Despite the government’s ambitious growth projections for 2023 and beyond, recent reports from the International Monetary Fund show that the UK economy is projected to shrink 0.6% in 2023.
Given these reports, it’s not surprising new research from FreeAgent, the cloud accounting software company, has revealed that just 10% of Londoners would consider setting up a business this year.
The survey of working Brits reveals that confidence among would-be business owners is far lower than it has been in recent years, suggesting a pressing need for the government to provide robust support and put in place a plan that includes extending the energy cap, introducing new support loans specifically for energy bills and to implement a windfall tax on energy and fuel companies.
However, despite a bleak economic landscape, the research shows that the UK’s entrepreneurial appetite is still intact with two-thirds (62%) of London-based respondents stating that they still dream of setting up their own business, in spite of the challenging economic landscape, ongoing energy crisis, and soaring inflation.
The research also lays bare the current state of entrepreneurial spirit in light of the economic climate revealing pressing concerns over the cost of living crisis and confusion over government communication around policies affecting entrepreneurs such as MTD for ITSA.
Budding entrepreneurs in the capital deterred by economic stability
Unsurprisingly, the ongoing economic volatility has played a significant role in deterring some Londoners from starting their own business, with over a quarter (28%) citing troubling concerns about the UK’s current economy as the main reason for not branching out on their own.
In addition to economic concerns, those who said they did not want to set up a business cited cash flow concerns (15%) and rising energy bills (15%) as their top reasons for being put off fulfilling their ambitions.
Even those Londoners who still have the desire to set up their own business have major concerns, including:
- Paying bills when costs are rising (38%)
- Financial burden of setting up the business (34%)
- Confidence (24%)
- Managing business finances (18%)
Paying bills has become a bigger concern for British budding entrepreneurs over the course of the year, driven by rising inflation. In 2022, the top concern for Brits was the financial burden (51%) of setting up a business, however, only 33% of people share this concern this year, with more (35%) being worried about paying bills during cost rises than anything else.
Why do Brits still want to create their own businesses?
The top three reasons London-based entrepreneurs said they wanted to start their own businesses were:
- Achieving a better work-life balance (42%)
- The ability to be their own boss (36%)
- Following their passion (35%)
In general, Brits were unanimous in their top two reasons for starting their own business, however, a key difference between London and other regions in the UK is that entrepreneurs cited wanting ‘to follow their passion’ whereas UK entrepreneurs overall want greater choice in the work they do (39%) as their third top reason.
When comparing the results to previous years, potential entrepreneurs cite the same top reasons for wanting to create their own businesses, suggesting that motivations have not shifted and autonomy remains a major factor in why Brits want to become entrepreneurs.
In addition, 31% of respondents said that they would like to fit work around their family commitments. This reasoning was significantly higher for female respondents (36%) compared to male respondents (25%).
Over half (58%) of aspiring entrepreneurs are still unaware of the upcoming Making Tax Digital for Income Tax Self Assessment (MTD for ITSA) changes or what they need to do, with the numbers rising significantly for Londoners (62%).
The government recently announced that the legislation – which will require all business owners to digitally submit quarterly reports about their business income and expenses, rather than an annual Self Assessment tax return – will now come into effect in 2026 instead of 2024. While many Londoners believe that the delay is a good move (42%), nearly a 5th (18%) stated they were unaware that the deadline had been extended at all.
The results suggest that the government must continue to step up its communication and education over the policy, to ensure that new entrepreneurs are fully informed about the new legislation long before they are required to comply with it.
Roan Lavery, CEO and co-founder of FreeAgent said, “Off the back of recent reports that Britain will be the only major economy to plunge into a recession this year, it’s understandable that just 9% of budding entrepreneurs want to start a business this year. Clearly the economic instability and the ongoing cost-of-living crisis are having a significant impact on the UK’s would-be entrepreneurs, and our research calls into question whether the government’s growth ambitions are realistic.
“Simply acknowledging that the current economic landscape is making it difficult for small business owners to thrive is not enough. This is an economic wake-up call. The government needs to take definitive steps to nurture the SME sector, including developing policies that inspire and support Britain’s budding entrepreneurs.
“I would like to see the government prioritising simpler – and lower – business taxes for freelancers and small businesses, cracking down on tax evasion and avoidance from multinational businesses, and introducing more statutory protections for the self-employed. It’s vital that we do everything possible to support this important part of the economy so that it can lead the way to recovery in the coming years.”