Medium-sized businesses will inject between £20bn and £50bn into the economy by 2020 but still remain a “forgotten army” overlooked by the government, says the CBI.
The business lobby group and McKinsey & Company today published a new report called Future Champions: unlocking growth in the UK’s medium-sized businesses. The report indicates that firms with a turnover of between £10m and £100m represent less than 1 per cent of businesses but generate 22 per cent of economic revenue and 16 per cent of all jobs.
The CBI is calling for a broader range of finance to be made available to medium-sized businesses (MSBs). These firms can no longer rely solely on bank lending for long-term growth capital.
John Cridland, CBI director-general, said: “Medium-sized businesses are truly a forgotten army, and now is the time to unlock their potential.
“We should be championing, nurturing and encouraging our mid-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.
“I want the UK to have its own version of the German ‘Mittelstand’ – a backbone of medium-sized firms which export, innovate and generate growth. These future champions would help the UK weather unexpected economic shocks, and act as a new engine for growth.
“To achieve extra growth, medium-sized firms must have access to new kinds of finance. 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.”
Figures provided to the CBI by the National Endowment for Science, Technology and the Arts reveal that just six per cent of MSBs create 60 per cent of all the new jobs created in the SME 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.
MSBs could play a crucial role in rebalancing the economy, says the CBI, creating new jobs in areas most affected by public spending cuts. In the North East, where unemployment reached 11.3 per cent in the three months to August 2011, MSBs already account for about 20 per cent of all jobs. Mid-sized firms also represent 30 per cent of the UK’s manufacturing base.
London businesses speak out:
Thomas de Freitas, managing director at Communicate Recruitment Solutions: “Banks should not waste time torturing small businsses with regulatory barriers.”
“Small businesses are the lifeblood of London and Britain. Their health and liquidity is a key stepping stone to the economic recovery. However this is often dependent on limited financing and it is a simple fact of life that banks are the major source of this funding. While we would welcome a more diverse range of funding solutions, my personal belief is that Vince Cable and the coalition government would best serve my business, London and Britain through the fragile economic recovery by encouraging and incentivising banks to lend rather than wasting time considering more and worse ways to torture them with regulatory barriers, stringent capital requirements and reduced staff pay.”
Matt Forrest, head of commercial marketing for Sage UK’s Small Business Division: “Growth of small businesses is the cornerstone of UK recovery.”
“The economic conditions continue to make it a challenging time for all businesses, regardless of size, but small and medium sized enterprises are especially feeling that they do not have enough support from the government in making funds available. A recent Sage Omnibus survey amongst 1,000 of our small business customers revealed that around two in every five had difficulty securing funding in the last six months, this highlights their often precarious position. Ultimately the decision on a loan could make or break a business.
“Small business growth has been cited as the cornerstone for UK recovery since the elections, so enabling it will remain high on the political agenda. But until more small businesses can get access to capital, growth is likely to be limited.”
Mark Mills, chairman of accountancy firm HURST: “Set up a prescriptive criteria for banks to lend to MSBs and then penalize those banks which falter.”
“MSBs are definitely a forgotten army. With the banks busy building their balance sheets and their propensity to lend is negligible, small businesses are left high and dry without funds. What the government needs to do is to set up prescriptive criteria for banks to lend money to small businesses and then penalize those which do not help small businesses with funds”
Robert Welch, managing director of a private London tours company smallcarBIGCITY: “Tax system is overtly complicated.”
“The tax system is overtly complicated and the government should prioritse making the system more transparent. Small businesses incur heavy losses while paying thousands of pounds as late fee payments or the other. The government should also allow a tax release for small businesses for at least 18 months so they can grow their business and make their contribution to the economy.