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 the prior calendar – the first downward trend since 2020.

The “slowing tech sector” will “come as more tough news for the Chancellor,” said Ben Bilsland, partner and head of technology industry at audit, tax and consulting biz RSM UK.

He added: “With weak economic growth, high interest rates and high inflation, and businesses set to bear the brunt of the Chancellor’s tax rises, confidence among tech businesses is diminishing.”

The size of the UK economy has decreased for the previous two months and government is staring down the barrel of a recession. It has already hatched a plan to use AI to boost productivity and trigger economic growth, deploying tech bosses to help escape the deepening hole the country finds itself in.

Yet businesses have come under increased pressure since April 1 2023, when corporation tax jumped from 19 percent to 25 percent for companies with profits in excess of £250,000 (it’s still 19 percent for profits up to £50k, and then a sliding scale up to £250k); at the same time, National Insurance contributions are scheduled to go up to 15 percent from 13.8 percent. More employers will also be liable to pay NI on staff earnings as the secondary threshold drops to £5,000 per year from the current level of £9,100.

Of the countries in the UK, Wales saw the steepest declines in incorporations of tech companies last year, down 20 percent year-on-year. They were also down by double digits in the south west of England. Data shows that London fell 6 percent to 26,060 – the first time in five years that a drop was registered.

Bilsland said:

“Uncertainty in the US, particularly surrounding new policies and potential tariffs, is also partly to blame for caution in UK tech boardrooms as they take a ‘wait and see’ approach. Ultimately, the growing costs associated with starting a business, finding talented people, and scaling it, is viewed as too risky for some entrepreneurs.

“Despite recent positive noises from the government around investing in AI, tech businesses still have to wait until the spring to see the full details and the impact is not expected to be immediate.”

The local national tech industry is mostly comprised of resellers, distributors, consultants and service providers. The channel, as they’re collectively called, has “been excluded” from AI, or so we’re told.

Perhaps as – if not more – worryingly, the government’s solution for stimulating startups and the wider business community is to let tech giants loose on its regulators and advisory boards. ®

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