A record number of Brits are starting or running their own business but that is failing to translate into growth as small business innovation is at a four-year low, new research reveals.
According to the Enterprise Research Centre’s (ERC) State of Small Business Britain 2025 report, which summarises findings from several key business surveys, 36% of working-age adults are now starting, running, or planning to launch a business, the highest level recorded since the Global Entrepreneurship Monitor (GEM) survey began in 1999.
But this surge in ambition is not leading to business growth, the study found, with the proportion of SMEs reporting product or service innovation dropping from 30.4% in 2021 to only 24.1% in 2024. Exporting activity also decreased from 19.4% of firms in 2021 to 17.2% in 2024.
The report warned that the UK’s entrepreneurial ecosystem is “deteriorating”, due to weaknesses in access to finance, entrepreneurial education, and government policy. It also said support for female entrepreneurs is “inadequate” compared to France, Germany, and the US.
Other challenges highlighted in the report were late payments costing businesses an estimated £11 billion annually, and workplace mental health as a significant issue for businesses with presenteeism at its highest level since before the pandemic.
Stephen Roper, director of the ERC, and professor of enterprise at Warwick Business School, said:
“The UK has a remarkably resilient and creative entrepreneurial culture. More people than ever before want to start and grow businesses, and we are seeing welcome shifts with more women entrepreneurs and a new generation of younger founders emerging.
“But ambition alone 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. Without urgent action to address the barriers small firms face, we risk wasting the UK’s entrepreneurial potential.”
Mark Hart, deputy director of the ERC and professor of entrepreneurship at Warwick Business School, added:
“We need a stable, coherent business support system that reflects the realities of the UK’s diverse business population. That means bringing the needs of micro-enterprises to the fore, tackling the late payment crisis, and ensuring every business owner – regardless of background and size – can access the support they need to grow.”
Jane Galsworthy, chair of the ERC Steering Group, said:
“2025 was a year of mixed fortunes. While we see record-breaking entrepreneurial aspiration and a more diverse founder base emerging, many firms are struggling with rising costs, tax burdens, and a lack of clarity about future support.
“Urgent action is required in 2026 to ensure the government’s ambitious plans for growth are not undermined at the point of delivery.”