New business growth: Does a slowdown spell trouble for the economy?

Alastair Campbell, founder of Company Check, discusses the declining growth of new businesses in the UK.

New business growth is a huge contributor to the British economy. As new businesses are incorporated, more jobs are created and more money is fed into the UK’s funds through tax and through new spending, both domestic and foreign.

But worrying figures released by Company Check this week show that the rate of new business incorporations has been slowing since 2010, raising the question – is new business incorporation in this country under threat?

A declining rate of growth

The figures, which are pulled directly from Companies House, show the number of new business incorporations each year. While the number of businesses is on the rise, the rate of growth is slowing each year, from a 13.4% rise between 2010 and 2011 to a 4.9% rise between 2013 and 2014. 56,207 more businesses were incorporated in 2011 than 2010 but the uplift from 2013 to 2014 was less than half that – 27,571.

The story isn’t all that clear thought, with the number of businesses filing accounts reaching a four-year high in 2014, at just under 600,000.

The truth behind the numbers

At first glance the story is a positive one; Britain gets back to work and does it for itself, setting up millions of new companies across hundreds of industries and specialities after a prolonged and painful recession.

However, behind the clear good news a note of caution should be struck. The pace of growth in startups has slowed significantly – by more than two thirds from 2010 to 2014.

The ‘glass half full’ view is that more startups are surviving and thriving than were previously, leaving less cause for new businesses to be setup in the first place. However with youth unemployment still stubbornly high, there remains a pool of talent out there capable of becoming their own bosses with the right support.

The Government needs to renew its efforts now to ensure the country’s startup success doesn’t stumble.

The importance of location

Seven of the top 10 areas for startup growth between 2010-2014, measured by constituency boundaries, were in London, with the remainder in Glasgow, Edinburgh and Manchester, according to the data from Company Check.

The constituency with the largest single increase in incorporations over the same period was Dumfriesshire, Clydesdale and Tweeddale, which saw a massive 332% rise. Vauxhall in London and Bolsover in Derbyshire both also saw growth of more than 300% in four years.

Unsurprisingly though, London continues to play the leading role in business growth.

What does this mean for small businesses?

Small businesses play a hugely important part in the UK’s economic growth. According to data from the Federation of Small Businesses, small businesses contributed an estimated combined turnover of £1.6 million in 2014 – so the importance of small business is by no means reduced.

What is clear is the need to continue to provide the support to startups that helps them go from idea to reality. Entrepreneurship support programmes such as the Growth Vouchers scheme and local initiatives are incredibly valuable in this process.

Finally, it should be the role of our education system to continue to instil and nurture the skills of business from a young age.  Programmes such as Young Enterprise as well as lessons in school to provide an understanding of economy and basics of business are a good start.

Alan Dobie

Alan Dobie

Alan Dobie was assistant editor at Vitesse Media Plc before moving on to a content producer role at Reed Business Information. He has over 17 years of experience in the publishing industry and has held...

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