A report published today by international law firm Gowling WLG projects that mid-sized businesses will contribute around £335 billion to the economy in the next four years, an 18 per cent rise on its current GDP contribution.
Traditionally, large businesses have been the engines of growth for the UK, accounting for 48 per cent of GDP last year (£861 billion), but Gowling WLG’s economic modelling reveals a rebalancing towards a vibrant mid-market. With a likely global economic slowdown on the horizon, the report, Make Way for the Middle, projects a gradual decline for large companies until 2019, when they will see a rebound of 8 per cent by 2020.
According to the report, start-ups accounted for 46 per cent of the UK GDP at the height of the last recession, but as those start-ups continue to scale up into mid-sized businesses, their contribution is now set to fall from 35 per cent of GDP in 2015 to 25 per cent by 2020.
Research into the UK’s mid-market often touts the untapped potential of these businesses, historically drawing comparisons with Germany’s ironclad Mittelstand. Growing by nearly 33 per cent over the last five years (compared to Germany’s 12 per cent), the UK’s mid-market now generates turnover of €1.92 trillion annually compared to the Mittelstand’s €1.78 trillion. This also translates to employment, with the UK’s mid-market employing 9.3m people compared to Germany’s 9.2m.
According to Tom Thackray, CBI acting director of competitive markets, government policy is pivotal in stimulating the growth of the mid-market, “by continuing to review the tax system to ensure it incentivises entrepreneurship, improve access to skilled workers and encourage prompt payment.”
The report also reveals high growth sectors and regions within the mid-market using trade data, from the burgeoning life sciences and biopharma industry in the Midlands, to jet engines and mid-market defence manufacturers in the South West. Surprisingly, the North East is the only region that is not expected to see mid-market growth in the next four years, despite national focus on creating a ‘Northern Powerhouse’.
Hugh Maule, partner at Gowling WLG explains: “While the government is starting to recognise that the industries of the future are run by innovative, highly skilled mid-sized businesses, further policy support is needed to ensure long term sustainable growth. More easily accessible capital, tax cuts and greater access to highly skilled workers could be the difference between rapid regional growth and economic struggle in the face of global stagnation.”