back to article Biz tax rises, inflation and high interest. Why fewer UK tech firms started in 2024

For the first time since the start of the pandemic, the number of tech firms incorporated in the UK has declined, with a shrinking economy, as well as high inflation and interest rates causing a slump in business confidence. Some 48,518 new tech companies were created in 2024, dipping 5 percent on the 51,017 recorded during …

  1. Guy de Loimbard Silver badge
    Holmes

    This is a tough one to adress

    So I'll not go into Macro issues and Economics.

    The UK has, for a long time, been increasing its debt and not investing in the right areas.

    We have devolved governments, who blame Westminster for everything and in turn, Westminster blames the devolved entities for mismanglement!

    We have a high rate of tax on everything and rather than find a way to decrease the burden on the public purse, we only seem to be able to increase it, then borrow and then hike taxes.

    I'm all for taxation, if I can see tangible benefits of where my money is being spent to benefit the country and our communities.

    Everyone, less the excessively rich, is feeling marginalised and no-one believes any of the hot air that comes out of politicians mouths.

    How do we address this apathy in the UK?

    Probably by moaning in the press and then just getting on with it and "harumphing" a lot as the Brits always do!

    Everyone is so busy trying to get by that no-one is focusing on how to change things for the better, as we've got government for that, haven't we......?

    1. Charlie Clark Silver badge

      Re: This is a tough one to adress

      But this really is about economics. From the article With weak economic growth, high interest rates and high inflation also known as "stagflation" and entirely expected after the mismanagement during and, especially after, the pandemic. Poorly thought out but headline-grabbing subsidies and stimulus packages, led to an economy that was bound to overheat as economic activity normalised. Central banks around the world were asleep on the job and failed to raise interest rates soon enough so that inflation, which couldn't be "temporary" in this case, was allowed to rise. Interest rates will have to stay higher for longer as a result, or we have to be prepared to live with higher inflation and the associated problems: a seance with Dennis Healey would be instructive!

      Taxes in most countries have largely been about reallocation since it became fashionable to tax activity over income with VAT increases disproportionately affecting those with lower incomes:we were supposed to rejoice over reductions in income tax but not notice increased . Lobbies have pushed for, and largely got, lower taxex on capital gains and corporate incomes which, again, tend to favour capital intensive companies and government expenditure eschewed investment over deficit reduction during the long period of low interest rates financial repression. To be fair, there were those calling for investment when debt was cheap (savers were effectively paying off debtors), but they were largely ignored. And now the bond markets have woken from their sleep, done their work, and realised that there might be problems. They even noticed the size of central banks balance sheets!

      More investment is required, and social spending, despite the routine calls, cannot really be cut further, so additional sources of revenue must be found. Some subdsidies could be cut – and I refer to the point made years ago by Andrew Orlowski about green subsidies often being handouts to the middle classes – but some taxes will also have to be increased and we can stop giving massive tax breaks promising huge investments and "jobs": I can't remember a single such scheme ever providing a net benefit for the taxpayer.

      Oh, but don't say it loudly, improving trade relations with the EU would make businesses lives a lot easier!

      1. Gene Cash Silver badge

        Re: This is a tough one to adress

        In addition to stagflation, we have shrinkflation where they make things smaller for the same price, and shitflation where they make things shitter with poorer quality/worse components for the same price.

        This has nothing to do with the pandemic any more, and people need to stop accepting that being used as a scapegoat.

    2. Anonymous Coward
      Anonymous Coward

      Easy to address, actually

      Way too much money is spent on housing. This takes resources from productive investment. And, as 2008 proved, real estate does not bear the essential characteristic of real investment: the *risk*, because governments will always bail out property "investors" to rescue banks and avoid social unrest, at the cost of penalizing taxpayer.

      The solution is to remove the investment gain component from real estate. Thus making purchase of housing serve its core function - getting actual place to live.

      For that Capital Gains Tax of 80% should be introduced for properties and land on sale. To protect earlier investors, the tax should be calculated as yearly average from before and after the new tax date. The tax will discourage buying property *for investment*.

      To stimulate renovation business, lower capital gain tax should be applied for the 1st and 2nd year after a purchase (20% and 40%). Land without property will not have the 2 year tax discount.

