Startups in Britain Embrace AI Solutions Over Expensive New Hires
British entrepreneurship is witnessing a notable surge, with tens of thousands of new businesses emerging. However, a concerning trend is that these startups are increasingly opting for artificial intelligence and freelancers rather than hiring permanent staff.
According to a Bloomberg analysis of official data, new firms launched in the UK last year created an average of 2.7 jobs each—about one fewer than the average since records began in 2017. This decline has resulted in a 16% drop in total employment generated by new enterprises, marking the lowest level on record.
Interestingly, this decline comes despite a rapid increase in the number of new firms being established, particularly during the fourth quarter, which saw the fastest pace of entrepreneurship in two years.
“It’s scary to hire people; the minimum wage is so high, and there are so many additional protections,” explained Rachael Twumasi-Corson, a London entrepreneur preparing to launch a new company later this year. “I would much rather have a team, celebrate wins, and solve problems together, but at the moment, my team is ChatGPT and Gemini.”
Business groups argue that the UK’s Labour government has made hiring permanent staff riskier and more expensive. Chancellor of the Exchequer Rachel Reeves increased national insurance, a crucial payroll tax, last year. While small businesses are largely exempt, they still face rising costs due to increasing salaries, including significant hikes in the minimum wage.
Entrepreneurs are also worried about new employment laws that allow workers to claim unfair dismissal after just six months, down from the current two years. This change effectively makes it more challenging to terminate staff. Additionally, the proposals will grant workers sick pay rights from day one.
AI technology is enabling some founders to bypass hiring altogether. Twumasi-Corson initially aimed to hire a designer and a social media marketing specialist—she even drafted job descriptions—but ultimately relied on contractors and AI chatbots due to cost concerns. The London Living Wage, which she cited as a benchmark, is projected to reach £14.80 ($20) per hour in 2025-2026, reflecting a 36% increase over the past five years.
This trend is becoming increasingly common among new startups, according to Timothy Barnes, CEO at the Centre for Entrepreneurs. Founders are beginning with a small team of specialists while leveraging AI to minimize the number of personnel needed to support each specialist, particularly in areas like business development, accounting, or marketing. There is also a reduced demand for human coders in tech startups as AI fills that role.
“Previously, 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,” noted Eamonn Ives, research director at the Entrepreneurs Network. “Now startups are more cautious about hiring new employees they may not be able to retain if things don’t go as planned.”
According to a survey conducted by the Entrepreneurs Network in November, one in four founders reported making fewer administrative hires, while 19% recruited fewer junior staff in response to advancements in AI technology. Only 2% indicated an increase in headcount.
Labour’s Employment Rights Act introduces stricter rules on unfair dismissal, which is a significant concern for startups. Larger companies can manage one poor hire more effectively than a small company with just five employees.
“When I started my first company as an 18-year-old in university halls, my first thought wasn’t about providing maternity pay and sick pay,” said Twumasi-Corson, who launched her first venture with two employees. “You simply cannot treat a startup the same way you treat a large corporation, and I believe that’s the biggest oversight of the Employment Rights Bill.”
David Bharier, head of research at the British Chambers of Commerce, remarked that “newer firms are starting out leaner, more automated, and less labor-intensive.”
This shift may indicate an increase in the natural rate of unemployment, known as NAIRU—the point at which the labor market no longer exerts pressure on inflation. The Bank of England is closely monitoring structural changes in the labor market, with Chief Economist Huw Pill warning of a potential rise in NAIRU. Currently, unemployment across the UK is nearing a five-year high.
Labour’s stricter employment laws and tax increases could alienate entrepreneurs. In June 2025, Labour was among the top parties favored by founders, closely trailing the Liberal Democrats at around 17%. By November, support for Labour had plummeted to 10%, placing it near the bottom of the list—just above the more left-leaning Greens. Meanwhile, support for Nigel Farage’s populist Reform party saw the most significant increase, climbing four points to 15% during the same period.
“I’ve been a Labour voter in the past, and now I’m on the fence,” Twumasi-Corson expressed. “They seem out of touch with business.”
Photograph: Commuters cross London Bridge in the City of London, UK, on Monday, Feb. 16, 2026. Photo credit: Jose Sarmento Matos/Bloomberg
Copyright 2026 Bloomberg.
