By Maximilian Clarke

Medium sized businesses remain the ‘forgotten army’ of the UK economy; overlooked by government but with the potential to inject in excess of £20bn into the economy by 2020, the Confederation of British Industry (CBI) has said.

Firms with a turnover of between £10 million and £100 million represent less than 1% of businesses but generate 22% of economic revenue and 16% of all jobs, CBI figures show, ahead of publication of a major report.

"Medium-sized businesses (MSBs) are truly a forgotten army, and now is the time to unlock their potential,” commented John Cridland, CBI Director-General.

"We should be championing, nurturing and encouraging our mid-sized firms so that more of them grow and create jobs. For too long these companies, which could inject tens of billions of pounds into our economy, have fallen under the radar of policymakers.

"I want the UK to have its own version of the German "Mittelstand" - a backbone of medium-sized firms which export, innovate and generate growth. These future champions would help the UK weather unexpected economic shocks, and act as a new engine for growth.

"To achieve extra growth, medium-sized firms must have access to new kinds of finance. This means opening UK bond markets to medium-sized businesses, encouraging use of venture capital, and making it easier for large companies to invest in medium ones, possibly in their supply chains."

The contribution MSBs make to the UK economy is much smaller than in France and Germany, where they contribute a greater share of total revenue and generate a significantly higher proportion of jobs. The main reason for this is that, while some MSBs perform extremely well - the "gazelles" - others are lagging behind.

However, many MSBs operate in sectors with high productivity growth. And if MSBs had been able to raise their productivity between 2002 and 2007 as much as large firms operating in the same sectors, their annual rate of productivity growth would have been one per cent higher than the largefirms.
Figures provided to the CBI by NESTA reveal that just 6% of MSBs create 60% of all the new jobs created by the sector. If more firms could reach their potential to grow, this could help achieve an extra £20bn to £50bn by 2020, a major boost to the UK's GDP.

MSBs could play a crucial role in rebalancing the economy, and create new jobs in areas most affected by public spending cuts. In the North East, where unemployment reached 11.3% in the three months to August 2011, MSBs already account for about 20% of all jobs. Mid-sized firms also represent 30% of the UK's manufacturing base.

The CBI wants the Government to make bond markets more accessible to MSBs in the UK. It is calling for it to work with the financial services industry to enable more MSBs to issue bonds and use new products based on MSB bonds to attract new investors.

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