Since the turn of the century, the business owner population has grown rapidly, and much faster than the number of employees. Owners now number over 6.5 million, up from 4.8 million in 2000/01. This growth has been incentivised by a tax system that taxes business owners less heavily than employees.
Business owners are a diverse group that cannot be accurately summarised by a ‘one size fits all’ description. They operate in all sectors of the economy; they include some ‘gig economy’ workers, but also, among others, partners in law firms, sole trader construction workers and company owner-manager IT consultants. They are overrepresented at both the top and the bottom of the income distribution. A minority of closely held businesses have substantial costs, make large capital investments and will be employing others, but the majority have low costs and do not invest or employ others. In many cases, profits will mainly reflect a return to the owner-manager’s labour.
It is common to describe those who are active in the labour market as either ‘business owners’ or ‘employees’. But a quarter of business owners earn some employment income while running their business. While the business owner population has grown especially quickly since 2007/08, this growth has been accompanied by a decline in reported capital investment. Sole traders, who account for 90% of the net growth in business owners since 2007/08, have seen large falls in income. These findings highlight that the ‘number of people running a business’ is a poor measure of the economic contribution of that sector.