UK government message to startups is putting economic recovery at risk

Economic recovery: it’s a phrase we’re going to hear a lot in 2021 and 2022 as we look to come back from the damage the global pandemic is doing to our businesses. Any plans for recovery are likely to feature growth in startups as well as in established businesses that survive coronavirus. That’s why the current messaging from the UK government is so worrying.

Not only are micro business owners and entrepreneurs taking a beating from reduced and restricted trading but it would appear that UK government support plans have specifically excluded many of them. Claims of limited company directors being a fraud risk and self-employed sole traders being informed that last year’s profits should be enough to live on for the coming year have had a heavy impact on the business community, and a disproportionately heavy impact on micro businesses and startups.

In March 2021, the UK Chancellor of the Exchequer, Rishi Sunak, had an opportunity to assuage the doubts and fears of this hugely significant business community when he announced his budget. He chose instead to reinforce what could, in the long term, be a damaging message, not only to existing businesses but to future startups and entrepreneurs who are weighing up the risks of starting a business. The message is that although entrepreneurialism is vital to the rebuilding of the UK economy, if you start your own business and decide to take the risk that that brings, then there’s every chance you and your family will be on your own, should tough times come round again.

When starting a business, every entrepreneur looks closely at the risks. It’s not a new phenomenon. But now that we can see the massive impact of a pandemic and the potential for continued business interruption in years to come while we struggle to control the Covid virus around the world, the risk presented by that business interruption looms much larger in every startup’s thinking.

If the message coming from the UK government is that entrepreneurs are to be regarded as a fraud risk or are to be ignored when times get tough, then the sad truth is that fewer businesses will start in the coming years as fewer people choose to take the risks inherent in being an entrepreneur. Although the risk of financial insecurity has always been there for people starting their own businesses, it was never underlined by government policy through such stark messaging.

Micro businesses form 96% of the UK business community and the vast majority of businesses start with just one or two people – making them micro businesses at least in their early years. It’s clear that the recovery of the UK economy from the impacts of coronavirus will be hampered if the number of business births does not exceed the inevitable number of business deaths that the pandemic will cause. A smaller business population means lower GDP and slower economic recovery.

The message is not wholly negative, but neither is there much in the way of positivity – it’s a mixed message. On the one hand we know that startups must play a crucial role in any economic recovery and on the other, the government makes it clear that it is unwilling to stand behind entrepreneurs creating startups when they are forced to cease or restrict trading by government policy around public health. Let’s not argue about public health. Drastic measures were needed and drastic measures were implemented. That’s not up for debate, but the support mechanisms put in place were inconsistent. Everyone lost out in this, but the support arrangements ensured some lost a lot more than others. At any other time, many of the companies struggling to stay afloat would be viable and indeed successful businesses. Through no fault of their own they have been made to stand down and given no assistance. Some of the support measures specifically excluded startups, whether as sole traders or limited companies. This was, and remains, a hugely negative message.

If, as it must, entrepreneurialism is to play a vital role in economic recovery, that role is being undermined even before recovery starts.

If the UK government truly believes that micro businesses and the SME community can do the heavy lifting in returning to economic growth, then the messaging must change and support must be provided to those who will be expected to drive that same growth. Making entrepreneurialism an even more risky prospect can and will only drive the startup numbers downward, depressing growth and reducing the potential of our micro business population.