Infrastructure

The UK has undergone two massive shocks over the past 18 months, the coronavirus pandemic and the ongoing impact of the exit from the European Union. The UK’s infrastructure has proved itself resilient under these challenges. But is resilience enough for what the middle market needs to flourish?

With insights from the middle market, RSM’s latest Real Economy report looks at what businesses really need from the country’s infrastructure to help support their development. 

‘The middle market is the ‘backbone’ of the economy, employing the majority of the UK private sector workforce, and covering the length and breadth of the UK’ said Simon Hart, International Lead Partner, RSM UK.

As the country slowly emerges out of the shadows of the coronavirus pandemic, economic recovery is on the mind of most businesses. We asked how the middle market felt about the UK’s infrastructure. 

68 per cent of our survey respondents felt that the infrastructure restricts the growth of the national economy.  Over 60 per cent felt that the UK’s infrastructure also restricts the growth of their local economy and the growth of their business.

'We have seen that the infrastructure in the country is able to sustain the status quo for the middle market, but clearly more infrastructure investment is needed to help support these businesses really thrive’ said Alistair Hynd, Head of Project Finance at RSM UK

As the country embarks on 'The Great Reopening’ there are positive signs that the economy will bounce back well, and the middle market will play a key role in this recovery. 

‘The middle market needs to continue to invest in its own capital projects to remain dynamic, competitive and aligned to the post pandemic expectations of customers, employees and the communities they serve. Support should be provided to enable them to do so.’ said Simon Hart.

The middle market plays an essential role in the wider British economy, their prosperity benefits all. The key to the UK’s economic recovery lies within the middle market. ‘Businesses are asking for an acceleration and need visibility and certainty to enable them to plan their own short – and longer term – investment decisions’ said Alistair Hynd. 

The representation of middle-market leaders in major policy creation and implementation will be vital to support the UK real economy in driving the recovery. This RSM survey gives policy makers adequate information to stop and consider the views of the UK middle market.

Improvements to digital infrastructure are considered to hold the most potential benefit to the middle market. This is not surprising, especially considering the impact the coronavirus lockdown’s have had on working habits. 

93 per cent of those surveyed feel that it is important for the Government to prioritise investment in digital infrastructure. 

‘The coronavirus pandemic has made investment in digital infrastructure even more of a priority for Government’ said Chris Knowles, Chief Digital Officer, RSM UK. ‘Connectivity is a real issue for many of the businesses we work with. The shift to remote working has exposed the shortcomings in parts of our national digital infrastructure.’

With smaller and medium sized businesses utilising digital technology, such as cloud software, to help support their business functions there needs to be a reliable connection to support their access. It is essential for these businesses to have a reliable connection. 

‘Middle market businesses are turning to digital technology such as cloud software to help underpin their growth. Many rely completely on the cloud for their IT and on the internet for their sales. They need reliable connectivity and public cloud infrastructure for this, and this isn’t yet there in all parts of the country’ said Chris Knowles.

The UK is the first major economy to pass a net zero emissions target into law. The UK will now have to bring all greenhouse gas emissions to net zero by 2050 and middle market businesses are proactively playing their part in reducing emissions. 

79 per cent of businesses surveyed are working to reduce their carbon footprint. 

The country is faced with a huge task in order to reach carbon zero by 2050, one that will absorb a great amount of resource and time - but it is an unavoidable challenge. 

There are appealing financial incentives in place to reduce carbon emissions, but other risk factors such as loss of customer revenues and the fight for talent are also playing a part in the drive to reduce emissions. 

‘Another big driver in reducing carbon emissions is recruitment and retention. Across the multigenerational workforce, younger people are increasingly looking to work for purpose-driven organisations whose values align with theirs, and so the war for talent will be on the minds of many businesses’ said Alistair Hynd.

However, experts are agreed that the most significant part of getting to net zero will be behavioural change. ‘The global pandemic forced businesses to put a spotlight on their operations and adapt extremely quickly. But this challenge has also brought the opportunity to change for the better and embrace new ways of working, specifically the reduction of a business’s carbon footprint that comes with remote working’ said Kelly Boorman, Head of Construction, RSM UK. 

‘The question we now need to ask ourselves is, can we retain those social advantages you had with the ‘old’ ways of working and build them into the ‘new’ ways of working?’ said Kelly Boorman. 

The Government’s infrastructure investment plans have included multiple schemes intended to help support and develop SME’s. The schemes, including Help to Grow, have been welcomed by the middle market. Over two thirds of our survey respondents said they may or will use one of the schemes. 

‘The UK’s infrastructure is intertwined with the Governments ‘levelling up’ agenda and it is great to see the Government is investing in skills for SMEs’ said Chris Knowles. ‘These are important skills for any business to have in order to succeed in this market.’

To qualify for one of the schemes, a business must have between 5 and 250 employees. Many businesses, who would greatly benefit from the schemes and have expressed an interest, will not be able to qualify due to exceeding the size criteria.

79 per cent of businesses said they are likely to make capital investments to expand their internal infrastructure in the next three years. Only 64 per cent of those surveyed thought it would be easy for their businesses to access the finance available. There are evidently concerns as to whether the government is channelling finance in a direction that will support the middle market.     

‘The Help to Grow fund is focused on stimulating the smaller end of the middle market, but many of the businesses that will not qualify can’t afford to invest in assets and training to grow digitally. The construction industry, as an example, is improving on collaborative working, sharing technology and digital enhancements. And we’re seeing some joint procurements for Government contracts’ said Kelly Boorman. ‘The way forwards is through collaboration and partnership to deliver infrastructure improvements; firms should seek to bring their knowledge and experience to these projects.’