      The tax will: incentivize to sell unused property, not to buy property for now mostly unprofitable investment, generate considerable tax revenue for the state, increase the number of properties for sale, thus lower prices. The tax collected can be used to build social housing. Income tax from long term rentals can be lowered to compensate and stimulate property rentals. So the buy-to-rent profitability will not be affected, but will allow more people to rent cheaper. And people, who got rich this way, then spend their unproductively earned money competing with other people for scarce goods and services.

      Affordable housing is incompatible with investment. It is time to stop profiteers from collecting unearned income from gov investments in urban infrastructure - as a tube station nearby, for example, makes nearby property more expensive without any cost for the property owner.

      1. Guy de Loimbard Silver badge

        Re: Easy to address, actually

        That's one area to address for sure.

        But there's so much to work on, across the board, that I don't think this concept, on its own, is enough.

        It's a great idea, I've been observing the alleged housing crisis we have for a while and wonder where the empirical evidence is, you know the one to justify all the new build appearing on every parcel of land conceivable around the UK?

        I'll throw my cynic's hat into the ring, has anyone seen the remuneration packages for the CEO's of these various house building entities is?

      2. IGotOut Silver badge

        Re: Easy to address, actually

        @AC.

        There is a simpler way than the capital gains tax, as that cost will just be passed on. If you have a crippled housing market, you just force prices up to cover the tax. Just think of tariffs.

        One way, and it's now being introduced in a few countries, is a 100% tax, or outright ban on foreign purchase ls of residential property, or commercial property being purchased for residential use.

        This will at least slow the amount of cash flowing out of the country.

        1. Anonymous Coward
          Anonymous Coward

          Re: Easy to address, actually

          I think a simple exponential taxation system could operate on owners of multiple properties - each additional home purchased doubles the tax liability on that property. By the time a company owns eight houses they pay 256 times on number eight what they would be paying on the same property if it was the only one they owned. The investment value of homes would tail off fairly rapidly.

          1. Anonymous Coward
            Anonymous Coward

            Re: Easy to address, actually

            I would suggest a less-steep increase, however, with the penalty for fraud being complete liquidation of the properties and some additional barbaric, yet non-monetary, penalty for the directors.

            1. Anonymous Coward
              Anonymous Coward

              Re: Easy to address, actually

              Both proposals related to exponential taxation are too complicated and prone to manipulation. Anti-fraud enforcement is unrealistic.

        2. Anonymous Coward
          Anonymous Coward

          @IGotOut

          > that cost will just be passed on - Could you explain with an example?

          > just force prices up to cover the tax. - How? Another clarification would be nice.

      3. Charlie Clark Silver badge

        Re: Easy to address, actually

        Tax-based solutions tend to run out of road fairly quickly, but you can introduce some element of time to prevenr, or at least reduce flipping. However, at the root of many housing bubbles has been reducing borrowing costs and standards, which has enabled people to spend more on an essentially static asset and thus keep prices rising. Increase minimum deposit requirements, scrap all forms of loan subsidy (whether it's MIRAS or "key worker" loans or whatever) and make sure lenders understand they won't be backstopped and you might see changes fairly quickly, though there will be much wailing and gnashing of teeth as people see the value of their "investment" decline. You can also investigate how much empty buildings are taken off the market in order to maintain prices – this can be an effective tax optimisation for many who declare loss of earnings as a result.

        1. Anonymous Coward
          Anonymous Coward

          Could it be that such complex solutions just don't work? Is there no simpler way to discourage hoarding and speculation of the limited resource? Real estate supply/demand is way too stiff to treat is as other investments.

      4. hoola Silver badge

        Re: Easy to address, actually

        We also need to deal with the fundamental issue that fuels house price inflation: availability of debt.

        For decades now we have had;

        Increasing multiples of salary to allow more money to be borrowed there have been a couple of blips but all have been reversed.

        Longer terms on mortgages

        Shared equity

        Higher LTV

        All put upwards pressure on prices because as soon as more money is available people put higher offers in, and so the circle continues.

        I am old enough to remember the root cause when the wheels truly fell off.

        In the late 80s before the first crash then when things rebounded in the 90s before the second:

        New houses 110% or 115% mortgage, 3 x joint salary, no deposit.

        Interest only mortgages with no checks that any endowment was in place - this pretty much could double what you could borrow.

        High LTV mortgages with cashback

        Prices went crazy "you could not lose" was the term used. Things have continued as there are very few left around who actually remember when prices were stable and a house was somewhere to live, not something to brag about how much it is "worth".

