Want to grow the British economy? Learn the lessons of Germany's Mittelstand

A Berlin factory in 2008. Image: Getty.

Low productivity and limited access to finance have bedevilled Britain's SME manufacturers for decades. Beverley Nielsen, the LibDem candidate to be mayor of the West Midlands, believes the solutions lie in Germany.

I've been on many overseas trade missions since becoming the CBI's West Midlands director in 1995, and Germany's remarkable achievements in export markets were always cited as the model to follow.

However, I think this country has more to learn from the harmonious relationship between Germany's financial sector and its so-called “Mittelstand” – the vast array of successful enterprises operating between the giant quoted PLCs, and its small businesses.

These companies tend to be family-owned and managed. Their planning horizons span generations, rather than extending merely as far as the next set of results, and although they tend to be rooted in their regions, they have global ambitions.

I have been working to support our manufacturers for more than 20 years, and although successive governments have preferred financial engineering to the real thing, in the West Midlands we still compare favourably with Germany.

Roughly 5 per cent of our manufacturers in this region are medium-sized, and able to power future growth and innovation, compared with 4 per cent throughout Germany.

However, when we look at the access to finance enjoyed by the Mittelstand, there is no comparison with the West Midlands – or any other UK region. German companies enjoy far greater support, and from a wider mix of banks in their regions, notably via municipal savings banks, co-operatives and development banks.

They also have a well-established nationwide structure of grants, and governments at the state and national level offer continued and long-term support to reduce the risk faced by the Mittelstand. The whole focus is for the long-term, and about building regional jobs and regional economies so that their national economy is balanced and sustainable.

Sadly, in this country, we see politicians – notably, the previous chancellor – only paying lip-service to “rebalancing” our economy. And when the current government abolished the highly-successful Manufacturing Advisory Service last year, it said everything about its approach to our mid-sized manufacturers.

I also believe we have much to learn from how Germany encourages those ventures to not only deliver high-quality training to their employees, but to deliver it to the wider business community.

Germany has more than 4,000 family businesses with a turnover above €50m, and more than 600 industrial family-owned companies with more than 500 employees.


The Mittelstand trains its nation: establishments with fewer than 500 employees (including branches of large companies) provide more than 80 per cent of all training in Germany. That’s 1.27m of the 1.54m training places in German companies at the end of 2013.

In sharp contrast, 57 per cent of British SMEs do not offer any staff training or development, according to a 2016 survey by the Federation of Small Businesses.

As a result of greater access to finance, and a willingness to think beyond the next set of results, the Mittelstand is far more productive than its British equivalent.

Employment in SME manufacturing in Germany accounts for 20 per cent of all employment and 22 per cent of value added. In the UK, the figures are just 15 per cent for employment and just over 15 per cent value added.

In the UK, policies towards manufacturing chop and change as government programmes swing between Conservative and Labour administrations – but always with a relentlessly centralist view.

However, the German approach to the Mittelstand combines long-term business viability, and a relentless focus on delivering the bottom-line results required for survival and success, embedded in regional culture.

As mayor of the West Midlands, I will set the building blocks in place so that our SME manufacturers can finally get the support they have deserved for so long.

I will establish a West Midlands Bank, and a £1bn Innovation Fund, to encourage young talent, skills development, expertise, universities and research centres to link into our Mittelstand, to devise practical market-applicable solutions that deliver real growth and jobs.

The focus for these businesses must also be about delivering a “mind-to-market” approach where innovations are about servicing and meeting customer or user need, through good design, real understanding of markets worldwide and a relentless desire to be best in class.

We stand at a real moment of opportunity – with renewable energy and electric vehicles taking off in world markets, with new local energy systems, battery power and energy storage all combining with connectivity to link homes and mobility for the benefit of our communities in new, exciting and sustainable ways.

Sadly though, the lack of understanding of the asset that we have in our manufacturing businesses, across the West Midlands, has been demonstrated by both Conservative and Labour governments.

They do not understand what we are contributing and how important it is. Now is our time. We must back our Mittelstand and watch it take off, to both rebalance our economy, and deliver much needed growth which must be shared across our communities.

 Beverley Nielsen is the Liberal Democrat candidate to be mayor of the West Midlands.

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What do new business rates pilots tell us about government’s appetite for devolution?

Sheffield Town Hall, 1897. Image: Hulton Archive/Getty.

There have been big question marks about any future devolution of business rates ever since the last general election stopped the legislation in its tracks.

Not only did it not make its way to the statute book before the pre-election cut off, it was nowhere to be seen in the Queen’s Speech, suggesting the Government had gone cold on the idea. (This scenario was complicated further recently by the introduction of a private members’ bill on business rates by Conservative MP Peter Bone, details of which remain scarce.)

However, regardless of the situation with legislation, the government’s announcement in recent days of a pilot phase of reforms suggests that business rates devolution will go ahead after all. DCLG has invited local authorities to take part in a pilot scheme which will allow volunteer authorities to retain 100 per cent of the business rates growth they generate locally. (It also notes that a further three pilots are currently in operation as they were set up under the last government.)

There are two interesting things in this announcement that give some insight on how the government would like to push the reform forward.

The first is that only authorities that come forward with their neighbours with a proposal to pool all business rates raised into one pot across a wider geography will be considered. This suggests that pooling is likely to be strongly encouraged under the new system, even more considering that the initial position was to give power to the Secretary of State to form pools unilaterally.

The second is that pooled authorities are given free rein to propose their own local arrangements. This includes determining, where applicable, a tier split (i.e. rates distribution between districts and counties), a plan for distributing additional growth across the pool, and how this will be managed between authorities.

It’s the second which is most interesting. Although current pools already have the ability to decide for some of their arrangements, it’s fair to say that the Theresa May-led government has been much less bullish on devolution than George Osborne in particular was, with policies having a much greater ‘top down’ feel to them (for example, the Industrial Strategy) rather than a move towards giving places the tools they need to support economic growth in their areas. So the decision to allow local authorities to come up with proposed arrangements feels like a change in approach from the centre.


Of course, the point of a pilot is to test different arrangements, and the outcomes of this experiment will be used to shape any future reform of the business rates system. Given the complexity of the system and the multitude of options for reform, this seems like a sensible approach to take. But it remains to be seen whether the complex reform of a national system can be led from the bottom up. In effect, making sure this local governance is driven by common growth objectives, rather than individual authorities’ interests, will be essential.

Nonetheless, the government’s reaffirmation of its commitment to business rates to devolution and its willingness to test new approaches is welcome. Given that the UK is one of the most centralised countries in the western world, moves to allow local authorities to keep at least some of the tax revenue that is generated in their area is a step forward in giving places more autonomy over how they spend their money. That interest in changing this appears to have been whetted once more is encouraging.

There are, however, a number of other issues with the current business rates system which need to be ironed out. Centre for Cities is currently working on a briefing of the business rates system, building on our previous work in this area, and we’ll be making suggestions as to how the system can be improved.

Hugo Bessis is a researcher for the Centre for Cities, on whose blog this article originally appeared.

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