Brexit blamed for decline in Scottish start-ups

Brexit uncertainty has been blamed for a sharp decline in the number of new start-ups in Scotland last year, as well as a decline in the growth ambitions of established firms.

Brexit blamed for decline in Scottish start-ups

The Enterprise Research Centre (ERC) said the figures from its latest UK Local Growth Dashboard report, an annual publication that looks at a range of metrics charting the growth of SMEs, reflected the ongoing lack of clarity around Brexit ahead of the UK’s planned exit next month.

It found that in 2018 – the most recent period available in the ONS’ Business Structure Database – the number of new start-ups in Scotland fell by nearly 2,000, representing a decline of 10.9% on the previous year (from 17,959 to 16,001). Across the UK as a whole, the equivalent figure was almost 42,000, a decline of 12.9% (from 325,900 to 284,000).

In some parts of Scotland, the fall was much sharper. In an area covering Greater Glasgow and authorities to the south and west, the fall was 13.6%.

Even greater drops were seen in other parts of the UK. In Northern Ireland as a whole the figure was 15% lower than in 2017. Meanwhile in England, Swindon and Wiltshire saw the biggest absolute drop - with 45% fewer start-ups established. Just three areas saw an increase in start-ups - the North of Northern Ireland (+2.6%), Liverpool (+2.8%) and Worcestershire (+9.2%).

Other key findings for Scotland from the UK Local Growth Dashboard report show that:

  • A total of 16,001 new firms were started in 2018, while the three-year survival rate for start-ups stood at 52.9%, slightly below the UK average figure of 55.1%. Start-up survival rates since 2015 were generally higher in the South of England and Northern Ireland.
  • Among scale-ups, just 1.6% of new Scottish firms managed to grow their turnover to £1 million or more within three years between 2015-18. The UK average was 2.0%, with the highest proportion in the North of Northern Ireland (4.6%).
  • For established Scottish firms with a turnover between £1million and £2million, 5.5% managed to grow above the £3million mark over three years. This was below the UK average of 7.4%.
  • The proportion of Scottish firms that succeeded in growing their productivity, with turnover increasing faster than headcount, slipped slightly to 7.3% in 2015-18, below the UK average of 8.3%. Northern Ireland saw the highest proportion of firms growing productivity, followed by London, Cambridge and major city-regions in the North of England including Manchester, Leeds and Sheffield.

Mark Hart, ERC deputy director and professor of small business and entrepreneurship at Aston Business School, said: “The latest Local Growth Dashboard analysis shows some clear warning signs about the health of the private sector economy right across the UK. It’s particularly worrying that we’re seeing an absolute decline in the number of new businesses being started in the wake of the 2016 referendum and this is a trend we’re also observing in the data for Scotland.

“Budding entrepreneurs are clearly holding their breath waiting for some clarity about the outcome of Brexit, but if the trend continues we’ll see fewer jobs created by dynamic young firms.

“And while established firms are clearly still growing successfully in many parts of the country, it’s frustrating that productivity growth still seems to elude the vast majority.

“Taken together, it seems hard to avoid the conclusion that Brexit uncertainty is causing the grassroots economy to stutter. This may not yet have fed through to employment numbers, but policymakers need to be aware of the warning signs and create the certainty businesses are craving.”

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