2021 Entrepreneurial Activity Review

In 2021, the United Kingdom’s TEA rate increased significantly to 12.6%, from 7.8% in 2020 — which is the highest ever recorded since the start of the GEM project in the late 1990s. This occurred while undergoing the dual challenges related to political volatility, including Brexit, and of course, COVID-19. In response to such challenges, entrepreneurs either pull back activities to mitigate risk or pursue new opportunities in response to the changing environment. In this case, it appears many UK entrepreneurs elected for the latter strategy, primarily in response to COVID-19, explaining some of the large increase in TEA.

The impact of COVID-19 on UK entrepreneurship is evident from the large percentage of respondents (80%) in the previous GEM survey of 2020 who said they planned to start a new business in the next three years — and that COVID-19 had influenced their decision to some or large extent. These intending entrepreneurs may have delayed their start in 2020 due to the economic and public health uncertainties, but decided to proceed in 2021, increasing the country’s TEA rate. Some UK entrepreneurs have pursued new businesses out of economic necessity generated by the pandemic. The UK economy, as measured by GDP, contracted considerably, by nearly 10% in 2020, and is slowing in 2021. Similarly, over 30% of overall UK respondents reported their household had lost income as a result of the pandemic, a fairly high rate among GEM Level A economies.

Yet many entrepreneurs also see opportunity as a result of the pandemic, a positive sign for the country’s economic recovery. In 2021, 57.4% of UK TEA respondents said they saw new business opportunities as a result of the pandemic and 62.7% said they planned to use more digital technologies to grow their business in the next six months. These results, combined with the fact that the UK had strong employment growth throughout 2021 (meaning new entrepreneurs could find jobs if they preferred), suggest that many UK entrepreneurs are pursuing new businesses in response to good opportunities they see being generated by the paradigm-shifting realities of COVID-19.

However, ONS (UK Office for National Statistics) data for the UK between Q2 and Q3 in 2021 show a sharp fall in the number of individuals officially registered as self-employed (124,000) — an important element of the TEA rate. Since the start of the pandemic, the fall in self-employment was nearly 600,000.

2021 Framework Conditions Review

Policymakers should look to capitalize on the number of new UK entrepreneurs willing to take risks and invest in their business in response to the pandemic. These new businesses may eventually spur the economic growth and dynamism needed to recover from the serious economic impact of COVID-19. Yet there are many potential constraints on entrepreneurship, as identified by UK experts evaluating the country’s framework conditions.

As in 2020, finance remains one of the foremost challenges to sustained entrepreneurial activity. The UK received a 5.1 score for its Entrepreneurial Finance condition, 12th among GEM Level A economies, while its 4.4 score for Ease of Access to Entrepreneurial Finance placed it 17th among this group. Policymakers should target tax breaks and incentives for new businesses, particularly in innovative sectors, so they can invest in the resources and talent necessary to attract funding. Additionally, incentives for financial institutions who lend to entrepreneurs can also be used.

Yet the experts had a more positive assessment of the country’s internal market conditions, reflecting a strong foundation for entrepreneurs to sell their goods and services domestically to a receptive consumer base. In particular, the condition Ease of Entry: Burdens and Regulation received a 5.5 score, placing it sixth among GEM Level A economies. This suggests most entrepreneurs are able to compete fairly for consumers among larger competitors, which can help sustain a new business even in challenging conditions. Yet these are particularly difficult times as the pandemic continues into 2022 and new import/export regulations resulting from Brexit take effect on 1 January 2022, so policymakers should ease burdens wherever possible, enabling the new set of UK entrepreneurs to thrive.