News release
UK's medium-sized firms most productive, but hindered by inability to invest and staff burnout
05 Jun 2024
- Mid-sized business labour productivity outshining other market segments for past six years
- Following a drop in 2022, labour productivity in businesses of all sizes started to rebuild again in 2023
- Mid-market productivity now hindered by a lack of funding to invest and staff burnout
- Mid-sized businesses most in need of digital and technical skills to help improve productivity
New analysis from leading business and financial adviser Grant Thornton UK LLP finds that labour productivity of UK mid-sized businesses, when measured as average annual revenue per employee, has surpassed that of larger and smaller companies, and the UK average, for the past six years. However, they are not immune to the UK productivity drag, with productivity issues currently impacting almost every aspect of their business.
The research, which analyses labour productivity levels of UK businesses over the past ten years*, finds that, in 2023, the productivity gap by company size was at its most significant since mid-sized businesses (MSB) started to outshine other segments in 2018. In 2023, average annual revenue per employee was 8% higher at MSBs than at larger companies and 13% higher than the UK average for businesses with 10+ employees**.
While MSB labour productivity, based on average annual revenue per employee, continues to outperform the market, productivity dropped quite significantly across the board in 2022***, but saw a resurgence in 2023.
Mid-sized business productivity dragged down by a lack of funding for investment and staff burnout
Additional research by Grant Thornton finds that while mid-sized businesses have been the most productive size firms for the past six years, they are currently facing considerable challenges around productivity. The firm’s Business Outlook Tracker**** survey of 620 UK MSBs finds that a lack of funding to invest and increasing levels of staff burnout are currently the most significant constraints to productivity.
This is reflected in the market’s investment expectations, which remained relatively flat in the latest Tracker round. There has been a dip in those expecting to increase investment in technology (-3pp), despite almost two thirds expecting to see positive gains in productivity from AI over the next 12 months. The number of businesses planning to invest in their employee wellbeing (-1pp) and skills development (-4pp) has also fallen slightly compared to February, despite staff burnout being a top concern.
The survey finds that productivity issues are currently affecting almost every aspect of MSBs including their ability to grow, to export, to recruit and retain people, and to train and upskill employees.
Despite 65% already having increased their investment in skills development over the past two years to improve productivity, a lack of necessary skills is still a significant issue for over three quarters of respondents (77%). Digital and data skills are identified as the most in need, along with technical skills. Of those businesses who said they were facing the biggest skills gap in digital, almost one in four (22%) do not currently have training in place to address this.
Investing in high quality skills training is identified as the policy area that MSBs would most like to see the government focus on longer term and as the most important area to boost regional economic productivity across the UK.
With an election called for 4 July, 80% of the businesses surveyed claimed to have confidence that the next UK government (of any party) will focus on prioritising long-term solutions to address the nation’s productivity issues.
Schellion Horn, Partner and Economic Consulting Lead, Grant Thornton UK LLP, said:
“While our research shows that mid-sized businesses have been outperforming larger and smaller businesses in terms of labour productivity for the past few years, they are still facing challenges in improving efficiency. A lack of funding is the biggest hindrance currently, preventing investment in areas that businesses know will help to improve efficiency and output, such as skills development and employee wellbeing. An expected decrease in interest rates later this year may help ease some of this pressure, eventually reducing debt repayments and freeing up some capital.
“Recommendations from the recent Government White Paper on the way new business regulations can be introduced may also help. New initiatives proposed, such as changing the reporting threshold for mid-sized businesses, could save mid-sized companies around £150 million per year if implemented, freeing up funds to invest in productivity enhancing areas. Our survey respondents also told us that cutting red tape is one of the main areas that they would like the government to focus on and so these changes would likely be very beneficial for the market.
“It’s clear that there’s a strong need for further investment in skills development - our respondents report a need for better digital, data and technical skills. This lack of necessary skills development, when combined with lagging investment in other areas such as technology, is creating a snowball effect, stretching current people resources and ultimately contributing to heavy workloads and burnout – further exacerbating the productivity challenges facing the market.
“Ahead of the election, the major parties have outlined that they are focusing on enhancing the skills and training opportunities available to the country’s workforce. It’s crucial then that the parties listen to what mid-sized businesses, the engine of the UK economy, are saying they need and put forward solutions to address the constraints currently hindering the growth and productivity of a core segment of our economy.”
* Looking at private companies only, with 10+ employees. Labour productivity measured by average annual revenue per worker, using annual Government Business Population Estimates and business size definitions:
- Small: 10-49 employees
- Medium: 50-249 employees
- Large: 250+ employees
** UK average of private companies with 10+ employees
*** Likely due to impact of COVID-19 and delays in data collection. Government Business Population Estimates use VAT returns relating to the 12 month period prior to the published year.
**** Bi-monthly survey conducted by Censuswide, on behalf of Grant Thornton UK LLP, of 620 senior decision makers in UK mid-sized businesses in April 2024. Mid-sized business defined as those with annual revenue between £50million-£500million.