        Since that time there have been two resets where the damage could have been undone without too much pain. That is now long gone and we are in a vicious circle where the first institution to blink is going to cause a catastrophic crash. That has several issues:

        The people who end up repossessed because interest rates have shot up so they cannot afford the payments

        The banks and markets that have so many billions tied up in property loans that has things collapse have to write off value.

        The BTL and property investors who start dumping to try and not make a loss compounding the second.

        1. David Hicklin Silver badge

          Re: Easy to address, actually

          > I am old enough to remember the root cause when the wheels truly fell off.

          Yes the late 1980's was the root of this, the main driver for the crazy house price inflation was the ending of the un-married coupled MIRAS when if a couple purchased a house and were un-married then they could each claim a full MIRAS benefit - but they gave a 6 month notification of this as well as relaxing all the credit controls that used to be in place.

          Have too many people after houses and add in estate agents behaviour of ringing around to anyone looking at a property that "X" has put a higher bid in - you don't want to loose this do you??? result prices boomed for 6 months, people (me included) got repeatably gazumped and it has been all downhill ever since

        2. Anonymous Coward
          Anonymous Coward

          > as soon as more money is available people put higher offers

          This. Basically penniless people jump the queue before people with hard earned cash.

          Not only that. They also consume more, since they can pay less for otherwise necessary rent. Thus adding to inflation for other goods and services. Double queue jump.

      5. David Hicklin Silver badge

        Re: Easy to address, actually

        >> For that Capital Gains Tax of 80% should be introduced for properties and land on sale. To protect earlier investors, the tax should be calculated as yearly average from before and after the new tax date. The tax will discourage buying property *for investment*.

        So you want to penalise those of us who have just a single property that is our "home - somewhere to live in" that we have spend most of our lives and a good chunk of our earnings to pay for ?????

        Owning my home was never an investment - it was to have a roof over my head that no shady landlord could yank away at the last moment, and yes it will also benefit the children down the line but we have worked bloody hard to get to this point!!

        1. Anonymous Coward
          Anonymous Coward

          > So you want to penalise

          Not really. You own your house. The 80% tax is on sale only. And ideally not to be charged on a house upgrade - similar to the proposed 20% 40% for the 1st and 2nd year after a sale after renovations. The goal is to stop speculative investments.

          1. druck Silver badge

            So if I have to move house to get a new job, I lose 80% of the rise in the price of the house I bought 10 years ago, and now can't afford to live anywhere?

            1. Anonymous Coward
              Anonymous Coward

              > if I have to move house I lose 80% of the rise in the price

              No. Moving houses is an upgrade. Great point for the idea expansion, thanks.

              Actually to stimulate mobility of human capital, 0% taxes and fees should be charged within a certain time window: 1 year, for example. But the tax should be increasing after that in steps to the target 80%. The eighty percent is not 100% exactly to provide a minor 20% stimulus for living old housing.

              Another goal is to stimulate downgrading. Some families own huge houses they don't really need once children grew up. With 0% move-tax buying a cheaper one would be hugely profitable for its owners. To pensioners, for example. But only for downgrading or moving to equal sum price properties. If moving to a more expensive house or several houses, the upgrade portion should be taxed progressively up.

              I am not a law maker, but something along the lines. Keeping in mind the main objectives.

              1. Anonymous Coward
                Anonymous Coward

                > am not a law maker

                The problem with law makers is they are typically property investors themselves. So they would sabotage and dilute the idea up to the level of uselessness.

    3. JMiles

      Re: This is a tough one to adress

      One example..

      £65 billion spent on funding the unemployed.

      Meanwhile, an asylum seeker with a genuine claim isn't allowed to work and pay taxes while the Home Office takes months/years to process their claim.

      What sort of country prevents able-bodied and willing people from working while paying an absolute fortune to people not in work? How is that meant to be a sustainable path?

      1. RegGuy1
        Megaphone

        What sort of country prevents able-bodied and willing people from working ...

        One full of ignorant, racist, greedy pensioners that understand nothing of the modern world and still think we are a superpower, top-table country able to do whatever we want.

        A country full of people, whose parents fought for a better world, only to grab with both hands what they had achieved and refuse to let their children or future generations enjoy the same benefits they had. Many were brought up in the new modern council houses that were built after the war, by a generation that remembered what the Tories did to them after the *previous* war when, promised homes fit for heroes they didn't get them. But hey, one generation of greedy people, and yes, of course I'll vote for you coz you're giving me a cheap home to buy ...

