TL;DR
New UK businesses are creating fewer jobs than at any point since records began in 2017. Each new firm generated an average of 2.7 jobs last year — roughly one fewer than previous levels — as founders increasingly use AI tools and freelancers in place of permanent staff. Total employment created by new enterprises fell 16% to a record low, even as the rate of new business creation hit a two-year high.
AI as the default team member
The shift is driven by a combination of rising employment costs and increasingly capable AI tools. Rachael Twumasi-Corson, a London entrepreneur, had written job descriptions for a designer and social media specialist but ended up relying on contractors and AI chatbots instead. “My team is ChatGPT and Gemini,” she said.
This pattern is common among new startups, according to Timothy Barnes, CEO at the Centre for Entrepreneurs. Founders start with small teams of specialists and use AI to reduce the support staff needed around them, particularly in business development, accounting and marketing. There is also less demand for human coders as AI fills the gap.
One in four founders surveyed by the Entrepreneurs Network said they had made fewer administrative hires, and 19% recruited fewer junior staff in response to AI advances. Only 2% said they had increased headcount.
Employment law adding pressure
Business groups say the Labour government’s policies have made hiring riskier and more expensive. National insurance rose last year, and new employment laws will allow workers to claim unfair dismissal after six months rather than the current two years. Workers will also get sick pay rights from day one.
The London Living Wage has reached £14.80 per hour, up 36% over five years. For small businesses, these costs compound quickly. As Eamonn Ives at the Entrepreneurs Network put it: “Now startups are thinking twice about taking on new hires who they might not be able to keep on if things don’t pan out.”
Looking forward
The trend may signal a structural shift in the UK labour market. The Bank of England is watching for a rise in the natural rate of unemployment, with Chief Economist Huw Pill warning that NAIRU may be edging up. UK unemployment is already close to a five-year high. Meanwhile, Labour is losing the entrepreneur vote — support among founders fell from about 17% in June 2025 to 10% by November, according to the Entrepreneurs Network.