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Latest figures reveal that with additional efforts to boost skills and exporting,...

...mid-sized businesses could add an additional £50 billion to UK economy

The latest research figures from Grant Thornton's Agents of Growth series show that the medium-sized business (MSB)** segment has continued to drive the UK economic recovery, contributing £262 billion to UK GDP in 2014. Through the year, MSBs have again delivered a stronger performance than smaller and larger firms in 2014, reporting higher annual growth in capital investment, gross profits, and salary. 

MSBs reported average salary growth of 2.3%, compared to 2.1% for small firms, and 2% for larger businesses, and it's estimated that MSBs injected £152 billion into household finances in 2014 through total employee remuneration.

Capital investment spending by MSBs was up 3.4% in 2014, compared to 2.4% and 2.8% for small and large companies, respectively. And their average annual increase in gross profits was up 4.9% (small: 4.4%; large: 3.8%).

Looking forward, MSBs expectations for 2015 are also better than those of their smaller and larger counterparts. They are anticipating faster growth in turnover (6.7%), exports (4.5%), capital investment (2.8%), and employment (2.7%) than the UK business population as a whole. If 2015 expectations are met, MSB GDP growth will stand at 5.8% in nominal terms, considerably higher than overall UK GDP nominal growth expectations of 3.5%***. To put this into context if the trends continue, MSBs could be contributing £413 billion GDP annually to the UK economy by 2020 (up from £294 billion in 2014).

However, whilst MSBs have performed extremely well, our research has shown a flattening in turnover, down 0.6% to £708bn, and dip in productivity of 2.7%, indicating there is more support to be offered and they are still experiencing barriers to growth.

In the research, one quarter of MSBs highlighted a lack of skilled talent as a major constraint to their continued success, as well as regulation and red tape (20%), and economic uncertainty (18%). If MSB growth continues to be weighed down by factors such these, it could impact their contribution to the UK economy by £50 billion between 2015 – 2020.

Scott Barnes, CEO of Grant Thornton UK LLP, commented: “MSBs have done fantastically well through the crisis, and continue to outperform the market across many important metrics, supporting our view that dynamic MSBs are critical to driving the UK's economic growth.

"As such, I was delighted that in the Autumn Statement, the Chancellor announced a number of initiatives for MSBs in areas we had identified they needed support such as the new HMRC gateway for MSBs to help them with complex tax administration. The funding pledges, reliefs to encourage the hiring of apprentices, exporting support and other initiatives will also go some way in improving the prospects for MSBs, but we continue to urge government and policy makers to further their focus and support.

"There is more to be done, especially given the widening trade deficit. Whilst MSBs have high expectations about their growth prospects, this year the reality is that they have fallen behind despite the launch of targeted efforts from UKTI. Added to the flattening in turnover and dip in productivity performance, it suggests more needs to be done to promote productivity and growth. Particularly looking at skills, exports and incentivising businesses to invest and innovate. If these barriers to MSB growth are removed, our analysis shows they could add an additional £50bn to the UK economy by 2020. We shall continue our discussions with both clients and government on how best to help this engine room of the economy."