        A country full of people who think benefits for people who are struggling should not be paid and should get off their arses, yet are too stupid to see that the socialist pension payments they get are also benefits. They like to delude themselves that they've actually paid for these, and so must receive these payments and demand as a right their payment of £200 per week, despite the fact that they paid 2/6 per week to 'earn' these.

        A country that thinks we can have European[1] levels of public service, but only pay US[2] type levels of tax.

        A country that thinks our outdated political system that is turning so many people off (unless you are one of the millions of boomers) should be kept because we've had it for hundreds of years.

        A country that seems not to understand the demographic crisis that we (and others also, to be fair) have, that means there will be no one available to wipe their arses, because they want them all deported. And if they do stay, the same ignorant or greedy old buggers are definitely unwilling to pay better wages to attract the good old British worker to perform these tasks. (Fuck off, my house is for my kids, don't you dare tax it.)

        A country that is too up its own arse to see that we must get back towards Europe, but because of the ignorance, greed, hubris and stupidity can't. There are the remainers who have known this for ever but were sidelined. The Reform lot who just don't like the EU (but not one of them could tell you why, just we're British). And the Tory lot who can only say we did brexit wrong.

        NOTHING WILL GET BETTER until a much larger number of these old people die off. And in the meantime, the country will continue to go down the pan.

        That's why this country is shit. (IMHO :-)

        [1] Spit.

        [2] Hurray!

        1. RegGuy1

          Re: What sort of country prevents able-bodied and willing people from working ...

          Just to add, read this guy https://chrisgreybrexitblog.blogspot.com to get a detailed view of how things are failing.

          He's less gobby than me, and now has years of even-handed commentary that is a very useful reference.

  2. Andy 73 Silver badge

    Exhausted

    I'm exhausted stating the ****ing obvious whenever this is discussed, and then seeing "the powers that be" head off in the opposite direction, convinced that they (with not one single year of business experience between them) know better than the people working in the industries they are manipulating.

    Successive governments have coasted on the tails of global economic headwinds, happy that even though we're not keeping up, we've seen more or less improvements in the economy sufficient to keep people comfortably voting for them. Suddenly, when they can't rely on the global corporations to do the heavy lifting, we're facing the basic fact that no-one in government, opposition or the civil service knows how to (a) reduce costs (b) improve productivity or (c) plan for growth.

    They've ignored the SMEs that make up more than half of the economy (who can't lobby constantly for perks), and now we're beginning to see the consequences.

    Meanwhile, we get idiot commentators that believe if only we chose the right party, everything would be magically fixed. Here's the headline news: they're all useless.

  3. Anonymous Coward
    Anonymous Coward

    Lots of waste, brainless ideas

    Lots of public services are running with excess waste in the system that needs to be rooted out (management who add nothing), or poor solutions (lets outsource maintenance and then wonder why we pay over the odds for a light bulb to be replaced). waste on hospital treatment that should not happen, waste on glorious It Projects that fail and fail again.... could go on for hours here

    Costs that just rise. Get a sodding "quote" and not an "estimate" used to be a quote was a fixed price, estimate could change

    Get people into departments who have an inkling of what they are doing, even better, people who actually know what they are doing in a department - with no bullshit on their CV's.

    1. blackcat Silver badge

      Re: Lots of waste, brainless ideas

      I'd love to see a detailed cost breakdown of Hinkley point C and understand how its gone so far over budget. I know people argue that 'we've not built a reactor for 20 years' but really its a huge concrete and steel structure. The really complex bits go into the two reactor buildings but there is an awful lot outside them that isn't 'nuclear'. And some of the big key items going in the reactor building like the pressure vessel, steam generators and turbines (ok, they sit outside) are coming from overseas and the suppliers of these items have already made several for other EPR reactors.

      We've certainly not helped ourselves with the thousands of changes to the design but its not like we've had to setup a brand new forging factory to make the pressure vessel.

      But then we can't make non-nuclear projects on time or on budget either....

      There is something fundamentally wrong in the country that kickstarted the industrial revolution, came up with practical steam engines, built the first digital computer and for a while lead the world in railways.

      1. Andy 73 Silver badge

        Re: Lots of waste, brainless ideas

        I can strongly recommend the analysis by Sam Dumitriu on why Nuclear (and indeed any large infrastructure project in the UK) is so expensive.

