The claim

“There are 4.8 million private sector businesses in the UK, an increase of more than 250,000 since last year, the largest increase on record.”
Conservative Party press release, 18 October 2012

The background

Sometimes FactChecking politicians’ claims means spending hours going through miles of spreadsheets.

And sometimes picking apart dubious facts is as easy as a single click of the mouse.

We raised a sceptical eyebrow last week when the Prime Minister said that “the rate at which new businesses started” was faster last year than in any other year on record.

The same claim has resurfaced this week, with the Conservative Party press office trumpeting the “biggest increase in private business on record”.

This time there’s a slightly different set of figures to back the claim up: new numbers from the Department of Business, Innovation and Skills (BIS).

The analysis

According to BIS business population estimates, there were 4.8 million private sector businesses in the UK at the start of this year, the highest estimate since 2000, thanks to a headline increase of 253,000 between the start of 2011 and 2012.

But click on the document and read beyond the first page and you find that the statisticians immediately pull the rug out from under the Tories’ headline:

“Improvements made to HMRC computer systems have resulted in approximately 53,000 extra businesses being added to the government business register at the start of 2012.

“Of the 53,000 extra businesses, some will have existed before 2011 and therefore should have been included in previous estimates of the total business population.

“It is possible some of these previously existing businesses were captured in earlier estimates of the unregistered business population, but unfortunately the precise number cannot be calculated.

“Therefore, the actual increase in the total business population between the start of 2011 and the start of 2012 will lie between 200,000 (4.4 per cent) and 253,000 (5.6 per cent).”

If the real number is as low as 200,000 this isn’t the biggest rise on record. If the real rise were as high as 253,000 it would be the biggest ever – by a whisker – but only in terms of raw numbers.

The rate of increase was 5.6 per cent from 2011 to 2012 and 6.8 per cent from 2003 to 2004, so Mr Cameron’s claim from last week is still wrong.

Far more important than any of this is the fact the creation of all these new “businesses” isn’t necessarily driving employment and growth in the way we might hope.

Since 2000, when records began, the number of private businesses has grown every year. But the soaring numbers of businesses who are really sole traders – perhaps self-employed construction workers or freelance journalists – accounts for most of that growth.

The number of businesses with no employees went up by more than half a million (17.7 per cent) since the beginning of 2008 and now make up 74.2 per cent of all private sector businesses.

Since 2000, businesses that don’t employ anyone have multiplied faster than larger firms, while the biggest employers, those with more than 250 staff, have fallen in number.

BIS statisticians thought the boom in self-employment “could be as a result of the tough labour market conditions, which may have encouraged people to set up in business as they are made redundant, for example”.

That would certainly explain why the number of new businesses has been going up even in times of recession, when employment and GDP growth have been falling – something that makes it difficult to see how it can be a good yardstick of economic well-being.

The verdict

If BIS’s analysts are right, this rise in new businesses could actually be a response to a worsening job market rather than a rush of entrepreneurial activity.

It may not be a bad thing: being self-employed is better than being unemployed, if that’s the only choice on offer. But the increase may not quite be the good news story that the Conservatives obviously think it is.

Alongside this claim about business creation was the related claim that the private sector has now created more than a million jobs since the election.

We FactChecked that last week and found a similar problem of quality and quantity. The numbers have changed thanks to the latest employment figures but the long-term trends remain the same.

Private sector employment may be going up but employees are working fewer hours, leading to a drop in productivity, according to the Office for National Statistics.

Self-employment, temporary and part-time work are all on the up too.

By Patrick Worrall

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Category: Fact, Fiction