The Forum welcomed the announcement today that there are now 5.4 million businesses in the UK but is still concerned about the high proportion of businesses that do not employ. An analysis of the latest figures from the Office of National Statistics indicates that it does not necessarily pay for the UK’s smallest firms to employ.
SMEs are now responsible for 15.6 million jobs, an increase in the last year from 15.2 million in the UK and historical trends indicate that they are likely to create 65% of jobs over the next decade. They have a collective turnover of £1,753,900 generating 47.2% of private sector turnover, which has risen from 46.8% suggesting that SMEs have indeed been driving UK wealth creation over the last year.
The figures show that the number of unregistered businesses without any employees has risen to over 3 million and now make up around 56% of the business population, taking the total of businesses without employees to 3,473,088 or 76% of all businesses. To put this in context, there were 3.5 million businesses in the UK in 2000.
This is an issue for the UK economy as non-employers are overall less productive than employers – having a turnover per person of £53,000 compared to an SME employer figure of £135,900. However, turnover per head of a VAT registered non-employer was £118,000 compared to £108,000 for businesses with less than 10 employees (micro employers).
In short the Forum feels the figures underline the need to improve the environment for the 1.3 million micro, small and medium employers (those with 1 to 250 employees) and create sustainable business growth as the figures illustrate that it does not pay to employ if you are a micro employer.
A disproportionate regulatory system (micro employers spend 10 times more on regulation per person than a medium-sized firm) and lack of reward for the nations small business owners is seen by the Forum as inhibiting the UK’s economic growth as firms use freelancers rather than train and employ local individuals. The rise of VAT registered non-employers shows how great the market has become for flexible labour and how traditional employment practices do not fully meet this need.
A good example of this is how hairdressers are encouraged by their tax advisers to hire out a spare chair to a self-employed hairdresser rather than employ a trainee.
Ian Cass, MD of the Forum of Private Business, said: “An increased number of businesses, particularly those that have reached the VAT threshold, is great news as it shows the strengths of the UK economy – individuals can set up and do relatively well in self-employment which fits in with other lifestyle priorities such as looking after children or elderly relatives or spending more time on other non-work related interests.
“However the lack of growth of businesses at each step of the economic cycle is poor with government bodies imposing cost and barriers on businesses rather than looking to solve them.
“We need a business infrastructure that rewards business owners who employ and support their local community, not one that demotivates them with new ways to shuffle paper or methods to punish them for running their business as efficiently as possible.
“Getting more businesses to employ, export and grow quickly when the opportunities arise are crucial to creating a better living standard for all, not simply the business owners or their employees.
“Successive governments have failed to answer the small employer’s question of why can’t it be simpler to employ and grow my business? We need a competitive and consistent marketplace to do business in.”