For too long, there has been a chasm between rhetoric and reality – between the way that too many politicians talk and think about growth, and the realities of productivity. It’s time to bridge this gap. It’s time to focus on business dynamism.
To butcher a Paul Krugman quote, business dynamism isn’t everything, but, in the long run, it is almost everything. As the ERC’s State of Small Business Britain Report 2024, which was released this week, clearly states: “The link between business dynamism and productivity growth at the national level is an empirically established fact.”
Business dynamism is the pace at which businesses start up, expand, shrink, or close down. It matters because high dynamism usually goes hand-in-hand with greater innovation, stronger productivity growth, and more job opportunities. When new businesses emerge, and existing firms grow or adapt quickly, it tends to promote competition, fresh ideas, and economic vitality. Conversely, if dynamism wanes – reflected in fewer startups and lower rates of growth – innovation can slow, job creation can stall, and overall economic progress may suffer.
In the UK, Professor Mark Hart has been leading this research for many years. He finds that, on average, about a quarter of UK jobs are either created or destroyed each year. However, the overall job reallocation rate has declined over time, suggesting lower levels of business dynamism. Notably, only 3-5% of existing jobs are created by newly launched businesses (startups), and that proportion has been falling in recent years.
One of the implications for policymakers is the need to think about policies to support wider categories of businesses – whether that’s startups reaching £1 million turnover within three years; established firms growing from £1-2 million turnover to over £3 million; or so-called “productivity heroes” that are increasing revenue per employee while also creating new jobs.
There are debates to be had about how to slice and dice the categories. And there are full-on arguments to be had about the policies needed to support them – where they overlap and where they differ. But there can be no arguing at all about the importance of business dynamism.
We’re planning to do more on this issue. Drop me an email if you’re keen to be involved.
Spring Lose
In case you missed it, we gave our reaction to the Chancellor’s Spring Statement. We covered everything from revised growth forecasts, additional investment pledged for defence capabilities, Making Tax Digital and the consultation on R&D tax relief.
As many of you will know only too well, R&D tax relief is an ongoing debacle. It was a major point of contention at a roundtable we held the day after. In fact, our Research Director Eamonn Ives wants to hear from you if you’ve been stung by recent changes to R&D tax credits.
Two other ongoing bones of contention also cropped up – the impending hike to Employer’s National Insurance Contributions, and forthcoming regulations contained in the Employment Rights Bill.
Group Focus
We are collaborating with Enterprise Nation to deliver a joint response to the Government’s call for evidence on e-invoicing, with a view to understanding how to further promote its use among Britain’s small businesses. We’re looking for views from all sides. If you want to have your say, join our focus group from 12pm to 1pm on 9 April to share your thoughts.
Esprit de Cork
The latest Adviser to join our growing ranks is Julian Cork, COO and Board Member of Landbay, a leading UK prime buy-to-let mortgage lender which he has helped scale the platform to a loan book of over £3.3 billion. As he says:
“Entrepreneurship matters. It is one of the most powerful engines of innovation, job creation, and societal progress. Founders and startups don’t just build businesses, they solve real-world problems, challenge conventions, and drive economic dynamism. For the UK to remain globally competitive, it must continue to be a place where entrepreneurs can thrive – where ambition is supported, innovation is celebrated, and barriers to growth are removed.”
We couldn’t agree more. Find out how you can join Julian as our next Adviser here.
Message from our Partner
Growing businesses often find themselves stuck - too complex for digital banks, yet too fast-moving for traditional ones. That’s where OakNorth comes in. Built for entrepreneurs, by entrepreneurs, we blend the agility of cutting-edge digital banking with the security and expertise of a commercial bank. We operate in the top 1% of commercial banks globally, and we are set up to help businesses thrive.
What sets us apart?
Built for scale – Apply for a business account in minutes and start transacting in days, not weeks.
Flexible account setup – Fee-free accounts - including high-value payments, multi-company management with a single login, payment approvals, and free Visa debit cards for your team.
Competitive savings rates – Earn up to 4.25% AER on business savings.¹
UK-regulated bank – Your eligible deposits are FSCS protected.
A partner, not just a provider – Get direct access to a dedicated Business Partner.
Funding for the future – Access to specialist structured finance designed for ambitious businesses.
Looking to scale your business with a partner who understands growth? Book a chat with one of our Business Partners here or click below to learn more.
¹ 3.10% AER on easy-access savings and 4.25% AER on a separate 95-day notice account. Variable rates correct as of 24-Mar-25.