Is the UK creating more businesses than ever before?

11 October 2012

"Last year the rate of new business creation was faster than any other year in our history."

David Cameron, Conservative Party Conference, 10 October 2012

As the IMF warned yesterday that the economic recovery was being "weighed down by uncertainty," the Prime Minister used his speech to the Conservative Party Conference earlier this week to paint a sunnier picture of Britain's "aspiration economy."

Despite the global economic gloom, Mr Cameron claimed that UK entrepreneurs set up more businesses last year than in "any other year in our history." So can this be true?


Companies House is the public body charged with registering and dissolving companies, and might therefore seem a good place to start.

Sure enough, its annual report on company registration activity gives figures for the number of new businesses on its books, with 455,600 companies being incorporated in 2011/12, and 440,600 in the 2011 calendar year.

The report also gives an impressive historical perspective, with data stretching back to 1860, although only on an annual basis since 2000 (we've been in touch with Companies House to ask for more data, and will update as we get it).

Based on these figures, last year didn't quite see the highest rate of business starts on record, with the 443,800 created in 2007 forcing 2011 into second place. Without year-by-year data prior to 2000, we can't be sure that there isn't another year on record that might outstrip 2011, although recent years have seen a large increase in the number of companies incorporated, with the 2011 total larger than the equivalent for any single decade prior to the 1970s.

It is possible that Mr Cameron was referring to the 2011/12 financial year when he points to 'last year', but there isn't comparable historical data from Companies House to check if this would hold true.

What do we mean by 'business creation'?

While it is difficult to back up Mr Cameron's claim based on these figures, they don't necessarily mean that he's wrong.

The Companies House data only refers to those businesses which chose to become incorporated in the 2011, but businesses can be created and operate without having to register at Companies House.

Conversely, not every business that is registered at Companies House will be operational, but will still be counted on the statistics.

To illustrate the point, the Department for Business, innovation and Skills (BIS) estimates that of the 4.5 million businesses in the UK, some 3.4 million have no employees at all.

So is there a better way to measure the extent to which we are, as a nation, "getting our entrepreneurial streak back" as Mr Cameron claims?

The Global Entrepreneurship Monitor (GEM) project has tried to do that, and releases an annual assessment of the entrepreneurial activity in several countries around the world including the UK.

From its 2011 report, we can see that the UK did enjoy the highest rate of 'early-stage entrepreneurial activity' that it had recorded (since it begun in 1999), with just under 8% of the adult population reporting an involvement with a start-up, topping the previous high set in 2003:

Again, however, this doesn't offer us a neat proxy for 'new businesses'. The Global Entrepreneur Monitor doesn't actually measure the number of businesses created, but rather people's involvement in their creation. Furthermore, the companies within its remit haven't actually necessarily become operational yet.


While the Global Entrepreneur Monitor does suggest that individuals' involvement in business creation reached a new high point in its relatively short lifespan in 2011, this isn't quite the same as Mr Cameron's claim that more companies were started last year than at any point in our history.

Companies House records do show that the number of businesses incorporated in 2011 was relatively high, but it doesn't quite beat a peak set in 2007. While considering the data in terms of financial years could offer more support for the claim, the lack of publicly available figures makes it impossible for us to say for certain.

More fundamentally, neither dataset fully describes the number of new businesses in operation, meaning that neither offer a perfect insight into whether or not Britain is "getting our entrepreneurial streak back."

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