New company launches fell by a quarter between January and May

But company registrations bounced back in May, just 3% down year on year as entrepreneurs take the plunge

 Graphic of two heads exchanging information, new company launches concept

Brain drain: the number of start-ups fell dramatically in the first five months of 2020

The number of new company launches in the UK fell 25 per cent on average between January and May as COVID-19 swept through Britain.

The biggest fall of 40 per cent was during the four weeks following lockdown on March 23, according to a new Economics Observatory report.

The figures are important because new bussinesses are the engine room of the economy, employing more young people whose job prospects have been worse hit by the virus.

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In America, where the data is more complete, an average 16.3m jobs are created and 14.9m jobs are destroyed each year. This means that annually a third of all US jobs are either new or destroyed.

However, start-ups in the US create 2.9m more jobs than they destroy each year, so microbusinesses are large contributors to job creation. In addition, it is start-ups which are often the most productive when it comes to lifting aggregate productivity growth.

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The good news is that since May’s reopening, UK registrations have bounced back, with Economics Observatory suggesting just 7,100 fewer start-ups launching compared with 2019 – a fall in new business creation of 3.4 per cent.

A team of economists from the University of Kent, Oxford, and UCL examined company registrations data at Companies House since the start of 2020.

Sectors most badly affected

Transportation and storage were the most badly affected sectors, with the number of new companies falling by over 50 per cent. Unsurprisingly, entrepreneurs didn’t think it was the best time to open a new restaurant either, as accommodation and food services registrations dropped over 40 per cent year on year.

The only business sector that saw an increase in new company registration was wholesale and retail trade, presumably as shops pivoted to selling local food produce as the nation hunkered down at home.

Which regions fared worse?

Wales saw the biggest drop-off in the number of new company launches, falling by nearly 40 per cent year on year. Northern Ireland and Scotland, the other two devolved regions, also suffered badly with over 30 per cent falls each.

Greater London was, confoundingly given its widely publicised ghost-town status, the least badly shaken when it came to entrepreneurs setting up, with the number of new company registrations dropping by 11 per cent.

“New business creation is a key part of any economy, notably for generating new job opportunities,” said the report authors. “The sharp decline in start-up activity in the UK during lockdown is likely to have a strongly negative impact on aggregate employment in the future, regardless of the shape of the recovery.”

Further reading

City grandees call for small business Covid debt to be turned into tax owing

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