture capital, and making it easier for large companies to invest in medium ones, possibly in their supply chains.”
The contribution MSBs make to the UK economy is much smaller than in France and Germany, where they contribute a greater share of total revenue and generate a significantly higher proportion of jobs. If MSBs had been able to raise their productivity between 2002 and 2007 as much as large firms operating in the same sectors, their annual rate of productivity growth would have been one per cent higher than the large firms.
Figures provided to the CBI by NESTA reveal that just six per cent of MSBs create 60% of all the new jobs created by the sector. If more firms could reach their potential to grow, this could help achieve an extra £20bn to £50bn by 2020 – a major boost to the UK’s GDP.
The CBI has come up with a raft of measures to help this “forgotten army” grow and reach their full potential.
- Government to recruit three more MSBs to the Prime Minister’s Business Advisory Council to ensure that their needs are at the heart of government
- UKTI to take more MSBs on trade delegations, showing other countries that the UK has strong mid-sized sector that can compete internationally.
- BIS to improve the data that government collects on MSBs to influence future policy decisions.
- BIS and trade bodies to identify sectors to pilot management surveys. Working with specialists such as the British Quality Foundation to establish a cost effective method of helping MSBs identify ways of improving their management capability.
- BIS and CBI to encourage large firms to work with MSBs in their supply chain to impart best practice in leadership, innovations, recruitment, exporting and even financing, in turn strengthening their supply chain.
- CBI to bring firms together to share experiences of management challenges, financial options and exporting to help them plan for growth by learning from other MSBs and industry experts.
- BIS to promote the Export Enterprise Finance Guarantee Scheme to MSBs that quality, so that more firms can access the finance they need to export.
- UKTI to proactively target MSBs that should be exporting and help them by signposting private and public sector providers of legal services for export, and providing an overview of their international competitors.
- HM Treasury to explore the cost and feasibility of a) restructuring Entrepreneurs’ Relief to provide greater relief for long-term investments in companies and reduce the threshold for qualifying for the relief to below the current five per cent and b) broadening the scope of the R&D tax credit by allowing all aspects of design to be included in the small companies’ R&D tax credit.
- HM Treasury to explore the cost and feasibility of a) reinstating a Corporate Venturing Incentive, enabling large firms to offset the cost of investing in smaller companies against their corporation tax liabilities b) making equity investments tax deductible so that they are on a par with debt investments.
- BIS to set up an industry working group to develop the necessary infrastructure, systems and standards so that MSBs can issue bonds either via private placements or via the public debt markets.
- HM Treasury to explore the feasibility of introducing an additional ISA saving types, once the institutional market is established, to help develop a retail market for bonds issues by MSBs in the long term.
Is this enough to get Britain’s medium-sized businesses moving? What points would you add? Post your views below.
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