The report notes that the number of businesses in the UK is now at its highest since the ONS started tracking the data in 2000. But what are these businesses like?
The vast majority of them are tiny.
A very small number of large firms account for half the country’s business turnover and employ three-fifths of its private sector employees.
Furthermore, almost all the growth in the number of businesses over the past decade or so has come from companies that don’t employ anyone apart from the owner.
This is consistent with the New Policy Institute study from last year. Most of the increase in self-employment is accounted for by people working as sole traders.
Duncan Weldon wrote a piece earlier this week on investment and GDP. He noted that investment has not risen much since the recession and is way short of where the OBR forecast it would be, just after the election. Whatever all these new businesses are doing, they don’t seem to be investing very much.
So just because we have a lot of new businesses it doesn’t mean that they are going to create lots of new jobs or invest in the new developments that might boost the economy. Small businesses, and especially one-man-bands, are more reluctant to invest than larger ones. Channelling more of our human capital into such enterprises is unlikely to do much for the economy.
The record number of new businesses is not a Good Thing. It’s a symptom of a weak economy. As John Philpott said, most people aren’t starting up businesses because they’ve got a great new world-beating idea. They are starting businesses because they have nowhere else to go.
Update: Adam Lent has a different view.