Half a million small businesses have vanished since pandemic

Britain has lost half a million small businesses since its withdrawal from the European Union and the onset of the pandemic, official figures show.
The total number of private sector businesses fell by 56,000 to 5.5 million in the year to the start of 2024, the Department for Business and Trade said in its annual official estimate. It takes the total decline to about 500,000 since the stock of businesses peaked at six million at the start of 2020.
An exodus of self-employed people and one-person companies, typically consultants, was largely responsible for the falls, their numbers collapsing by 11 per cent over the five-year period.
The decline coincided with the initially slow introduction of support for the self-employed during the first Covid lockdown, the rise in remote and flexible working for employees, and a clampdown on consultants by HM Revenue & Customs under the IR35 disguised employment tax avoidance rules.
Despite the impact of the pandemic and the high levels of insolvencies in the past 18 months, businesses with employees increased in number between 2020 and 2024, with those paying the wages of more than 250 people recording the fastest rate of growth.
Tina McKenzie, policy chair at the Federation of Small Businesses, said that the “disappointing” figures highlighted in “stark terms the need for a renewed focus on economic growth and entrepreneurial culture”.
“There are now well over half a million missing small business owners. That’s half a million wealth creation units missing, which means local jobs and local enterprise are also missing,” she said.
The British Chambers of Commerce said that the decline in private businesses “underlines the challenging economic conditions many firms are still facing”.
Jonny Haseldine, policy manager, said: “The chancellor’s first budget in just a few weeks’ time is an opportunity to outline action on business rates reform, expanding full expensing [capital allowances] and tackling the skills crisis. Thriving businesses must be at the heart of the sustained economic growth we all want to see.”
Between 2010 and 2020 there was a surge in self-employment and one-person consultancies, representing 80 per cent of the rise in the total business population from 4.5 million to six million during the period, the Department for Business and Trade said.
Small business owners are increasingly favouring incorporation over other legal forms of trading such as being a sole trader or operating through a partnership. The former provides directors with protection from the debts of the business, whereas with the latter the person’s liability is unlimited. The department said that between 2010 and this year the number of sole traders rose by 323,000, or 12 per cent, and companies by 793,000, or 62 per cent. In contrast, partnerships fell by 100,000, or 22 per cent.
A spokesperson for the business department said: “The last few years have been incredibly difficult for business. This government is determined to improve the total business environment including for small business.”