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Date: 06/03/2015

This week’s policy update looks at the rise of the ‘Brittelstand’, the UK’s medium-sized businesses (MSB), the current upturn in performance of the manufacturing sector, an Institute for Fiscal Studies report into average incomes, the decision by the European Central Bank to raise eurozone growth expectancy, and the launch of ‘An Agenda for Business’, the Executive Summary of the Herefordshire & Worcestershire Chamber of Commerce Business Manifesto.

Medium-sized firms in the UK outperform lauded German ‘Mittelstand’

Medium-sized businesses (MSBs) in the UK, that includes companies that have turnovers between £25m-£500m, outperform their counterparts in 13 countries, according to a new HSBC study.

17.2% of the countries economic activity is accounted for by MSBs, which rises to 38.6% when extra consumption and contracts with suppliers is taken into account.

This equates to a bigger percentage of economic activity than the lauded ‘Mittelstand’ in Germany, which has been held-up as the model for medium-sized economic growth by economists and politicians alike.
Germany’s MSBs account for 16.3% - or 35.5% when extras are taken into account - of economic activity, whilst US MSBs represent 13.2% and 31% of GDP. Only France, who can attribute 39% of GDP to their middle-market enterprises, performed better than the UK in the recent study.

Sally Stevenson, International Trade Advisor for medium-sized businesses, UK Trade & Investment (UKTI) in Herefordshire & Worcestershire, added: “Medium sized businesses play an important role in our local economy here in Herefordshire & Worcestershire, so it is good to see that nationally MSBs are also delivering significant growth. It is important to ensure that these companies get the support from Government to help them succeed – particularly in international markets when competing with other countries, such as Germany and France.  UK Trade & Investment is here to help and support to MSBs in Herefordshire & Worcestershire with their export strategy and International sales.”
Manufacturing output reaches seven month high

Strong domestic demand has helped the British manufacturing sector increase its outputs to a seven month high, fuelling analysts to state that the economic recovery is back on track.

In addition to increased outputs, employment has increased for each of the last 22 months, and increased confidence has helped fuel strong domestic orders and sales.

The fall in oil prices has also stemmed positive results for manufacturers, with energy, food and raw material prices all falling as a result.

The only point of concern in the latest sector-based figures was the strengthening of the pound. Sterling has continued to grow in value against the euro and the dollar, with a 6% improvement against the euro and 2.5% against the dollar. In the same period, overseas orders of British products have fallen in four out of five months.

Commenting, Mike Ashton, Chief Executive of Herefordshire & Worcestershire Chamber of Commerce, said: “It is extremely positive to see the recovery of the manufacturing sector continues, bringing economic growth in the process. The only concern is that manufacturing exports still lag behind. Our persistent trade deficit will perpetuate if exporting in the sector continues to struggle, which, in turn, will hold back the fundamental rebalancing of the British economy.”
Household incomes return to pre-crash levels

A study by the Institute for Fiscal Studies (IFS) has found that the average household income has returned to pre-crash levels for the first time since 2007.

That withstanding, for working age people are still at an advantage when the impact of inflation is factored in. On the other side of the coin, over 60’s have seen their average incomes rise over the seven year period, largely due to the extent that government cuts have avoided the age group.

The final conclusions of the IFS report stated that average incomes and standards of living have risen at a slower rate than previous recessions.

Jack Stephens, Policy & PR Executive at the Chamber, added: “The report highlights that the road towards economic recovery has been very difficult on working-age people, but with expected rises in average incomes, people’s quality of life and purchasing power is slowly returning. It is important that businesses seek to maximise their productivity and outputs which will enable them to offer the wage rises that many have wanted to give over the punishing recession.”
ECB raises eurozone growth forecast by 0.5%

Mario Draghi, the Italian at the helm of the European Central Bank (ECB), has announced that the ECB have upgraded their eurozone growth forecasts from 1.0% to 1.5% for this year.

The incumbent chief of the ECB has predicted that growth will proceed slowly until 2017, with growth of 2.1% expected in 2017.

The ECB have also announced that their policy of quantitative easing (QE) will commence from next week.

Quantitative easing will see at least €1.1 trillion of new money pumped into European economies through the Bank buying up to €60bn of assets per month, with the desired impact of stimulating economic growth in the stagnating eurozone market.

Mike Ashton, Chief Executive at the Chamber, said: “The policy of QE being instigated by the ECB would have been far more beneficial before we got to the crunch point that we are currently in, however, the eurozone is in desperate need of reviving and this policy should help. It is our largest export market, and stronger European economies will only help increase Britain’s overseas trade potential.”
An Agenda for Business: Chamber launches executive summary of Business Manifesto

The Chamber has launched the executive summary of its forthcoming Business Manifesto, An Agenda for Business, which is to be released in digital format in the coming weeks.
The document sets out the main five policy campaigns that the Chamber will be lobbying local, national and European government on over the coming years, with the aim of representing Chamber members as effectively as possible.

Building World Class Infrastructure Networks
For local economies to build sustainable success, it is imperative that the foundations for growth are competitive with the world’s best. One of the most fundamental pillars of success is an infrastructure network that meets the needs of businesses, allowing them to do business easily and without constraint, as well as helping to attract and retain the most talented staff and maximise inward investment potential. Our infrastructure priorities are: Regeneration, Roads, Rail, Aviation, Digital Infrastructure, Energy, and the implementation of a national strategy for infrastructure.
Developing the Workforce of Tomorrow
It is essential that the workforces of tomorrow are imbued with the transferable and industry specific skills that will enable our next-generation economies to be flexible, highly skilled and, importantly, world-beating. Only through business influence in the education and training system, along with sufficient investment in the education system, will the UK be globally competitive in years to come.
Creating the Environment for Growth
Whilst a world class infrastructure network provides the physical platform for business growth, it is essential that business costs – local and national taxation along with business rates - remain incentivising, fair and accountable. Beyond this, businesses need clarity over our future relationship with Europe in order to translate business confidence into tangible investment and business success.
Growing our Trade Potential
The government have set the ambitious, but achievable, target of increasing the value of British exports to £1 trillion by 2020. For the economic recovery to be secured, and guaranteed for the foreseeable future, the British economy needs to be fundamentally rebalanced with international trade at the heart of this. Britain operates a perpetual trade deficit and businesses need support – ranging from at the earliest stages of education through to a world class export finance agency – to guarantee that we not only compete on the global stage, but lead the way in terms of export.
Local Control, National Growth
In total, 60% of spending is still controlled by Whitehall, restricting the amount of control that local areas can have in actualising strategic visions and plans. Local businesses with local knowledge have the potential to help shape positive changes in their area. The merits of the varying forms of decentralisation should be fully examined in relation to the area in question, with the aim of empowering the local business community through increased powers to localities.
Mike Ashton, Chamber CEO, noted: “An Agenda for Business has been formulated through extensive consultation with our members over an extended period of time, both formally and through the daily interaction we have everyday. We feel that this document has the needs of local businesses at its heart, finding the right mix between heritage and tourism and the modernity and innovation that is driving Herefordshire & Worcestershire forward. We welcome any feedback on this document and the final Manifesto which will be available in the coming weeks.”