British entrepreneurship appears to be on the rise, with tens of thousands of new businesses popping up. The problem, for workers, is that these start-ups are increasingly using artificial intelligence (AI) and freelancers instead of taking on permanent staff.
New firms launched in the UK last year generated an average of 2.7 jobs each, around one fewer than when records began in 2017, according to a Bloomberg analysis of official data. Total employment created by new enterprises fell 16 percent to the lowest level on record.
That is despite Britons starting new firms at the fastest pace in two years, during the fourth quarter of last year.
Photo: Bloomberg
“It’s scary to hire people, the minimum wage is so high and there’s so many additional protections,” said Rachael Twumasi-Corson, an entrepreneur from London who is set to launch a new company later this year. “I would much rather have a team, celebrate wins and figure out ways to solve problems together, but at the moment, my team is ChatGPT and Gemini.”
Business groups say the UK’s Labour government has made it more risky and expensive to hire permanent staff, despite the left-leaning party promising to prioritize economic growth. British Chancellor of the Exchequer Rachel Reeves hiked national insurance, a key payroll tax, last year — and while small businesses are largely exempt, they face higher costs from rising salaries, including sharp increases in the minimum wage.
Entrepreneurs are also concerned about new employment laws, which allow workers to claim unfair dismissal after six months on the job, instead of the current two years, effectively making it harder to fire staff. The proposals will also give workers sick pay rights from day one.
AI technology means that some founders can avoid hiring in the first place. Twumasi-Corson initially wanted to employ a designer and a social media marketing specialist — she even wrote the job descriptions — but ended up relying on contractors and AI chatbots because of the costs. The London Living Wage, an optional rate the entrepreneur cited as a benchmark, has reached ￡14.80 (US$20) per hour in 2025-2026, a 36 percent increase over the last five years.
That approach is common among new start-ups, according to Timothy Barnes, CEO at the Centre for Entrepreneurs. Founders are starting out with just a small team of specialists, while using AI to reduce the number of people needed to support each specialist, particularly in roles like business development, accounting or marketing. There is also less appetite for human coders in new tech businesses as AI fills the gap.
“Before, the mindset might have been: We’ve got this idea and we’re going to quickly recruit as many people as possible to pursue it,” Entrepreneurs Network research director Eamonn Ives said. “Now start-ups are thinking twice about taking on new hires who they might not be able to keep on if things don’t pan out.”
One in four founders have made fewer administrative hires, and 19 percent recruited fewer juniors in response to AI technological advancements, according to a survey conducted by the Entrepreneurs Network in November last year. Only 2 percent said they increased headcount.
“Newer firms are starting out leaner, more automated, and less labor-intensive,” British Chambers of Commerce research head David Bharier said.
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