Punching above their weight? The contribution of small- and mid-cap quoted companies to markets, employment and tax revenues

11 Jul 2022 / Insight

By Keith Hiscock, Yingheng Chen

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Small mid-cap quoted companies

Back in May 2019, Hardman & Co and the Quoted Companies Alliance jointly published a paper looking at the importance of small and mid-size quoted companies (SMQCs) to the markets, and their contribution to tax revenues and employment in the UK. This is a poorly researched area, and that paper helped frame the debate; it has been quoted from by bodies such as the City of London Corporation.

Three years have passed since that note, and we felt it was time to update the work. Of course, the economic and business conditions in which we find ourselves today are very different from the pre-pandemic world of 2019. This makes comparisons between then and now particularly troublesome. Nevertheless, we felt the time had come for a review.

Politicians and business leaders often refer to SMQCs as being pivotal to the future of the British economy, but the definition of “small and mid-size” can cover a huge range of companies, and the difference between the UK’s largest companies and the rest is stark, as we present in this paper.

In particular, we examine the companies quoted on the UK’s public equity markets to highlight the difference in size between the largest 100 companies and the rest.

We also present data that show the massive contribution that SMQCs make to our society, in terms of employment and tax revenues, and to the stock market.

We have also looked at the net change in the number of employees. It is important to understand this, as there are distinct benefits for the individuals themselves and the wider society when employees work for public companies. Alignment of staff with a company’s business objectives and, increasingly, alignment of a company’s ESG performance with employees’ expectations can better be achieved in the public gaze, with the advantages that, for example, share schemes and transparency can bring. We believe that this is the first time anyone has sought to explore the continuing fall in numbers of companies on the stock market by expressing this in terms of workforce numbers.

In particular, we note the following for SMQCs:

  • They represent 91% of all the companies quoted on the London Stock Exchange (LSE) by number (when investment companies and certain other categories are excluded – see section entitled Our sample for more detail).
  • There has been substantial turnover since our last survey, with 683 companies leaving or joining the list.
  • They collectively have a market capitalisation of £376bn by value, representing 15% of the total market capitalisation of the LSE (with the same exclusions).
  • They employ over 2.1 million workers.
  • The net reduction in company numbers has taken 800,000 jobs with it. We have demonstrated before how newly listed companies grow their workforce, and the benefits to staff of being listed; so this is an issue that needs addressing.
  • They account for more than 75% of the workforce of all quoted companies in several regions of the UK.
  • They contributed at least £25.1bn in taxes in 2020/21, we estimate, without including Business Rates. On a comparable basis, SMQCs’ contribution suffered a modest decline in the face of the most challenging trading conditions this century. Their contribution amounts to approximately 5% of the total tax take for Corporation Tax, Income Tax, National Insurance (NI) and VAT.