BDO: UK should emulate success of German Mittelstand

26 September 2014 Consultancy.uk

Party conference season is in full swing, with politicians honing their soundbites for the coming general election. Many will have heard of “the squeezed middle”, used to refer to the middle classes who have been caught by the rising cost of living and stagnant wage growth. But the term could apply equally to the business world.

The UK’s mid-sized businesses (those with a turnover of between £10 million and £500 million, according to the CBI) aren’t headline-grabbers. They aren’t punchy little startups, celebrated for their smallness and entrepreneurial zeal. Nor are they sizeable PLCs, attracting attention without too much effort (whether they want it or not). Mid-market firms are the squeezed middle of the business world. And they fall into a policy gap – too large to benefit from policies tailored to small business, but too small to win the recognition from politicians that FTSE firms command. This has led the UK’s mid-market to be both overlooked and undervalued. 

Three on a row

This is also surprising, given how much mid-sized businesses contribute to the economy already. The UK mid-market accounts for a quarter of private sector jobs, and around one third of UK turnover (about £1 trillion), even though it represents less than 1% of all UK companies. In short, these firms punch far above their weight. With the right polices in place, however, they could be punching even harder.

We don’t need to look far to see a country getting it right. The German mid-market (the Mittelstand) contributes nearly double what the UK mid-market does to national revenue. Germany has policies directly aimed at the Mittelstand and, culturally, the sector is acknowledged as the economic backbone of the nation.

So what can be done to change the situation in the UK? As we approach the 2015 election, there’s an opportunity to persuade all parties to factor the mid-market into their policy thinking. There are three changes that would make a difference. 

Germany - Dem Deutschen Volke

First, while much has already been done to support business in general, further steps can be taken to help mid-market companies in particular. Temporarily reducing employers’ national insurance for manufacturing companies, for example, would boost UK GDP from the mid-market by over £1 billion, creating nearly 20,000 new jobs.

Second, expanding and exporting abroad is one of the unique challenges faced by the mid-market and more could be done to help. New exporters often find that regulatory and legal barriers make it harder for them to grow into a new market. One potential candidate for simplification is the Bribery Act. While the UK is rightly leading the charge against global corruption, the complexity of associated regulations can make exporting challenging.

Finally, the government can support the mid-market through its own procurement policy. Within the current open framework, it should consider contracts on the basis of what provides the best value to the UK economy, rather than looking solely at the cheapest price. This could boost the mid-market’s contribution to UK GDP by £285 million.

Simon Michaels - BDO

As the election draws near, this is a rare opportunity to make the case for the UK’s forgotten middle-ground. 

An article from Simon Michaels, Managing Partner UK at advisory and accountancy firm BDO

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