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Increased confidence in the economy could create thousands of new jobs among small and mid-cap companies in the UK, according to the latest quarterly QCA/BDO Small & Mid-Cap Sentiment Index. Nearly three quarters (72%) of companies now expect to increase their workforce over the next 12 months, compared with just 43% a year ago. This equates to the creation of over 200,000 [1] jobs in the UK and comes as the sector’s confidence in the UK economy increased from 58.2 in July to 64.1 this quarter – a huge 5.9 points.

Echoing these buoyant figures, companies’ confidence in their own business prospects jumped to 70.4, from 65.5 in July – the report’s highest-ever reading – supported by expectations of strong turnover growth, where the mean expected change for the year ahead rose to 14.8 from 12.5. Continued improvement at this rate points to robust recovery in just two quarters’ time.

Yet despite their broad-based optimism, small and mid-cap companies have also revealed that the growth they point to can only be realised if the right conditions are created. As the Autumn Statement approaches, more than a third (34%) of companies said that they support additional employers’ national insurance contribution (NIC) reductions or rebates for businesses that take on new workers or export[2]. This measure was chosen by the sector as having the greatest potential positive impact on their business.

Scott Knight, Partner, BDO LLP commented: “Sentiment has skyrocketed and small and mid-cap companies now need the right conditions to grow – National Insurance Contribution reductions and rebates would facilitate that growth, both here and abroad.”

In addition to calls for reform around NIC, many companies and their advisors would also welcome simplification of the tax regime, such as the abolition of numerous tax reliefs in exchange for a lower overall corporation tax rate. This was selected by a third (33%) of companies and 35% of advisors as the fiscal policy that would have the greatest positive impact on their business or the sector.

Tim Ward, Chief Executive of the Quoted Companies Alliance, said: “We are seeing a new energy in the small and mid-cap sector which has the potential to be converted into real jobs. The Quoted Companies Alliance supports simplifying the tax system and rewarding job creation.” 

Despite these aspirations and in the face of improving prospects, the QCA/BDO Index reveals that only slightly more companies (3%) expect to raise capital in the coming year, and that the ease of raising capital has improved only slightly[3]. Worryingly, more than a third (35%) of small and mid-cap companies feel that the City of London serves them either poorly or very poorly and cite a lack of risk appetite as the top reason for this.

Tim Ward, Chief Executive of the Quoted Companies Alliance, comments: “The City favours investment in lower-risk, cash generative companies. This rules out pre-revenue small and mid-cap companies, such as many in the high tech sector, that are clearly gearing-up to grow. The City needs to recognise and support those companies that are post-seed funding and pre-positive cash generation. They are a key potential contributor to our future growth.”

Scott Knight continued: “Small and mid-cap companies have sound growth plans. The opportunities are there for both those investors who are prepared to focus on longer term growth and the City, that has historically supported small and mid-cap quoted companies, to demonstrate the value it brings.”

Click here to download the release (pdf)

[1] Based on a Quoted Companies Alliance calculation of 4.6m people employed by small and mid-cap quoted companies (defined as companies with market capitalisations below £1bn) and a mean expected growth in employment of 5.8%

[2] When asked which fiscal policies they would like to see in the 2014 Chancellor’s Budget

[3] The ease of raising bank finance across all companies surveyed rose from 5.58 in July to 5.88 this quarter, with 1 = impossible and 10 = extremely easy

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