Since 2020, the UK has seen a dramatic loss of small businesses, impacting local economies significantly.
- A total decline of 500,000 small businesses has been recorded since the beginning of the pandemic, dropping from six million to 5.5 million.
- This downturn has been driven by a sharp fall in self-employment and one-person companies, a trend exacerbated by government policy changes and pandemic-related challenges.
- Despite the downturn, businesses with employees have shown growth, with larger enterprises experiencing the most significant increase.
- Experts urge the government to address critical issues like business rate reforms and the skills crisis to aid recovery.
In the face of challenging economic conditions, the UK has seen a stark reduction in the number of small businesses since the onset of the pandemic. The total count of private sector businesses fell by 56,000 in the year leading up to 2024, marking a cumulative loss of 500,000 from the six million peak in 2020. This decline primarily stems from a substantial reduction in the self-employed sector and one-person operations, notably consultants, dropping by 11% over the past five years.
Several factors have contributed to this decrease, including delays in government support for the self-employed during the initial Covid-19 lockdown and the rise of remote and flexible working arrangements. Additionally, the enforcement of stricter IR35 tax rules by HM Revenue & Customs has further dissuaded consultancy work, impacting the number of operating small enterprises.
Despite these setbacks, larger businesses, particularly those employing more than 250 individuals, have seen considerable growth during the same period. This divergence underscores the resilience and capacity of large-scale operations to adapt and thrive amidst economic adversity.
Tina McKenzie, policy chair at the Federation of Small Businesses, articulated concerns over these “disappointing” statistics, emphasizing the need for renewed efforts in promoting economic growth and nurturing an entrepreneurial environment. McKenzie highlighted the absence of over half a million wealth-generating small business owners, which detrimentally affects local job markets and community enterprise.
The British Chambers of Commerce similarly voiced apprehensions, underscoring the importance of the forthcoming Budget as an opportunity for governmental intervention. Jonny Haseldine, policy manager, urged a focus on reforming business rates, securing capital allowances, and addressing the skills deficit that continues to plague the sector.
Historically, self-employment and one-person consultancies propelled substantial business growth from 2010 to 2020, accounting for 80% of business population expansion as it swelled from 4.5 million to six million entities. However, the post-2020 era starkly contrasts with this trend as more entrepreneurs opt for incorporation over traditional sole proprietorships or partnerships.
The persistent challenges faced by the UK’s small business sector necessitate strategic governmental reforms to restore and invigorate entrepreneurship within the economy.
