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Boosting productivity and growth in mid-sized businesses:

Grant Thornton's July Budget wish-list

Ahead of the Budget on 8 July, Grant Thornton outlines its recommendations for government to support the continued growth of a vibrant, productive economy.

Mid-sized businesses (MSBs)* must be centre stage in government efforts to raise productivity. The Chancellor has already announced that he will focus on raising productivity in this Budget and it is expected that he will offer more details on how to tackle these issues. MSBs have led productivity growth since 2008, but in 2014 this, along with export performance, declined to the detriment. of the wider economy.

MSBs also play a vital  role in our society, employing 4.3 million people and contributing a total of £71 billion in taxes last year.. They have strong ambitions for growth, that could add an extra £50 billion to the economy over the next five years if their current barriers to growth are tackled.

Our recent research** has uncovered three core areas that MSBs believe should be prioritised by the new government: skills, exports and red tape.

With this in mind, our specific recommendations for government ahead of the July Budget include:

Understanding MSBs

Since the creation of a business advisory group to the Prime Minister in 2007,  only one out of the 45 past and present members has been a leader of an MSB. MSBs have been the engine room of the UK economic recovery, outperforming the market on job and productivity growth as well as investment in innovation. Despite the strategic importance of this sector, it has so far been overlooked. It would send a powerful signal to these businesses if the Prime Minister's Business Advisory Group included some MSBs alongside the large corporates already represented.

Talent for growth

When we asked MSBs about skills, they said loud and clear that they want to be able to interact better with schools, colleges and universities. Our action plan calls on government to work with schools, colleges and universities to make it easier for local businesses to inspire and hire their students.  MSBs, particularly in engineering and technology, were also concerned that their ability to grow their business is hampered by the barriers to recruiting overseas graduates who have attend UK universities; we are therefore calling on the government to restore post-study work visas for non-EU graduates, particularly those with STEM skills.

A strong trading nation

MSBs tell us that they want to see a more joined-up government, with all departments supporting the export drive. We recommend that every government department should have an export objective and action plan. We would also like to see the British Business Bank and UK Export Finance developing more short-term and off-the-shelf finance packages for exporters. At Grant Thornton we have agreed we will do more to raise awareness of UKTI and UKEF services amongst MSBs and develop strategic partnerships with these agencies to achieve this.

Reducing red tape burdens

The complexity of the tax code hinders productivity, with MSBs paying us to advise them on how to understand the rules rather than how to grow their business. There is a great opportunity for government to build on its commitment to the Office of Tax Simplification by embarking on a radical programme of tax simplification. Grant Thornton, the Institute of Chartered Accountants in England and Wales (ICAEW) and the Federation of Small Businesses (FSB) are working together on a bold idea for how to take forward the tax simplification agenda. We would also like to see government launch a 'red tape' challenge to change rules that treat MSBs as if they are large corporations. As part of our Agents of Growth action plan - Grant Thornton is setting up its own MSB Regulatory Advisory Panel which will comprise MSB leaders who will advise on how regulators can better support MSB growth, how red tape can be reduced and scrutinise new regulations.

Jonathan Riley, Head of Tax at Grant Thornton UK LLP, said:

"At Grant Thornton our underlying purpose is to build a vibrant economy, based on trust and integrity in markets, dynamic businesses, and environments where businesses and people thrive. Dynamic MSBs are the driving force of our economy and society, many are family owned businesses and the cornerstone of their local communities, yet their voices are still not heard. It is vital to their continued success, and therefore the success of our economy as a whole, that this changes. This needs to happen through the addition of MSB leaders to government advisory panels, through policy tailored to support their growth and through accountability for the implementation of that policy."

"At Grant Thornton, we would prefer to advise clients on how to grow their business rather than advising on how to understand complex red tape. A fair and simple tax code is central to the creation of a vibrant economy, enabling business to grow and paying their fair share for public services. At the start of this Parliament there is a great opportunity to look radically at the current body of business tax rules and find ways in which it can better drive growth, reduce unproductive red tape, and provide a clear framework which reduces the grey areas of what is, and what is not, 'appropriate' tax planning."

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* MSBs: firms with 50 to 499 employees and typically turnover of around £25m to £500m

** During the election Grant Thornton asked MSBs about their priorities for the new government. Together with analysis by the Centre for Economic and Business Research and the quarterly ICAEW/Grant Thornton Business Confidence Monitor, this has provided the basis for its new action plan for unlocking sustainable growth and productivity in MSBs – Agents of Growth