UK MSBs are contributing considerably to the UK economy and the mid-market segment represents the most productive segment in the UK, new research by Grant Thornton shows. However, productivity of UK MSBs is lagging behind other European MSBs. According to the firm, when this productivity gap is addressed, the increase in turnover could increase median UK household income with 15%.
Professional services firm Grant Thornton recently released its latest Agents of growth report*, titled ‘The power of mid-sized businesses’. One of the key findings of the consulting firm is that UK’s mid-sized businesses (MSBs) contribute substantially to the UK economy**. However, the firm states that while the mid-market segment’s productivity outshines the rest, the UK mid-market productivity lags behind Europe, an issue, when addressed, could add a considerable amount to the UK GDP.
In the UK, the mid-market has been outpacing other business segments on a number of growth indicators for the past few years. Grant Thornton’s research shows that the mid-market is the most productive segment in the UK and helps to spur on UK growth. Productivity, measured as average turnover per employee, is 5.7% higher at MSBs than the UK average and stands at around £171,000. According to the firm, the UK mid-market’s growth in GDP contribution beats the UK’s nominal GDP growth. In 2013, MSBs contributed an estimated £305 billion to UK GDP, which was a 7.7% rise from the estimated £283 billion in 2012. A great portion of this contribution, an estimated £270 billion, came in the form of wages, profits and taxes on production. This amount constitutes the equal of the combined size of the UK real estate and financial services sectors. Around £160 billion of the MSB GDP contribution was injected into the pockets of UK households through salaries, stimulating UK spending.
Although the mid-market outshines other segments in productivity in the UK, it lags behind Europe. The data shows that while the turnover per head at MSBs in the UK is estimated at €226,000, in Germany the estimated turnover is €235,000, in France €273,000, in Austria €310,000 and in Ireland €373,000. This translates to a productivity gaps of 20.7% compared to French and 37% to Austrian MSBs, while MSBs in Ireland are 65% more productive than in the UK.
According to the firm, closing this productivity gap with the top 10 most productive EU countries would result in an additional £274 billion in turnover, translating to an estimated worth of £117 billion to the UK GDP, which is a 7.3% boost to total national output. The increase will be worth approximately £4,375 to each household in the UK, which will boost UK households income with 15% from £28,500 to £32,875, boosting UK prosperity.
* The Agents of Growth research series is conducted in collaboration with the Centre of Economic and Business Research (CEBR).
** Grant Thornton is not the only consulting firm to emphasise the importance of the MSB segment for the (recovery of the) UK economy. According to Deloitte, the 1,000 fastest-growing medium-sized businesses generated 9% of the UK GDP in revenues and were responsible for almost half of the total increase in UK headcount. BDO highlighted the role of MSBs in the UK export. Their research shows that although MSBs make up than 1% of the UK firms, they account for almost 75% of all UK exports.