Partner Article

North meets South, and the Forgotten Middle

Mid-Sized Businesses (MSBs) are crucial to the UK economy. In fact, the mid-market is set to be the UK’s fastest growing segment by 2020. New research from Gowling WLG, an international law firm, projecting that MSBs will contribute around £335 billion to the economy in the next four years – an 18% rise on its current GDP contribution. MSBs are also gaining support from both politicians and business groups. The CBI says MSBs are the “unsung heroes of the UK’s economy” while Sajid Javid, the Business Secretary, has said “mid-sized business have done more than most” to haul the UK “back from the brink”.

But while the rhetoric is impressive, words don’t always translate into reality. Javid himself has noted that the government’s policies for MSBs “were very thin on the ground”. Given this environment, we have analysed data from the UK’s 12 regions – drawn from the Department of Business, Innovation and Skills (BIS) data - which assessed the growth in the number of MSBs, their employment levels and turnover. By examining this data over a three-year period and ranking the average growth of the three criteria, we have been able to gauge the true temperature of MSB health across the UK.

North meets South

So what does the data show? It tells us that there are two key geographies where MSBs perform well against the metrics we examined. Perhaps unsurprisingly, the South of England does well in the main – with the South East, London and South West all ranking within the top five. More specifically, London is ranked first in the UK for the growth in the number of MSBs (increasing 8.8% from 2012 to 2015) while the South East and the South West are joint first for the growth in MSB turnover (11% each).

However, the data also shows that the North East and North West pipped these regions to the post, taking first and third place respectively. The North East is first for the growth in regional employment (11.5%), second for the growth in the number of MSBs (8.6%) and fourth for the increase in turnover (9.3%) while the North West is third for both the increase in the number of MSBs (7%) and growth in regional MSB employment (7.2%).

The government has made much of the Northern Powerhouse over the last year since George Osborne pledged £15bn of investment into the region, however the data makes it clear the Chancellor has backed a strong horse. The north was already on its upward trajectory before his scheme was announced and has benefited from an established support network that enables innovation and growth. However, while it is encouraging to see these two Northern regions performing so well, the picture is not as promising for the remaining regions.

Where does this leave the rest of the UK?

In many ways, we now have a forgotten middle. The North and South of our country are performing strongly but the centre is struggling. For example, the West and East Midlands rank 10th and 11th respectively for the growth in the number of MSBs per region (3.7% and 3.4%) – more than 5% lower than the leading region. These regions also struggle when it comes to the growth in MSB employment with the West Midlands ranking 8th and the East Midlands in 10th.

While there have been efforts made to address this imbalance insofar as the ‘Midlands Engine’ moniker, neither the East nor West Midlands has attracted the same levels of funding, as have been promised under Northern Powerhouse schemes. The region also suffers from two other issues. The first is that productivity in the region is around 10% lower than the national average, with 25,000 hard-to-fill vacancies in 2013 due to a lack of suitably skilled applicants. The second is a lack of inward investment, critical for delivering growth in exports and jobs.

The UK’s extremities also struggled to keep up with the North and South. In Wales, the number of MSBs actually decreased – the only region to suffer a fall albeit small – by 0.4% and ranking 12th nationwide. As you might expect, Wales also had the lowest growth in employment with just 2.7%, again ranking 12th. Scotland also struggles, coming 6th for the growth in regional employment and 11th for the growth in MSB turnover (recording a fall of 9.3%). While Northern Ireland is joint first with the South East and South West for combined MSB turnover growth, it is 7th for the growth in employment and 9th for the growth in the number of MSBs.

The analysis we’ve conducted shows that while MSBs in the North and South of the UK are thriving, their good health may be at the expense of the limbs and very heart of the country. This is a worrying trend, and one that needs to be addressed. Next week, we’ll explore how this picture can be evened out to create a more balanced story for the MSBs across the whole country.

This was posted in Bdaily's Members' News section by David von Dadelszen .