The London economy, like that of the rest of the UK’s, remains “mired in recession”. Unemployment in London in March 2009 was four per cent and had increased by more than 50 per cent over the previous 12 months. Other indicators of economic performance are also declining such as the levels of business activity and new orders. Business confidence is low and Londoners are tightening their belts to weather the economic storm.
In this environment it can, at first sight, seem counter-intuitive to examine the support available for people wanting to set up their own businesses in the capital. But London’s economy is heavily reliant on the rate of business start-ups. Existing small and micro businesses make up more than 90 per cent of all businesses in the capital providing jobs for nearly two million people. Many of these will inevitably fail in the current economic climate. London’s recovery will therefore depend to a large extent on these businesses being replaced with new ones. Amid the economic gloom there are some signs that the rate at which the economy is contracting is slowing down and attention is now inevitably turning to the measures necessary to help London out of recession.
This report argues that encouraging new businesses to replace those that have failed should be a significant part of any package to stimulate London’s economic recovery. New businesses typically create three new jobs within two years and 64 per cent of all new jobs in the UK are created by self-employment. These facts suggest business start-ups will play a crucial role in helping London out of recession.
Furthermore, there is evidence that the relatively low cost of goods and labour in an economic downturn create a potentially inviting environment for prospective new businesses. For example, highly successful businesses such as Pret A Manger and Cobra Beers were products of the last UK recession in the 1990s. There is also likely to be a pool of highly skilled individuals in the capital looking to develop business ideas. A recent survey suggested nearly half of ‘professionals recently made redundant’ were interested in investing their redundancy payments in their own business ideas. It is clearly important that those with viable ideas are given the best advice to enable them to succeed; similarly, others may decide that setting up a new business is not right for them in the light of such advice.
This Committee therefore decided to examine the support available to those wishing to set up their new businesses. We focused our attention on the London Development Agency (LDA), the Mayor’s agency responsible for driving economic growth in the capital and the lead body delivering the Mayor’s Economic Recovery Action Plan. But no such study would be complete without examining the complex network of support for small businesses within which the LDA operates. For example, some of the most successful support for budding entrepreneurs is not funded or controlled by the public sector.
Nevertheless, there is a general consensus that there are gaps in the market and therefore a role for the public sector in encouraging the setting up of new businesses and giving them the best chance of survival. The difficulty is answering the key questions that the LDA grapples with in all its work: where is there market failure and where should the LDA and Mayor divert their limited resources to maximum effect?.
In seeking to contribute to an answer to these complex questions the Committee examined a wealth of evidence including recent academic findings on the role of business start-ups in economic recovery; over 50 submissions from public, private and voluntary sector providers of support for small businesses; a survey of those who had recently received help to set up a business in the capital; and the views of experts, practitioners and representatives of the Mayor who gave evidence at the Committee’s public meetings.
Contents
Chair’s Foreword
Conclusions and recommendations
1 Introduction
2 Business start-ups in London’s economy
3 What more can the Mayor do to stimulate new businesses?
Appendix 1 London Development Agency submissions
Appendix 2 Support for new businesses in London
Appendix 3 Views and information
Appendix 4 Orders and translations
Appendix 5 Principles of scrutiny
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