''Growth will come from mid-size firms''

Monday, May 10, 2010

As cuts start to bite in the public sector it is essential that the next government helps mid-sized companies in the private sector to flourish so that jobs can be created and output can be increased, according to the Ernst & Young ITEM Club.

In its report 'Entrepreneurs: powering job creation in the UK', ITEM pointed out that between 2005 and 2008, nearly 50 per cent of the 1.3m jobs created were in fast-growth mid-size companies employing more than 250 people. By contrast, while companies with 10 employees or fewer made up 88 per cent of all UK enterprises, in the years 2005-2008 they generated just 20 per cent of new jobs.

Hetal Mehta, economic advisor to the Ernst & Young ITEM Club, said: "While the case for assisting start-ups and micro-enterprises is undeniable, many of these companies tend to hit a growth ceiling, generating very low levels of output and employment. It is only when those start-up companies become mid-size, typically after several years of consolidation, that they are able to achieve the levels of sustained fast growth that disproportionately contributes to output and employment and ultimately the growth of the UK economy."

Scott Halliday, managing partner for UK & Ireland, at Ernst & Young, agreed that mid-sized companies tended to be overlooked by governments, adding: "Stable tax policy that is pro-entrepreneur is important to economic growth and development. Government can also encourage innovation by maintaining tax incentives for research and development, where it has the most impact. Regulation also needs to be tailored – if it's too complicated for businesses to apply it can not only reduce overall economic activity, but also stifle the competitive pressure on large firms to invest in R&D. Complex regulation can, quite unintentionally, kill off innovation."