Since 2020, the UK has seen a decline of 500,000 small businesses, highlighting a challenging economic environment.
- The private sector shrank by 56,000 businesses in 2024, totalling 5.5 million, from a peak of six million in early 2020.
- Self-employment and one-person businesses faced the harshest impact, with a significant 11% drop over five years.
- Large businesses saw growth despite the downturn affecting smaller entities, creating a mixed economic picture.
- Calls for economic reform intensify as experts express concern over lost entrepreneurial opportunities.
The UK has experienced a significant decline in the number of small businesses since the onset of the pandemic in 2020. A total of 500,000 businesses have vanished, reducing the private sector’s size from six million at the start of 2020 to 5.5 million in 2024. This downturn has been primarily driven by a marked reduction in self-employment and one-person companies, including consultants, who saw an 11% decrease over the past five years.
Several factors have contributed to this trend. Delays in government support for the self-employed during the initial Covid lockdown, the shift towards remote and flexible working practices, and stricter IR35 tax regulations have been identified as key issues impacting these small ventures. Despite these challenges, the segment of businesses with employees has shown resilience, particularly larger enterprises employing over 250 individuals, which have experienced the fastest growth in recent years.
The decline in small businesses across the UK is alarming, particularly considering the rapid surge in self-employment and one-person consultancies witnessed between 2010 and 2020. During that decade, self-employment fuelled 80% of the growth in the overall business population, increasing from 4.5 million to six million businesses.
Additionally, the composition of small business ownership has evolved. While the number of sole traders increased by 323,000 in the past decade, it coincides with a more substantial rise of 793,000 new companies, indicating a trend towards incorporation. In contrast, the number of partnerships has dwindled by 100,000.
Tina McKenzie, policy chair at the Federation of Small Businesses, called the situation ‘disappointing’, emphasising the loss of critical ‘wealth creation units’ essential for generating local jobs and fostering local enterprise. Similarly, the British Chambers of Commerce highlighted ongoing business challenges, with Jonny Haseldine noting that the upcoming Budget offers a chance for addressing crucial matters like business rates reform, capital allowances, and the skills crisis.
The government’s recognition of these difficulties is evident, though their commitment to improving the business environment, especially for small businesses, remains a topic of significant interest.
This contraction underscores the urgent need for strategic economic reforms to support and revitalise the UK’s small business sector.
