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After a remarkable surge over the past decade, the UK’s entrepreneurship boom appears to be slowing down. The number of new company formations fell by more than 10 per cent in 2017, from 657,790 in 2016 to 589,008, according to the Centre for Entrepreneurs (CFE), a think-tank and lobby group.
The fall ended a period of uninterrupted growth in the number of new company formations that started in 2008, according to government data.
CFE says the main cause for the downturn was probably technical — the government had changed rules to stop public sector workers declaring themselves as self-employed contractors from April 2017. For example, in the rural county of Wiltshire, 10,164 new businesses were registered in 2016 with 7,475 (73 per cent) registered to one accounting firm that provides payroll solutions to contractors. In 2017, only 3,409 businesses were registered in Wiltshire, only 458 of which were registered to this address.
However, Matt Smith, director of the centre, says that even after the contractors were stripped out from overall figures, there was still a small fall in the number of business registrations.
Mike Cherry, chairman of FSB, a not-for-profit organisation that represents small business owners and self-employed people in UK, says the weakening domestic economy appears to be having a negative impact on entrepreneurs.
Mr Smith also blames the decline on a tougher business climate and points to the increase in business rates that hit London, the UK’s biggest commercial centre, particularly badly because they are calculated on the value of the property a business occupies.
“With business registrations increasing for nearly a decade it is not surprising to see the record streak come to an end,” says Mr Smith. “While the tax clampdown [affecting those declaring themselves self-employed contractors] is responsible for most of the drop, there is evidence that formations have fallen more than expected. To boost start-up figures, the government must return to championing entrepreneurship and supporting entrepreneurs, as it did so well under David Cameron.”
Mr Cameron, who took office as prime minister in 2010, encouraged start-ups. He endorsed the Start Up Britain campaign, which promoted entrepreneurship. In 2012, he also introduced a scheme to lend public money to aspiring business owners at 6 per cent interest over a period of between one and five years. Since its launch the Start Up Loans Company has lent a total of more than £355m to more than 51,000 businesses.
Mr Smith says the prospect of leaving the EU has not deterred company formations. He says that CFE had observed no slowdown in the final six months of 2016, after the referendum vote.
However, a survey by the Federation of Small Businesses found that a record one in seven owners of small and medium-sized enterprises wanted to sell up, close or downsize in the final quarter of 2017.
Emma Jones, a founder of Start Up Britain, who now runs support group Enterprise Nation, believes Brexit and a slowing economy are starting to worry people.
“People are taking a more cautious approach. They work nine to five and have a side hustle — a business from home. People are going through a nervous couple of years.”
She says Brexit means that the government should focus on supporting small businesses that exist rather than investing in big initiatives to create new ones. She is calling for a group to look at how small business support can be funded post-Brexit by harnessing technology and data. She also wants more business rates relief for co-working spaces to allow microbusiness to collaborate. Greater efforts should be made to promote entrepreneurship in schools, she adds.
Ryan Naftulin, a partner at the US law firm Cooley, who has worked in Silicon Valley, says that the UK tech sector, however, remains buoyant.
“The start-up ‘rate’ isn’t as critical to creating world leading organisations as the quality of the ideas, the leadership, technology talent, and financing to found and grow them. The UK’s tech start-up industry excels in all these areas,” he says.
The UK attracted $7bn of tech investment in 2017, according to IPPR North, a think-tank — far more than any other European country.
Mr Naftulin says that the UK has already produced 13 unicorns — a start-up valued at $1bn. But it needs to find more long-term capital to allow more businesses to reach global scale.
Eren Ozagir, a serial entrepreneur, believes the fall off in new business creation is just a blip. He started his first company — running events — as a student at Leeds university. He later co-founded Entertainment Magpie, an online buyer and seller of second-hand goods. His latest venture is Push Doctor — the Manchester-based business offers paid video consultations with doctors via an app if they do not want to wait days to see their general practitioner.
“More and more young people want to become entrepreneurs. There is a massive amount of investment available for the right person. Everything is being disrupted and remodelled.”