Business growth being driven by sole traders

At the start of 2014 there were 5.2 million private sector businesses, 330,000 more than a year earlier. And of those 330,000 new businesses, 197,000 are thought to be sole traders, according to the Business Population Statistics report.

It is the first time the business population has exceeded five million – prompting business minister Matthew Hancock to tweet today: “Yet more proof that our long-term economic plan is working. More UK business, creating more jobs & more hardworking families are better off.”

In total, 76% of businesses were non-employers, and 80% of growth in the past year has been among non-employing businesses.

The report states: “Increasing self-employment has been the key driver of business population growth since 2000 and remains so in the increase of 330,000 businesses since the start of 2013.”

However the Royal Society for the encouragement of Arts, Manufactures and Commerce (RSA) says too few businesses are hiring staff.

Everyday Employers, a report by the RSA, finds that just 3% of one-person businesses hired and kept an employee on between 2007 and 2012.

It said government schemes aimed at encouraging sole traders to hire their first member of staff have failed.

Benedict Dellot, senior RSA researcher, says: “With so few self-employed people taking on staff, we need to ask ourselves where the jobs of the future will come from. Whilst the government has sought to address low recruitment rates with several new initiatives, few have had any meaningful impact – despite costing millions.”

The report argues that initiatives have not worked “because they do not speak to the full set of barriers that prevent people from taking on staff”.

Three schemes, the National Insurance Contribution Holiday, the Youth Contract and the Shares for Rights initiative, are highlighted in the report as having low take-up rates. The Youth Contract, introduced in 2012 to encourage businesses to take on young people, helped 12,000 people into work against an original target of 160,000, says the RSA.

Dellot says the government should “reassesses its current approach” and “design a support system based on how business owners actually behave, rather than how we think they should behave.”

However the department for Business, Innovation and Skills (BIS) says that there has been an increase of 66,000 businesses that employ staff. Small businesses employ 12 million people, with a combined turnover of £1.2 trillion.

Business secretary Vince Cable says: “Small firms make up the majority of our business community and it is those with the creativity and commercial nous that will continue our legacy as a world-leading enterprising nation.”

At the start of 2014, 5.2 million small businesses accounted for 48% of UK private sector employment, according to the ONS figures.

The RSA includes several recommendations in its report that the government and businesses could use to encourage firms to take on staff.

They include: employee sharing, where employment agencies and business groups would coordinate to promote “carousel-like workforce models”; small business careers fairs to attract graduates; triggered “growth prompt” messages questioning recruitment intentions as soon as a business’ financial data shows a strong business performance.

The RSA also suggests that accountants take on a wider business advice role. They would be encouraged to support business clients in growing their business, possibly enabled through a “new business coaching module in their accountancy training.”

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