That London is the powerhouse of the UK’s economic growth is well understood. London is a command centre for the global economy and, as such, it’s no great shock that the capital accounts for 22% of the UK’s GDP. But what sits behind London’s growth is probably more surprising to you.
New research from BDO shows that it’s the overlooked entrepreneurial mid-sized businesses that are powering London’s economic growth and outperforming the city’s large and small businesses in terms of growing revenues and profits.
In the last year London’s mid-sized businesses grew turnover by 4.2% from £356bn to £371bn. This compares with the turnover of London’s large businesses contracting by 17% from £1.1tn to £928bn and the turnover of London’s small businesses contracting by 20% from £51bn to £40bn.
Profit tells a similar story. London’s mid-sized businesses grew profit by 42% from £32bn to £45bn. This compares a profit contraction for London’s large businesses of 46% from £95bn to £51bn and a profit contraction for London’s small businesses of 29% from £12bn to £9bn.
Why is the economic engine overlooked?
So given such stellar results why are London’s mid-sized businesses – which we, in BDO, call the economic engine – so undervalued? Part of the problem is that they include a wide spectrum of family-owned, private-equity-owned businesses and AIM-listed firms that do not have a single voice.
It’s vital, however, that more is done to help these businesses. The UK is entering a period of uncertainty not only because of the forthcoming Brexit negotiations but also because of the pace of change in technology and regulation. It’s important that the UK makes the most of its successful areas of economic growth.
So what should be done?
Our New Economy report contains twenty two areas of focus that the Government should consider when thinking about what policies are needed for the UK to thrive post-Brexit. Two areas are particularly relevant to London. Firstly, we would like to see a much more simplified tax system and are calling for a ‘simplicity over subsidy’ philosophy for the UK tax code. One key step here would be to align Income Tax and National Insurance. And Secondly, we would like to see a variant of the financial services passport retained to help capital flow freely between London and the EU.
At BDO we are also helping London’s entrepreneurial businesses grow. We are involved with the Mayor’s International Business Programme where we work with high-growth companies in the life sciences, technology and urban sectors offering mentoring and advice to help them expand abroad.
Mid-sized high-growth businesses are the power behind London’s growth. We must do all we can to support them.
Stuart Lisle is a Tax Partner at BDO