The UK's high-performing, but overlooked, mid-market must be central to the government's plans to rebalance the economy, according to accountancy and advisory firm, BDO.

BDO describe the UK’s mid-sized businesses - those with a revenue between £10 million and £300m - as a dynamic new area of the UK economy, growing turnover by nearly 55% in the last five years from £650 billion to £1.03 trillion.

Despite accounting for just 1% of the UK's businesses, the mid-market generates nearly a third of private sector revenue and is responsible for around a quarter of all private sector jobs.

Over the last Parliament the mid-market outperformed the FTSE 100 in many key areas. Mid-sized firms are seeing profits rise 110%, whereas listed firms saw a 3% decline overall. On employment, jobs growth of the UK mid-market today is almost three times faster than that of the current FTSE 100. The UK mid-market now employs 50% more people than it did in 2010 (6.1 million jobs in 2014/15).

Despite the positive stats, BDO says mid-sized businesses are "overlooked and undervalued". The advisory firm said these mid-sized firms are agile enough to adapt to the new economic realities, and big enough to take advantage of the opportunities offered by global growth - but too small to achieve the levels attention FTSE firms command from the media and policy makers.

Equally, they are too large to benefit from policies specifically tailored to small business. Hence, the UK’s mid-market remains stuck in a policy and profile gap.

In its new report, Building the New Economy, the BDO calls on government to to refocus its policy thinking. The three key recommendations are:

1 - Term lending trusts to encourage investment in mid-market businesses

Today, mid-market firms can struggle to find the long term finance they need to invest for the future. Long Term Lending Trusts (LTLT) would offer income tax relief to savers investing in long-term debt funding for ambitious businesses (as currently exists through the successful Venture Capital Trust scheme) for at least five years. There would be strict requirements on the type of business that could seek loans from the LTLT, which would cost the Government only £310m a year to run and could unlock billions of new long-term loans.

2 - Zero VAT for supplies to exporters

The UK currently allows manufacturers to zero rate their exports. However, it is less generous with reliefs for domestic companies that supply to UK exporters. In contrast, Ireland has a more generous relief for regular exporters, where a qualifying exporter is able to inform its suppliers of its export authorisation and those suppliers can then zero rate their supplies to the qualifying exporter. We recommend that the UK introduces a similar relief.

3 - Reduce the overseas tax barriers for UK exporters opening a new branch or subsidiary overseas

Taxation should be an instrument of economic policy and used to drive and encourage internationalisation of mid-sized businesses. When bi-lateral tax agreements are re-negotiated, the UK Government should take the opportunity to agree an exemption for UK businesses when opening a new branch or subsidiary from local taxes up to a de minimis level of economic activity of £1m of total sales.

Simon Michaels, Managing Partner, BDO LLP, said:“After the deepest recession in 80 years we are on the road to recovery. It is essential that we do not repeat the mistakes of the past and perpetuate an unbalanced economy too heavily reliant on one sector or region.

“The Government has started tackling the issues and plans around the Northern Powerhouse, devolving powers to cities and infrastructure investment are all very welcome. More can be done though, and encouraging Britain’s mid-market has to be at the heart of Government plans.

“We would like to see a ‘new economy’ that harnesses the entrepreneurial spirit of UK businesses and puts the mid-market front and centre of the UK’s growth plans”.