Record drop in business numbers

Enterprises have been hit the hardest by pandemic closures

THE number of businesses in the UK dropped by 400,000 in 2020 – the biggest decrease in 20 years. At the start of the year the Government estimated there were almost 6 million private sector businesses, but this dropped by 6.5% to under 5.6m by the beginning of 2021.

While several high-profile companies – such as Mothercare and Arcadia Group – went bust, the vast majority of closures were small businesses.

The Federation of Small Businesses (FSB) said the figures showed the disproportionate impact of lockdowns on smaller firms, and warned help was needed to stop more going under.

Sole traders saw the biggest decline of all.

There are now 8.6% fewer businesses with no employees than before the pandemic, a drop of 397,200.

The next highest drop (5.0%) was seen among mid-sized companies with 200-249 employees.

However, large businesses with more than 500 employees saw no change.

This is only the second time the total number of businesses has fallen in the past 21 years.

It is also one of the biggest percentage changes seen during that period – even including the 2008 financial crisis.

Business numbers have risen steadily since 2000, when there were 3.5m, except for a small drop in 2018.

However, worse could yet be to come as the impact of Covid-19 continues to hit enterprises.

In February this year, LSE researchers warned 906,000 UK businesses were at serious risk of failure within months.

This was based on Government figures showing a record 15% lacked confidence they could survive.

Mike Cherry, National Chair of the FSB, said: “This decline in small business numbers is stark and disheartening, with these figures illustrating just how disproportionately the impact of lockdowns was felt by the smallest firms.

“These numbers are bad but – unless the Government acts at the upcoming Budget – worse could be yet to come. Unless things change, the hit to bottom lines, start-up rates and pay-packets in April will be huge.

“We already know of businesses which clung on through 2020, with no cash and no income, but had to call it a day in 2021.

“It’s not too late to act. The upcoming Budget is the Government’s opportunity to put forward eye-catching, pro-small business measures which can spur local growth and secure our economic recovery.

“With inflation, skills shortages and an increase in late payments all taking their toll on small firms – as these figures show – help can’t come soon enough.”

Meanwhile, in a separate survey by the Office for National Statistics which looked at the impact of Covid on the economy, researchers found signs of optimism.

Firms are increasingly likely to say they are taking in the same amount of money as they would usually expect for this time of year.

More than half (51.3%) said turnover was at normal levels during September.

This included even microbusinesses with less than ten employees.

Just 3.7% of all businesses, and 6.6% of microbusinesses, said turnover was less than half what expected.

Businesses carrying out ‘other service activities’ and manufacturing were most likely to report a decrease in takings, while real estate businesses have had better luck – 7.3% have increased their turnover compared to before the pandemic.