New generation of micropreneurs changes landscape of UK business economy
UK businesses are increasingly micro in size, while the proportion of high-growth companies has fallen considerably in recent years, causing a drag on economic development potential according to new research from RSA, the UK’s largest commercial insurer.
High-growth companies are defined as those achieving on average 20% annual growth in employment for three consecutive years.
The new study, Growing Pains, which examines the shape of the UK business economy and the biggest barriers to achieving growth, is based on in-depth analysis of the latest economic data and opinion research among small business owners and managers.
While the high proportion of SMEs in the UK is well documented, the research found that micro-sized businesses are the only size category to have grown their proportion of the UK business stock since 2000 – compared with small, medium and large-sized businesses – rising sharply by 1.4 million or 43%.
What looks like an increase in entrepreneurship is actually a new generation of micropreneurs or sole traders. When looking at more detailed size band information, the number of zero-employee firms has increased by 21.4% since the recession, making this the fastest growing business size category analysed.
According to the study, turnover per worker climbs steadily in line with employee numbers, with companies employing 250-499 people yielding the highest turnover per employee (£186,100 on average). Therefore, helping more businesses to grow should reap greater economic benefit.
David Swigciski, SME trading director at RSA, commented: “The UK has long been regarded as a great place to start a business, but the recent recession has had a significant impact on the business economy, with companies becoming smaller in size. Unfortunately, continuing along this road isn’t an option if we want a sustained recovery from the economic downturn.
“Getting back on track and strengthening the economic recovery is a case of redressing the balance between start-ups and growth. This can be done by encouraging investment in growth and helping – as well as ensuring – SMEs reach their full growth potential.”
Growing pains
Since 2005, the share of firms that were classified as high-growth plummeted across all geographical regions except London. The decline was greatest in Wales, where the proportion of high-growth businesses fell by more than half, and Scotland, where it was down by more than a third.
Worryingly, medium-sized firms were more likely to have become small (16.5%) than large (3.6%) between 2008 and the latest available records (2011), with 79.9% remaining as medium in terms of their employee numbers.
Looking ahead to 2017, the number of high-growth enterprises is expected to recover as a result of improving economic conditions. However, the proportion of businesses that are classified as high-growth is expected to remain below 2005 levels in all regions except London, which will continue to outperform the rest of the UK.
The research found that two thirds (64%) of small business owners describe themselves as ambitious, with large differences throughout the country. The most ambitious businesses are found in Wales (80%) while the least ambitious are based in Scotland (45%).
Despite this general optimism, a third (34%) of small business owners admit that it is getting harder, not easier, to grow against a backdrop of uncertainty around interest rates, and in the lead up to the 2015 General Election. Two thirds (66%) say the Government must do more to de-risk business growth, rising to 80% in London and the South East. A further three quarters (73%) say the Government must make it easier for SMEs to access the right information and support for growth, rising to 84% in the Midlands and 80% in London and the South East.
David continued: “Our research shows that the number of high growth businesses is expected to recover, yet the proportion will remain below pre-crisis levels. This suggests that the Government’s business growth package is focused on the right kinds of support, but this needs to be sustained and built upon further.
“Despite the Government’s recent efforts, small businesses are still crying out for more support and better access to information. For instance, clear direction on where to turn to for advice and extending the current apprenticeship scheme could both have a significant impact.”
