By Heather Cameron
With endless negative reports on the state of the economy over recent years, the findings of a new study by the Enterprise Research Centre (ERC), The UK growth dashboard 2015, should make for encouraging reading.
Start-ups at record level
The report shows that small businesses have finally made up the ground lost since the recession, with jobs, start-up and growth rates returning to pre-crisis levels in 2014 for the first time since 2008.
Professor Mark Hart, Deputy Director of ERC, said:
“The UK Growth Dashboard provides us with the most detailed picture of where entrepreneurial activity and business growth is occurring around the country.
It shows us that small businesses in every corner of the UK are growing at their fastest rate since the Great Recession, while more and more entrepreneurs have the confidence to take the plunge.”
The UK now has the highest number of start-ups in its history. There were 581,173 new business registrations in 2014, representing an accelerated increase on previous years, and figures from the Office for National Statistics show that the number of firms dropping out of the register has fallen by 6%.
According to the 2015 Global Entrepreneurship Index, the UK is the most entrepreneurial country in Europe and ranks fourth overall.
Regional disparities
Despite such growth however, the dashboard reveals that large regional disparities still remain in entrepreneurship and small business growth across the nations, city-regions and each of the 39 English Local Enterprise Partnership (LEP) areas.
In England, a complex picture emerges in terms of LEP geography, which challenges some of the presumptions made about growth hotspots across England.
While London dominates, as expected, there is not a simple north-south divide. Major city regions and more rural LEPs from across the country also have above average rates of start-ups. There are 11 local areas in England with above average rates of start-ups showing early signs of scaling. London tops the list but the local area of Birmingham is close behind, as are the local areas of Newcastle, Leeds, Manchester and Sheffield.
There are also a number of places with above average proportions of fast-growing firms. These include some areas in the South East such as Oxfordshire and Thames Valley. Perhaps surprisingly however Leicester and Leicestershire, Greater Birmingham and Solihull, Northampton and South East Midlands LEP areas as well as Greater Manchester, Liverpool and Leeds City Region LEPs also come under this category – showing that some of the fastest growing businesses in the UK are delivering jobs and revenues as well as wealth for their owners outside London and the South East. Perhaps entrepreneurial activity could therefore help to combat the traditional north-south divide in terms of growth.
Economic impact
Indeed, there is evidence that entrepreneurial activity has a positive impact on economic growth independent of other factors.
A number of benefits recently highlighted include:
- enhanced economic growth through introducing innovative technologies, products, and services;
- existing firms are challenged to become more competitive due to increased competition from entrepreneurs;
- new job opportunities in the short and longer term;
- raised productivity of firms and economies;
- and accelerated structural change by replacing established, inflexible firms.
It is argued that such benefits will be greater in economies where entrepreneurs can operate flexibly, develop their ideas, and reap the rewards.
Barriers to growth
Regulatory barriers have been cited as a significant impediment to successful entrepreneurship, such as the need to buy permits or licenses. The above report argues that governments need to cut red tape, streamline regulations, and prepare for the adverse effects of job losses in incumbent firms that fail because of the new competition.
Lack of capital, risk to household income and concerns about lack of skills and impact on future career are also significant barriers to enterprise. A recent report from the Social Market Foundation suggests that these barriers are preventing potential ‘high-value entrepreneurship’, which, it argues, has the widest positive impact on the UK economy. While the UK has record levels of entrepreneurship overall, it lags behind other countries on rates of high value entrepreneurship.
The growth dashboard similarly reports that skills and staff, and finance are in the top four main barriers to growth among clients in England. These are a particular barrier in more rural LEPs.
Way forward
It would seem that policy-makers need to help overcome these barriers and encourage the support of entrepreneurs directly rather than impeding their potential with unnecessary regulatory burdens.
The SMF report recommends:
- prohibiting non-compete clauses in employment contracts;
- championing flexible working;
- introducing a ‘right to return’ for people leaving work to start a new business;
- and reinstating tax reliefs for corporate venturing.
Perhaps if such barriers can be overcome, we will see record levels of all types of entrepreneurship and thus increased productivity.
The Idox Information Service can give you access to a wealth of further information on entrepreneurship and economic development – to find out more on how to become a member, contact us.
Further reading
Business start-ups and youth self-employment in the UK: a policy literature review (2015, University of Brighton)
Policy brief on expanding networks for inclusive entrepreneurship (2015, OECD)
Commercial councils: the rise of entrepreneurialism in local government (2015, Localis)
Activating jobseekers through entrepreneurship: start-up incentives in Europe (2014, European Employment Policy Observatory)
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