Since 2020, the UK has witnessed the disappearance of 500,000 small businesses, highlighting significant economic challenges.
- A notable decrease in self-employment and one-person companies marks this downturn, influenced by various factors.
- Government support delays and IR35 tax rule changes have significantly impacted consultants.
- Despite the decline in small businesses, large enterprises have seen growth in employee numbers.
- Upcoming government budget reforms are crucial to address business rates, capital allowances, and the skills crisis.
The United Kingdom has experienced a steep decline in the number of private sector businesses, with a reduction of 500,000 from their 2020 peak of six million. This downturn is predominantly attributed to a decrease in self-employed individuals and one-person businesses, particularly within the consultancy sector, which saw an 11% reduction over the past five years.
Several factors have contributed to this decline. Delays in government support during the initial COVID-19 lockdown severely affected self-employed individuals. Additionally, the rise in remote and flexible working arrangements and a clampdown by HM Revenue & Customs on consultants through the IR35 tax rules have also played significant roles.
Interestingly, the number of businesses employing staff has increased since 2020, with large businesses, especially those with more than 250 employees, experiencing the fastest growth. This paradox of decline in small entities but growth in large ones underscores the varied impact of recent economic shifts on business structures.
The decline in small businesses has raised concerns among industry leaders. Tina McKenzie, policy chair at the Federation of Small Businesses, highlighted the loss of over half a million small business owners, equating to a significant reduction in local jobs and enterprise. She called for a renewed focus on promoting economic growth and entrepreneurial spirit.
The British Chambers of Commerce echoed these sentiments, with policy manager Jonny Haseldine emphasising the importance of the upcoming Budget in addressing key business challenges such as reforming business rates, improving capital allowances, and tackling the ongoing skills crisis. A proactive government response to these issues could be pivotal in reversing the current trend of small business decline.
Historically, self-employment and one-person consultancies drove a significant portion of business growth between 2010 and 2020, accounting for 80% of the increase from 4.5 million to six million businesses. Yet, the recent shift towards incorporation indicates a changing preference among small business owners to operate as companies rather than sole traders or partnerships.
From 2010 to 2020, the number of sole traders increased by 323,000, while companies surged by 793,000, contrasting with a 100,000 decrease in partnerships. A government representative acknowledged the difficult environment for businesses over recent years but reaffirmed its commitment to enhancing the business landscape, especially for small enterprises.
The decline in UK small businesses highlights the urgent need for strategic government intervention to support this vital sector and stimulate economic recovery.