British entrepreneurship is witnessing a notable surge, with tens of thousands of new businesses emerging. However, a concerning trend is that these startups are increasingly opting for artificial intelligence and freelancers rather than hiring permanent staff.
According to a Bloomberg analysis of official data, new firms launched in the UK last year created an average of 2.7 jobs each—about one fewer than the average since records began in 2017. This decline has resulted in a 16% drop in total employment generated by new enterprises, marking the lowest level on record.
Interestingly, this decline comes despite a rapid increase in the number of new firms being established, particularly during the fourth quarter, which saw the fastest pace of entrepreneurship in two years.
“It’s scary to hire people; the minimum wage is so high, and there are so many additional protections,” explained Rachael Twumasi-Corson, a London entrepreneur preparing to launch a new company later this year. “I would much rather have a team, celebrate wins, and solve problems together, but at the moment, my team is ChatGPT and Gemini.”
Business groups argue that the UK’s Labour government has made hiring permanent staff riskier and more expensive. Chancellor of the Exchequer Rachel Reeves increased national insurance, a crucial payroll tax, last year. While small businesses are largely exempt, they still face rising costs due to increasing salaries, including significant hikes in the minimum wage.
Entrepreneurs are also worried about new employment laws that allow workers to claim unfair dismissal after just six months, down from the current two years. This change effectively makes it more challenging to terminate staff. Additionally, the proposals will grant workers sick pay rights from day one.
AI technology is enabling some founders to bypass hiring altogether. Twumasi-Corson initially aimed to hire a designer and a social media marketing specialist—she even drafted job descriptions—but ultimately relied on contractors and AI chatbots due to cost concerns. The London Living Wage, which she cited as a benchmark, is projected to reach £14.80 ($20) per hour in 2025-2026, reflecting a 36% increase over the past five years.
This trend is becoming increasingly common among new startups, according to Timothy Barnes, CEO at the Centre for Entrepreneurs. Founders are beginning with a small team of specialists while leveraging AI to minimize the number of personnel needed to support each specialist, particularly in areas like business development, accounting, or marketing. There is also a reduced demand for human coders in tech startups as AI fills that role.
“Previously, 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,” noted Eamonn Ives, research director at the Entrepreneurs Network. “Now startups are more cautious about hiring new employees they may not be able to retain if things don’t go as planned.”
According to a survey conducted by the Entrepreneurs Network in November, one in four founders reported making fewer administrative hires, while 19% recruited fewer junior staff in response to advancements in AI technology. Only 2% indicated an increase in headcount.
Labour’s Employment Rights Act introduces stricter rules on unfair dismissal, which is a significant concern for startups. Larger companies can manage one poor hire more effectively than a small company with just five employees.
“When I started my first company as an 18-year-old in university halls, my first thought wasn’t about providing maternity pay and sick pay,” said Twumasi-Corson, who launched her first venture with two employees. “You simply cannot treat a startup the same way you treat a large corporation, and I believe that’s the biggest oversight of the Employment Rights Bill.”
David Bharier, head of research at the British Chambers of Commerce, remarked that “newer firms are starting out leaner, more automated, and less labor-intensive.”
This shift may indicate an increase in the natural rate of unemployment, known as NAIRU—the point at which the labor market no longer exerts pressure on inflation. The Bank of England is closely monitoring structural changes in the labor market, with Chief Economist Huw Pill warning of a potential rise in NAIRU. Currently, unemployment across the UK is nearing a five-year high.
Labour’s stricter employment laws and tax increases could alienate entrepreneurs. In June 2025, Labour was among the top parties favored by founders, closely trailing the Liberal Democrats at around 17%. By November, support for Labour had plummeted to 10%, placing it near the bottom of the list—just above the more left-leaning Greens. Meanwhile, support for Nigel Farage’s populist Reform party saw the most significant increase, climbing four points to 15% during the same period.
“I’ve been a Labour voter in the past, and now I’m on the fence,” Twumasi-Corson expressed. “They seem out of touch with business.”
Photograph: Commuters cross London Bridge in the City of London, UK, on Monday, Feb. 16, 2026. Photo credit: Jose Sarmento Matos/Bloomberg
Copyright 2026 Bloomberg.
