Record numbers of Britons are embarking on entrepreneurial ventures, yet innovation and export activities among small and medium-sized enterprises (SMEs) have reached a four-year low, with an impending funding gap posing a threat to growth.
The latest State of Small Business Britain report from the European Research Council (ERC) reveals that 36% of working-age adults are either running or planning to start a business, marking the highest level recorded since the survey’s inception in 1999. Early-stage entrepreneurial activity has doubled since the early 2000s and remains steady at approximately 12%.
However, this surge in ambition is not translating into stronger business performance. The proportion of SMEs reporting product or service innovation has decreased from 30.4% in 2021 to 24.1% in 2024, marking its fourth consecutive annual decline. Export activity has similarly dipped, from 19.4% of firms in 2021 to 17.2% two years ago.
Stephen Roper, director of the ERC, commented on the findings: “The UK has a remarkably resilient and creative entrepreneurial culture. More people than ever before want to start and grow businesses. But ambition is not enough. We are seeing a worrying decline in innovation and exporting, the very behaviours that drive productivity and growth, and there is considerable uncertainty around the future of small business support.”
The report warns of a deteriorating entrepreneurial ecosystem in the UK, with expert ratings in the survey declining from “sufficient” to “less than sufficient” since the pandemic. Access to capital and policy support were highlighted as ongoing bottlenecks. A particular concern for small businesses is the future of the UK Shared Prosperity Fund (UKSPF), set to conclude in March. The ERC has described the end of this scheme as a “severe funding threat” to local business support.
Mark Hart, deputy director of the ERC, stated: “The government’s small business strategy set out some welcome commitments. But delivery is now a risk due to funding uncertainty. We need a stable, coherent business support system that reflects the realities of the UK’s diverse business population.”
These findings emerge amid broader pressures on UK small businesses. A recent report from the House of Commons Business and Trade Committee concluded that small firms are facing cumulative challenges, at times comparable to those experienced during the pandemic. These include late payments, rising energy costs, and administrative bottlenecks. The ERC report estimates that late payments cost the UK economy £11bn annually, with micro-businesses, which constitute 81% of employer firms and employ over four million people, being most vulnerable.
Economic uncertainty has been frequently cited as a barrier to turnover, with the report concluding that without clearer long-term funding, the UK risks failing to convert record ambition into actual growth.
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