UK Mittelstand to outpace European rivals

June 23, 2014 12:02 am

UK Mittelstand to outpace European rivals

By Brian Groom, Business and Employment EditorAuthor alerts

Britain’s neglected medium-sized companies expect to grow faster than their mainland European rivals during the coming year, but they are being held back by the UK tax system, business leaders say.

UK mid-market companies are narrowing the performance gap with Germany’s admired Mittelstand, according to research by GE Capital, the finance provider.

For the year ahead British medium-sized businesses – those with annual turnover of £15m-£800m – expect sales to grow by 6.1 per cent, compared with 4.8 per cent in Germany, 3.8 per cent in Italy and 3.4 per cent in France.

They also expect to create 326,000 jobs in the next 12 months, against 150,000 in Germany, and to increase exports more than the other three countries.

More than one in three UK mid-market businesses that had offshore activities were considering “reshoring” some of them, the research found.

The overall picture is of British and German companies expanding as their economies recover, while their French and Italian counterparts still struggle with weak demand and cost control issues.

“The mid-market is very significant in terms of jobs and the potential to generate growth and wealth for the future,” said Stephen Roper, professor of enterprise at Warwick Business School, the report’s author.

However, a separate report by the CBI employers’ group and accountants Grant Thornton warned that the UK tax system was acting as a brake on growth of medium-sized businesses.

These companies do not have the resources of large companies to navigate tax rules, nor do they receive the support the government directs at small businesses, it said.

The CBI/Grant Thornton report called for changes to the tax system, including measures to improve cash flow, wider access to research and development tax relief, and easier access to export.

“We need our growing businesses to invest, innovate and break into new markets to secure the long-term health of our economy,” said John Cridland, CBI director-general. “The UK’s tax system should support these entrepreneurs to do this, but in many cases it is actually working against them.”

The GE Capital study found that, while UK mid-market companies were optimistic about the outlook for sales and workforce growth, skills shortages and attracting and keeping top management talent were growing problems.

Prof Roper said the UK and German mid-markets were both growing, but the Mittelstand still had a big advantage in its skills training and productivity.

Lord Livingstone, UK trade minister, said the report was “very encouraging” for mid-sized businesses. “I’m particularly pleased to see their entrepreneurial attitude to exports, which is critical to growth,” he said.