London is now UK’s uncontested entrepreneurial powerhouse

IF small businesses are the future, then London’s place at the heart of the British economy is assured. Figures today reveal that 17 out of the top 20 UK areas for new business creation were located in London in the past year – and remarkably, that Silicon Roundabout was by the far the leading centre for start-ups. Tragically, these figures also confirm that the rest of Britain remains in relative decline, with much of the talent continuing to shift to the capital.

No fewer than 15,720 new businesses were set up in EC1V, the area that includes London’s new technology hub on the fringe of the City, in the year to March, according to UHY Hacker Young. This is promising, though as ever it remains to be seen whether any of these tech firms will grow and thrive, and whether any will become British Googles or Facebooks, truly world-class and world famous.

Other buoyant areas for start-ups include Bishopsgate (EC2) and Canary Wharf (E14), which between them saw 4,900 new businesses set up shop last year. It is not just big banks, accountants, law firms and other multinationals that dominate those areas; they are also hosting a new generation of City start-ups. St James’s (SW1Y), another established area which has become the HQ for wealth managers and global plutocrats, attracted 1,830 new businesses last year. Perhaps more surprisingly to those who have not be closely following London’s evolving economic geography, one especially promising area which boasted even more start-ups was the Borough and Bermondsey area (SE1), where 5,190 new businesses were set up last year.

The area’s revamp is helping to turn it into a major business zone on the south bank, over the river from the City. The area hosts giant blue-chips at More London and the Shard/London Bridge area (with NewsCorp the latest big sign-up), while many of the start-ups registered over the past year were in the creative industries, finance and professional services.

Britain needs start-ups – but it also needs them to grow and thrive. The life-cycle of companies keeps accelerating, as Matthew Rock reports on p16. An Innosight report confirms that what Joseph Schumpeter called capitalism’s process of creative destruction is accelerating in speed and intensity. America is a great case study. In 1958, a company in the S&P 500 could expect to last in the index for 61 years. By 1980, the average tenure had shrunk to 25 years. Today, it stands at just 18 years on a seven year rolling average. Iconic names that left recently include Eastman Kodak (2010), Radio Shack (2011) and The New York Times (2010). In 2011, 23 out of 500 firms were removed from the index – one every two weeks – because their value fell or they were bought.

Some markets remain static and staid, including many in continental Europe, where the composition of top indices hasn’t changed much. Yet that is a sign of weakness, not strength, of a closed rather than an open society, of economies that cannot reinvent themselves, where upstarts face a glass ceiling. Dynamic economies such as the UK are seeing firms weeded out at an accelerating rate – but the right framework must be in place to allow new giants to replace those that fall by the wayside. Britain is doing well in one respect – we have lots of start-ups in London. But we don’t have enough in the rest of the country, which means that the UK as a whole isn’t doing well enough. Large chunks of the country remains dominated by the public sector; the private sector remains over-taxed, over-regulated and constrained. And even in London, it is proving very tough to grow small firms into giant ones. There’s no easy answer, but the government needs to cut taxes on capital to encourage venture capital, and tear up planning rules and other restrictions preventing firms from growing. Britain’s entrepreneurs are roaring to go – it’s time to empower them to do great things.

[email protected] me on Twitter: @allisterheath