28 November 2023 – New data has revealed that for the first time in 12 years, the UK business population has shrunk. More businesses have closed down than started up over the past two years.
Since after the financial crisis in 2008/09, the number of active UK businesses has been rising every year, with the number of businesses being started exceeding the number of businesses that closed down.
However, in the past two years this has changed, when for the first time in over a decade the business death rate is higher than the business birth rate, according to the latest figures by the Office for National Statistics (ONS).
As a result, the UK business population has shrunk. This doesn’t bode well for the recovery of the UK economy.
Business Birth Rate Down To 11.5%
The latest ONS figures show that in 2022 337,000 new businesses were opened, which equates to a business birth rate of 11.5%. This is a fall of 0.9% compared to 2021, when the rate stood at 12.4%, with 364,000 new businesses in that year.
The business birth rate has been relatively stable in the past years, staying at or above 11.5%. The last time the rate dropped below this level was back in 2012, when it was 11.4%.
While the number of new businesses has dropped, the number of businesses closing in 2022 has risen. That year, 345,000 businesses closed their doors, which equates to a death rate of 11.8%.
This is a record number of business closures not seen since 2009, when the financial crisis hit, when the death rate was also 11.8%.
This means that for the first time in 12 years, the UK business population has shrunk as there were more business deaths than births.
The ONS data suggests that in 2022 there were approximately 2,925,000 active businesses. This is 15,000 less than in the previous year.
The UK economy relies on its businesses to grow and thrive. But these figures clearly show that this is not happening, which explains why the economy struggles to recover from the fall-out of the pandemic.
These figures are worrying and could spell disaster for the British economy.
Not all regions of the UK have been affected equally though, with business birth rates the highest in London at 12.7%. With the death rate in the capital also at 12.7%, the number of businesses has been stable in 2022.
Northern Ireland had the fewest businesses closing last year, with a business death rate of 8.2%. The birth rate is marginally bigger, with 8.3%, which means the business population in this region has actually grown slightly.
Other regions where more new businesses were started than closed include the North East, Yorkshire and The Humber, the South West and Wales.
The highest number of businesses closing down was in the East Midlands, with a business death rate of 13.2% and a birth rate of 11.5%. This indicates that businesses in the East Midlands were the hardest hit, with the business population shrinking by 1.7%, which is the biggest fall in all of the UK.
The industry that had the most business closures in 2022 was the transport and storage (including postal) industry, with a death rate of 23.8%. However, this sector also had the highest business birth rate with 21.2%.
But overall, the business population in this sector has shrunk. The property sector had the fewest business closures, with a business death rate of 7.1%. The finance and insurance industry has seen the lowest birth rate at 6.9%.
2022 Difficult Year For UK Business Population
2022 was a particularly difficult year for small UK businesses, which is highlighted in the ONS figures. As the country emerged from pandemic restrictions, many small businesses were already struggling.
The invasion of Ukraine by Russia caused an economic fallout that saw inflation, fuel and energy costs rise to levels not seen for years. The cost-of-living crisis that followed shrunk most household budgets.
In an attempt to curb inflation, the Bank of England raised the base rate, leading to mortgage rates soaring, reducing household budgets even further. Rents also rose sharply, exacerbating the plight of many families.
This reduced consumers’ spending power, leaving many small businesses no option but to close. The Institute for Public Policy Research (IPPR) warned that the high number of business closures should be seen as a warning sign for the economy.
The figures also suggest, so the IPPR, that more support for businesses could have averted the economic slowdown we have seen.
Whilst this isn’t unexpected – high energy costs combined with the end of pandemic support schemes would always see a rise in company closures – it might signify that greater business support would have maintained higher economic activity.
Dr George Dibb, Head of the Centre for Economic Justice at the IPPR
Our Opinion
The past year was incredible challenging for many small businesses. We aren’t surprised that the UK business population shrunk as a result.
While the government has talked a lot about supporting businesses and growing the economy after pandemic restrictions were lifted, the ONS figures clearly show that the support given just wasn’t enough.
And the Autumn Statement announced last week hasn’t included too many things for small businesses to celebrate. While some of the measures, such as the freezing of the small business multiplier, were very welcome, most small businesses will see their costs rise.
Despite the tax cuts announced by the Chancellor next week, the tax burden is the highest in decades. Corporation tax and the national living wage will rise from 6 April 2024. There was no National Insurance tax cut for employers, only for employees and the self-employed.
Energy prices are set to rise again in January, with no more support from the government in place. While inflation is falling, prices are still rising, albeit at a slower rate.
In our opinion, small businesses need more support to be able to grow and thrive and in turn to help the UK economy to grow. But as it looks at the moment, there won’t be any support forthcoming from this government.
