Since the pandemic, the UK has faced the loss of 500,000 small businesses, underlining challenging economic conditions.
- The total number of private sector businesses decreased to 5.5 million by 2024, down from a peak of six million in 2020.
- The decline is mainly due to self-employed individuals and consultants exiting the market, with numbers dropping by 11% over five years.
- Contributing factors include inadequate government support during the pandemic and stringent HMRC tax regulations.
- Despite these challenges, businesses with employees have grown, with large businesses expanding significantly.
The total number of private sector businesses in the UK has fallen by 56,000 to reach 5.5 million in the year leading up to 2024. This marks a significant drop from the peak of six million businesses at the start of 2020, translating to a loss of 500,000 small businesses. The primary contributors to this decline are self-employed individuals and one-person companies, which have seen an 11% reduction in numbers over the past five years.
Several key factors are cited for this trend. Among them, the delays in government support during the initial Covid lockdown are significant, particularly affecting the self-employed. Additionally, the rise in remote and flexible working patterns and a robust clampdown by HM Revenue & Customs on consultants via the IR35 tax rules have exacerbated the challenges faced by these small enterprises.
In contrast to the decline in small businesses, there has been an encouraging growth in businesses with employees from 2020 to 2024. Particularly, larger companies—those employing over 250 people—have recorded the most substantial growth rates. This divergence highlights the varying impacts of the economic conditions across different business sizes.
Tina McKenzie, policy chair at the Federation of Small Businesses, expressed her concern over the “disappointing” numbers. McKenzie emphasized the need for renewed focus on economic growth and the promotion of an entrepreneurial culture, pointing out that the absence of over half a million small business owners leads to a significant deficit in local jobs and enterprise.
The British Chambers of Commerce echoed these sentiments, noting the persistent challenges currently faced by businesses. Jonny Haseldine, the policy manager, highlighted the upcoming Budget as a crucial opportunity for the government to address pivotal issues such as business rates reform, capital allowances, and the skills crisis.
Historically, the UK experienced a rapid rise in self-employment and one-person consultancies from 2010 to 2020, contributing 80% to the growth in total business population. However, with the current downward trend, this momentum has reversed. Furthermore, there is a noticeable shift towards incorporation, with an increase in the number of businesses operating as companies over sole traders or partnerships. Sole traders and companies have increased by 323,000 and 793,000, respectively, while partnerships have decreased by 100,000.
A governmental acknowledgment of the difficult circumstances faced by small businesses has been noted, accompanied by a commitment to improve the business environment, particularly for the small business sector.
The sharp decline in the UK’s small businesses since the pandemic underscores a critical need for economic growth and business reform.
