Private Sector Businesses Decline by 56,000 as Self-Employment Rates Drop

The total number of private sector businesses in the UK fell by 56,000 to 5.5 million in the year leading up to 2024, marking a significant decline of 500,000 from the peak of six million at the start of 2020. This downturn has been largely attributed to a sharp exodus of self-employed individuals and one-person companies, particularly consultants, whose numbers have dropped by 11% over the past five years.

Several factors have contributed to this decline, including delays in government support for the self-employed during the initial COVID-19 lockdown, the increasing prevalence of remote and flexible working, and a stricter enforcement of the IR35 tax rules by HM Revenue & Customs, which has affected consultants.

Despite the overall contraction, the number of businesses with employees has actually seen growth between 2020 and 2024. Large businesses, especially those employing over 250 individuals, have recorded the fastest growth rates during this period.

Tina McKenzie, policy chair at the Federation of Small Businesses, expressed concern over the “disappointing” figures. She emphasized the need for renewed focus on promoting economic growth and fostering an entrepreneurial culture. “There are now well over half a million missing small business owners,” McKenzie stated. “That’s half a million wealth creation units missing, which means local jobs and local enterprise are also missing.”

The British Chambers of Commerce echoed these sentiments, highlighting the ongoing challenges that businesses continue to face. Jonny Haseldine, policy manager, noted that the upcoming Budget presents a crucial opportunity for the government to address key issues, such as business rates reform, capital allowances, and the skills crisis.

The decline of the small business sector is particularly striking given the rapid growth of self-employment and one-person consultancies between 2010 and 2020. During that decade, self-employment accounted for 80% of the increase in the total business population, which surged from 4.5 million to six million.

Recent data also indicates a trend toward incorporation, with more small business owners opting to operate as companies rather than sole traders or partnerships. While the number of sole traders increased by 323,000 over the past decade, the number of incorporated companies grew by 793,000. Conversely, partnerships experienced a decline of 100,000 during the same period.

In response to these troubling trends, a government spokesperson acknowledged the challenging environment faced by businesses in recent years but reaffirmed the government’s commitment to enhancing the overall business climate, particularly for small enterprises.