The number of businesses operating in the UK has fallen over the past year, with small enterprises experiencing the most significant decline, according to a recent analysis by the Global Payroll Association (GPA). The study highlights a worrying trend in business creation and sustainability, compounded by potential challenges from upcoming policy changes.
As of 2023, there are 5.49 million active businesses in the UK, a 1% annual drop and a 6.3% decrease compared to 2019, when the figure stood at 5.87 million. These declines have been most pronounced among the smallest businesses.
Sharp decline for the smallest enterprises
The GPA’s findings show that businesses with one employee have reduced by 5.2% over the past year. Companies with five to nine employees experienced a 2.3% decline, while those with 10-19 employees saw a 1.7% drop.
These figures come alongside a broader decline in new business creation, which has fallen by an average of 1% annually over the past five years. This steady reduction in entrepreneurial activity raises concerns about the UK’s ability to sustain a vibrant and diverse business ecosystem.
Rising costs and future challenges
The outlook for small businesses is further clouded by the financial pressures expected to intensify in April 2025 following announcements in the recent Autumn Budget. Increases in employer National insurance contributions and the national living wage will likely impose additional financial burdens on businesses, particularly smaller enterprises.
The GPA warns that these changes could exacerbate existing challenges, further reducing the number of small businesses. As this segment of the market shrinks, the business landscape risks becoming dominated by larger organisations.
Larger businesses bucking the trend
While small enterprises are under pressure, larger businesses appear to be thriving. The GPA data reveals that the number of businesses with 200-249 employees has risen by 4.8% in the past year, while those employing 50-99 people increased by 3.7%. This growth suggests a shift in the balance of the business ecosystem, with smaller firms struggling to keep pace.
Calls for Government support
Melanie Pizzey, CEO and founder of the Global Payroll Association, emphasises the importance of supporting entrepreneurship in the UK:
“We need the Government to do more to encourage entrepreneurship here in the UK. Our business landscape has long been famed for enabling the creation of a huge number of outstanding businesses with massive clout both here at home and around the world. It’s vital that we don’t now start stamping small businesses out purely to stabilise public funding. This is short-term thinking, which ignores the fact that, if you enable small businesses to thrive and grow, the mid-long-term economic benefits are extraordinary.”
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