        In short, the UK is the most expensive place in the UK to build a power station. It costs around six times as much to build a like for like nuclear site as it does in South Korea - and typically takes two or three times as long. The same applies for many infrastructure projects. Lower Thames Crossing’s planning application alone cost more than twice as much as it cost Norway to actually build the world’s longest road tunnel. The planning application for that one is 63,000 pages long.

        Note that fifteen years ago, Nick Clegg vetoed building a new station on the grounds that it would take too long to complete. This is the very definition of our bureaucracy issuing self-fulfilling prophesies.

        We don't (and can't) build large scale infrastructure efficiently because over the last three decades our governments have decided that this is not something that we should foster and encourage.

  4. Doctor Syntax Silver badge

    In the spirit of More or Less one has to ask whether ~50,000 is a large or iespall number?

    It works out at about 1 for every 750 of the total working population and presumably a rather greater proportion of the population one might reasonably be expected to work in "tech" - whatever that word might mean. I suspect that a good number will be freelancer company and as HMRC has been devoting considerable effort to killing that sector for a quarter of a century it's surprising there are any left. I also suspect a good many more don't have any full-time employees. How many are just a rather odd name and accommodation address for a Chinese gizmo maker's product sold in the UK on Amazon or eBay and handled by Amazon themself, some other logistics operation or just posted direct from China?

  5. Anonymous Coward
    Anonymous Coward

    The law is not cheap

    As one of those stats, trying to bootstrap a start-up last year, my single biggest outside expense was legal advice. Balancing data protection and all the other relevant regulations is hard even before you have to try and figure out whether you'll be caught out by incoming legislation like the child protection/age verification act that is so vast and complex that nobody seems to understand it. All of that takes lawyer time, which is enormously expensive.

    It's not that I don't think many of those regulations are important, but there are a lot of them and if a government wants successful start-ups and thousands of pages of regulation, perhaps they could offer some kind of legal support to the people trying to run the start-ups?

    My company is a really positive one that I genuinely believe will make the world a better place if I can bring enough people on board, but it has been a real struggle to get it off the ground and I certainly haven't felt well supported by either of the governments involved. I have had to go back to working for someone else to scrape together the cash to get the last set of legal agreements in place to open it up to more users and it is so frustrating. Especially because I now know that I could probably have found a grant to help support me but now I don't have the budget to apply and I have spent all the money that could have gone into matched funding. None of the regional development business advisors I spoke to seemed to have any idea about this.

    In my part of the country at least (a region that really needs jobs) it feels as though business support is designed for people planning to start a dog grooming salon or burger van, while those of us hoping to create a sustainable online business are left to fend for ourselves.

  6. Tron Silver badge

    Long Brexit.

    Sterling going down 25% broke an awful lot in a way that cannot be fixed. Entire sectors are hanging on, taking time to fail. Others, including tech, are now unable to find or access staff. Universities are no longer pulling in the best foreign students and have had their economic models holed below the waterline. The damage isn't over. It will play out over a decade or two. The decline will persist.

    The irony is that Germany and France have their own problems. If the UK had stayed in the EU, it would now be running it.

  7. JMiles

    Incorporating in the UK seems pointless for a tech business (probably for any kind of business at the moment). Government full of promises about growth without a single actual pro-growth policy to even hang their hat on. And a heap of policies/laws/regulations that are arguably anti-growth.

    With very few incentives, being hard to get the right skills and an onerous tax system the best bet is just to incorporate in the US.

    If the government really wanted growth it'd lower the cost for entrepreneurs to take risks. Make it cheaper to bootstrap a startup perhaps, or add tax incentives that don't require specialist advisors to access.

    Thoroughly deflating and I don't think the politicians are going to u-turn until they actually crash the economy.

  8. Roland6 Silver badge

    Very poor analysis and linkage…

    2024 started way before the Autumn Budget on October 30th and before the July 4th General Election…

    Also no evidence, probably because there is no practical way of collecting it to actually determine why there has been a slow down in “tech” (*) startups.

    Personally, those involved in startups will start up if they perceive an opportunity, the cost of being in business, particularly associated with profits doesn’t really come into your considerations, because for the first few years, unless you are very lucky, you won’t be making profits…

    (*) Given how much tech pervades business these days so that even “traditional” businesses are categoriesed as tech businesses this term really needs to be defined and evidence going back decades needs to be provided, ie. Before the COVID pandemic.

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