How the UK's small businesses keep going against the odds

The government's latest business population estimates give us the clearest picture yet of how small businesses across the UK are faring.

The stats confirm what many founders already know: small firms remain the backbone of the economy, but the past five years have been turbulent and the recovery is uneven.

Shock and recovery

Small businesses (those with fewer than 50 employees) dominate the UK economy.

They make up over 99% of all firms and employ 13.1 million people, nearly half of the private sector workforce. But the government's numbers show just how tough recent years have been.

At the start of 2020, there were 5.94 million small businesses, the highest level on record. By 2025, that figure had dropped to 5.64 million, a net loss of almost 300,000 (-5%).

The sharpest single-year fall came between 2020 and 2021, when almost 400,000 firms (-6.6%) disappeared – the steepest drop ever recorded. That reflected the combined impact of the COVID-19 pandemic and Brexit.

The fall was driven almost entirely by non-employing firms (businesses that employed no staff), down 295,000 (-6.5%) over the five years. The number of employing small businesses was broadly flat, holding steady but failing to grow.

In short: fewer people were choosing to operate as sole traders, while existing employers kept going but didn't expand in number.

This is a sharp break from the decade before. Between 2010 and 2020, the number of small businesses had grown by almost 1.5 million (+34%), fuelled mainly by sole traders. Much of that progress has since been lost.

Small business trends during the past year

The latest figures point to a modest rebound. Between 2024 and 2025, the small business population grew by around 190,000, from 5.45 million to 5.64 million (+3.5%). But the headline hides the detail:

• Non-employing firms grew by 201,000 (+4.9%).

• Employing small businesses fell by 9,000 (-0.7%).

• Within this, micro-employers (those with one to nine staff) dropped by 10,000 (-0.9%), while small employers (10 to 49 staff) stayed flat at 220,000.

So while more people are starting out in business again, fewer are making the move into becoming employers.

And although the rise is significant, the overall population is still below 2023 levels (5.51 million) and far short of the 2020 peak (5.94 million).

The bottom line for small businesses

The picture is one of partial recovery, but not yet renewal.

• 2010 to 2025: Small businesses grew from 4.45 million to 5.64 million (+27%), with most of the growth among sole traders.

• 2020 to 2025: Numbers fell by nearly 300,000 (-5%), almost all from non-employers.

• 2024 to 2025: Numbers rose by 190,000 (+3.5%), but entirely due to sole traders, while employer numbers slipped back.

Small businesses still generate £1.9 trillion in turnover (34% of the UK total) and remain central to jobs, innovation and community life.

But the continuing fall in employers shows how hard it remains to cross the line from starting up to hiring staff.

Unless barriers around cost, skills and regulation are tackled, the UK risks an economy with plenty of sole traders but too few small employers, the firms that create jobs, train workers and sustain local growth.

What the government can do next

Numbers alone don't capture how hard it is to start, grow and employ. That is where policy comes in.

Enterprise Nation's Spending Review submission sets out practical steps that would make a real difference:

Markets

• Reinstate a revamped UK Tradeshow Access Programme

• Properly resource UK Export Finance for SMEs

• Match-fund a supplier readiness programme to help small firms win public contracts

Technology

• Co-create an AI-powered support tool based on our Tech Hub programme

• Offer targeted tax incentives for digital adoption

• Invest in training for emerging tech

• Drive nationwide e-invoicing to cut admin and late payments

Finance

• Expand Making Tax Digital to the very smallest firms, helping micro-businesses save time and adopt wider digital tools

People

• Continue and expand small business mentoring

• Explore tax incentives for firms that upskill their workforce

Space

• Support high-street rental auctions with a national readiness programme

• Give councils more control over business rates relief

• Discourage tax-driven commercial-to-residential conversions

These are practical, affordable steps designed with small firms in mind. The 2025 figures show that small businesses are still the majority of the UK's employers and innovators.

With the right support, they can do what they do best: create jobs locally, drive innovation and keep the UK economy moving.

People also read

• The new government plan for small business: What it means for small firms across the UK

• Six straightforward things small businesses want to see in the government’s Small Business Strategy

• Ideas shared by Enterprise Nation members for the government's new small business strategy

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