Fewer new firms, fewer vacancies and graduates with nowhere to go, and I asked three people who thought about setting up on their own why they did not

The Start-Up Drought

A healthy economy is always starting things. Somebody leaves a job and opens a shop. Two friends write some software. A chef takes a lease. Most of these ventures fail and a few grow, and that churn is where new jobs and new ideas come from.

So the most worrying line I read all summer was not about closures. It was about openings.

The Figures

A business bulletin on 4 August led with three facts. Small business confidence had fallen to its lowest level in twelve years, job vacancies remained well below pre-pandemic levels, and business creation had dropped to a decade low.

It added detail. Small business growth expectations in England had fallen to 24 per cent, the lowest in twelve years. That is the share of small firms expecting to grow. Job postings had declined sharply, with graduate and summer vacancies particularly weak.

A more recent survey confirms the mood has not lifted. A report on 1 October said that confidence among firms with turnover under five million pounds fell 14 points to 39 per cent, while larger companies held up better. It attributed the fall to rising energy costs, borrowing costs and fear of tax rises in the Budget.

Put those together. Existing small firms do not expect to grow. Fewer new ones are being formed. And the people who would normally be hired by either cannot find openings.

Why People Are Not Starting

I know three people who seriously considered going out on their own in the past year and did not. I asked each why.

The first is a pastry chef. She has wanted her own bakery for ten years and had found a unit. She costed it: the lease, the deposit, the ovens, the rates, the energy contract, a member of staff. Then she costed the same thing as it would have been in 2019. The difference, she said, was the whole of her savings. She is still employed.

The second is a software developer who had an idea for a tool for small accountancy firms. He would have needed to hire one other person. What stopped him was not the salary but everything on top of it. He said, “I can afford to risk my own time. I can’t afford to be responsible for somebody else’s rent if I get it wrong.”

The third is a physiotherapist who wanted to leave a clinic and set up on her own. She has a mortgage. It comes off its fixed rate next year. She does not know what the new payment will be. She said she could not give up a salary without knowing that.

Three different trades. The same answer underneath. The cost of being wrong has gone up.

What Has Changed

Starting a business has always been risky. But several things have raised the stakes.

The fixed costs are higher. Rent, energy and rates must be paid from the first day, before a single customer arrives.

Taking on a first employee costs more. The minimum wage has risen and so have the employer’s contributions on top.

Money is dear. The Bank’s rate has been at 3.75 per cent all year, and a new business with no track record pays a good deal more than that.

Customers are cautious.

And the future is hard to read. There is a Budget on 28 October and nobody knows what it will do to business taxes. A person deciding whether to sign a five-year lease in September would quite reasonably wait until November.

The Graduate Problem

The weakness in graduate vacancies is the same story from the other end.

New firms and growing small firms are where a lot of young people get their first proper job. A company of eight that becomes a company of twelve hires four people, often young ones. If small firms are not growing and new ones are not forming, those jobs do not exist.

There is a further worry. Some of the tasks traditionally given to a new graduate, drafting, summarising, basic analysis, are the ones software has become good at. I do not know how much of the fall in vacancies is that and how much is the economy. Nobody does yet. But a firm watching its costs has a new reason not to hire a junior.

I have a niece who graduated in June with a good degree in economics. She has applied for sixty-one jobs. She is working in a garden centre.

Is It as Bad as It Sounds?

Some perspective is in order.

A decade low in business creation follows some unusually high years. During and just after the pandemic there was a surge in new registrations, as people who had lost work or been stuck at home set up on their own. Some of the fall is that surge unwinding.

A good number of those registrations were not businesses in any real sense. They were individuals becoming contractors, or shells that never traded. Fewer of those is not a loss.

And a survey of confidence measures feeling, not behaviour. Business owners are a gloomy lot. Asked how they feel about the economy, they have said “pessimistic” in most of the years I have been reading these surveys.

Against that: twelve-year lows and decade lows are not noise. They cover periods that included some difficult times.

What Would Help

There are two broad views.

One says: lower the cost of starting. Relief on rates for new firms. A holiday from employer contributions for a first hire. Cheaper lending through a state-backed scheme. Make the first year survivable.

The other says: none of that matters as much as certainty. People will take a risk if they can see what they are risking. What kills investment is not knowing what tax, wages and energy will cost in two years. On that view the most useful thing a government could do is announce its plans, stick to them and stop changing the rules.

The reported proposal to raise the threshold for small business rates relief would be a small step in the first direction. A Budget that set out a stable path for business taxes would be a step in the second. I would take either. My three friends would take the second.

For Anyone Thinking About It

I do not want to end by telling people not to try. Somebody has to, and bad times have produced good businesses.

If you are considering it: start smaller than you planned. A market stall before a shop. A side project before a resignation. Keep your fixed costs as near to nothing as you can for as long as you can. Do not sign a long lease in the month before a Budget.

And if you know someone who has just started, be their customer. The first six months are when it is decided.

The London Prat considers the entrepreneurial spirit in its UK satirical news on nobody starting a business and its British satirical news about graduate jobs. Bohiney Magazine covers a country where they start a company to avoid getting a job.

SOURCE: https://bohiney.com/