Theresa May must not overlook mid-sized fast growth firms in Brexit talks

 
Paul Eagland
Theresa May Leaves Downing Street To Make A Statement On Brexit To Parliament
There's a tendency to overlook Britain's medium-sized businesses (Source: Getty)

Pick your analogy. Whether it’s the starting gun being fired or divorce proceedings being issued, Theresa May’s Article 50 letter will be sent tomorrow, kicking off the most complex set of negotiations in living memory.

As the process for leaving the EU begins, advice will come from all quarters as the Prime Minister tries to perform the awkward balancing act of withdrawing from the Single Market while signalling that Britain remains open for business.

May won’t thank me for adding to her list, but there is one area currently being overlooked that she must focus on – the entrepreneurially-spirited, mid-sized businesses driving UK growth. To prove my point it’s worth considering where growth is coming from in the UK economy.

Let’s begin by looking at businesses that generate overseas revenue for the UK. In the last five years, mid-sized entrepreneurial businesses have grown international turnover by 50 per cent, from £84bn to £127bn. This growth significantly outstrips that of UK FTSE 350 and small businesses, whose overseas revenue has in fact fallen 14 per cent (£425bn to £366bn) and 25 per cent (£13.9bn to £10.4bn) respectively.

Read more: Britain risks enormous trade disruption without Customs Union pragmatism

Now examine UK revenue and profit growth figures. Mid-sized businesses again outperform their large and small counterparts, increasing revenues and profits by 3.8 per cent and 19 per cent respectively, compared to smaller businesses (contracting by 7.6 per cent and 26 per cent) and FTSE 350 companies (contracting 12 per cent and 24.5 per cent).

Finally look at job creation. Mid-sized businesses have increased their workforce by 11 per cent compared to large businesses (4.5 per cent) and small businesses (9.2 per cent).

At BDO, we call these mid-sized high-growth firms – for obvious reasons – the UK economic engine. On any measure, they are making a massive contribution to UK growth yet their needs are rarely discussed.

In some ways this is easy to understand. Mid-sized businesses aren’t as simple to characterise as startups or the big FTSE giants. They’re also more disparate and consist of privately-owned businesses, Aim-listed companies and private equity-backed firms.

But it is also clear that mid-sized businesses are fundamental to the government’s vision of the UK economy and can meet many of its policy objectives.

Read more: Ignore no more: Mid-sized firms must not be overlooked in Brexit talks

The government has an ambition to create powerhouses in the regions by investing in the North and Midlands. Unlike large businesses which have a big footprint in the South East, mid-sized firms exist evenly throughout the UK and, by boosting them, you lay the ground for rebalancing the economy.

The government wishes to boost growth in key sectors across the UK, principally through its industrial strategy. Mid-sized businesses sit at the heart of all the key business sectors and, by supporting mid-sized companies, you are also supporting sectors like manufacturing and tech.

And, most crucially, as the government is poised to lick the stamp on the Article 50 letter, mid-sized firms are the driver of international growth and are therefore the businesses that can help forge new relationships globally.

Read more: It’s pure hubris for politicians to think they can “rebalance” the economy

So what should be done? BDO’s new economy report suggests 22 policies that will help the UK thrive post-Brexit and support the UK’s high growth entrepreneurial businesses. As a starter we would like to see a VAT zero rating on supplies to companies that export once Brexit negotiations are finalised, and are calling for the government to battle hard for a variant of financial passporting as part of the Article 50 negotiations.

Mid-sized businesses are the economic engine of UK international growth. Their success should not be taken for granted and, while they have taken calculated risks and prospered, the government must factor in their needs ahead of the EU negotiations.

To read more about BDO’s new economy report and contribute ideas go to www.neweconomy.bdo.co.uk

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