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Stall in UK growth, rise in startups

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So, it’s official: figures just out from the Office for National Statistics confirm that UK growth has stalled – GDP grew by just 0.2 per cent in the second quarter (compared to 0.5 per cent in the previous three months). 

The ONS blames the sluggish growth on “one-off factors” such as the additional bank holiday for the royal wedding, the wedding itself, the after-effects of the Japanese earthquake and tsunami, the first phase of Olympic ticket sales and the record warm weather in April.

“The positive news is that the British economy is continuing to grow and is creating jobs,” says Chancellor George Osborne. 

And he’s right. According to the latest research from accountancy firm Wilkins Kennedy, the number of new companies being set up each year is now at its highest since before the credit crunch. 

There were record falls in the number of incorporations during the recession: 450,000 new companies were established in 2006/7, plunging to 372,000 in 2007/8, followed by a drop of 11 per cent to 330,000 in 2008/9. 

But the figures are climbing again. Over the past year, the number of startups created has jumped from 362,000 to 396,000. See graph below.

“Despite continued economic uncertainty, there seems to be a consensus now in the UK that it is time to get on with business and bring new commercial ideas to life,” says Kevin Walmsley, partner at Wilkins Kennedy. “Every recession also presents its own opportunities. The fact that there are small and medium sized businesses being established indicates that there are still entrepreneurs out there who are confident enough in their business model to launch their own company.” 

Kennedy says the rise in the number of new companies could partly be a reflection of the fact that limited companies are increasingly being used by business owners as a shelter for higher rates of personal tax: “People have become much more proactive with tax planning since the introduction of the 50 per cent headline tax rate last year. Replacing structures such as partnerships and sole trader by a limited company can be much more tax efficient. By leaving the profits in the company and paying themselves a ‘lower’ salary, business owners can avoid paying the top rate of income tax.” 

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Eddy Ankrett
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