Shrinking start-ups employ fewer staff than ever before
Start-up businesses are shrinking in size as the UK economy suffers a £27bn hit from closing companies, according to the latest research from Cynergy Bank.
The Bank’s latest Business Births and Deaths Index, released today, draws on the latest ONS data for January to March this year and paints a mixed picture of the nation’s economic health even before the impact of April’s National Insurance rise.
Its research found the number of employees for every new business opening in the UK has fallen to a record low in the first quarter of 2025, when the average number of staff was 2.64 per new firm, compared with 3.5 in 2017.
The number of jobs created through new business formation barely outpaced job losses from closures in the first three months of the year, with a net gain of only 4,334. This figure pales in comparison to 110,242 during the same period in 2017.
The data also shows that at £329,000, the average turnover of firms shutting their doors reached its highest level since records began, with the total turnover of businesses closing or moving overseas hitting £27.4bn in the first quarter, £5.1bn more than this time last year.
While traditionally the contribution from new businesses outpaced losses from those closing, this trend is also slowing. Over the past 12 months, the total turnover of shutting firms was £92.7bn. This exceeded the £90.4bn contribution from start-ups over the same period.
Winners and losers
Despite these headwinds, new business creation remains strong in most sectors. Cynergy Bank’s Business Health Score, which measures the ratio of new businesses created to those lost shows the following sectors leading the pack:
- Real estate: With a score of 1.43, property-related businesses are showing remarkable resilience.
- Education: The sector has a robust score of 1.38 and includes all types of education businesses from pre-primary to tertiary, special needs, sports and even driving schools.
- Finance and insurance: Financial services and insurance businesses are buoyant with a score of 1.34.
- Health and Social Care: Boasting a score of 1.18, this sector is thriving, possibly due to more private companies stepping in where the NHS is struggling.
However, the UK’s farming sector continues to struggle. With a record low score of 0.43, less than half of the closing businesses are being replaced.
Nick Fahy, CEO of Cynergy Bank, said: “It is concerning to see new businesses employing fewer and fewer staff, and the turnover of closing or relocating firms at an all-time high. It is possible that some of these larger firms are choosing to relocate abroad in response to recent unfavourable tax changes, which underscores the need for a more supportive environment for UK businesses.
“Despite these sobering statistics, I strongly believe that the entrepreneurial spirit of the UK remains intact. This is highlighted in our Index, which shows strong new business creation in key sectors such as real estate, education, finance and health.
“It’s crucial that we strive to keep this spirit alive. At Cynergy Bank, we remain committed to supporting businesses of all sizes with tailored financial solutions and expert guidance.”