Work Out
Why startups are thinking twice about taking on employees
This week we learned that the UK’s unemployment rate hit a near five-year high in the last quarter of 2025, climbing to 5.2%. Among 16 to 24-year-olds, unemployment rose to 16.1%, the highest in more than a decade — and above the EU average for the first time since records began in 2000. Ouch!
Entrepreneurs in our network knew this was happening in real time. As reported by Bloomberg:
“One in four founders have made fewer administrative hires, and 19% recruited fewer juniors in response to AI technological advancements, according to a survey conducted by The Entrepreneurs Network in November. Only 2% said they increased headcount.”
(Incidentally, this is one reason you should complete our latest Entrepreneurs Survey. Your views on tax breaks will be submitted to the Government’s call for evidence, and you may like to know that strategists in all political parties are on tenterhooks to find out which outfit — or none, if you prefer — entrepreneurs say best understands their needs.)
Friend of the network Rachael Twumasi-Corson identifies the dual challenge in the same Bloomberg article:
“It’s scary to hire people, the minimum wage is so high and there’s so many additional protections”...“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.”
It’s not just the minimum wage though. While the Government thankfully ditched its pledge to give day-one protection from unfair dismissal, the impact of the Employment Rights Act will still be brutal — here are no fewer than 55 reasons why. As our Research Director Eamonn Ives told Bloomberg:
“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.”...“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.”
The cost of this direction of travel is clear. In a brilliant article for Works in Progress, Pieter Garicano argues — convincingly — that labour laws go a long way to explaining the innovation divide between the US and Europe.
This is seen most obviously when companies like Bird, Grammarly and Hugging Face move explicitly for this reason. But most of the damage is done below the surface. Relative to income, it costs large companies four times more to lay off workers in Germany and France than in the US — a difference arising entirely from regulation. As Pieter writes:
“If it is expensive to lay people off, employers avoid creating jobs that they might subsequently discontinue. Innovation involves experimentation and risk, so jobs in innovative areas of the economy are more likely to be discontinued than jobs elsewhere. High severance costs create a fundamental incentive for European businesses to avoid innovative areas and concentrate on safe, unchanging ones. In the long run, this is a recipe for decline.”
It’s not all doom and gloom, though. Pieter argues that Europe doesn’t need to choose between innovation and worker protection — it can have both, as Denmark and Austria show.
Denmark’s ‘flexicurity’ model lets employers fire almost at will, while the government catches workers with generous unemployment insurance (up to 90% of prior income for two years) and heavy spending on retraining. Austria uses portable severance accounts funded by employers, so workers keep their safety net when they change jobs.
Britain doesn’t have to choose between a safety net and a dynamic economy. But right now, we’re getting the worst of both worlds.
Our Adviser Anton Howes has created an employment cost calculator, which you may find useful. We’ve also compiled some useful links on our Support for UK Entrepreneurs page, including the Government’s new Employment Changes guidance on workplace rights reforms.
Value Judgement
This week, we joined 18 other business organisations in calling on the Government to consult on extending VAT liability rules for online marketplaces. As things stand, some overseas sellers exploit gaps in the current system to avoid charging VAT, giving them an automatic 20% price advantage over British businesses who play by the rules. For entrepreneurs who rely on marketplaces to grow, this is a serious competitive threat.
As well as levelling the playing field, reform could recover an estimated £700 million a year for the Exchequer. What’s not to like?
Leading Light
I’m delighted to share that Gaurav Chawla has joined us as an Adviser. Gaurav is a deep-tech founder, angel investor and university mentor focused on strengthening the UK’s science-to-scale pipeline.
As well as leading Lumirithmic, an Imperial College London spinout, he invests in and mentors early-stage founders emerging from Cambridge, Oxford, Imperial and UCL.
Gaurav is bullish on the UK:
“The UK combines world-class universities with global capital markets and a strong legal framework. The opportunity lies in strengthening risk appetite and improving the pathways between research institutions and commercial markets. With better alignment between policy, capital, and execution, the UK is well positioned to lead in deep-tech commercialisation.”
He also describes our quarterly Entrepreneurs Survey as “invaluable”:
“Policy debates often rely on theory; those surveys surface the lived experience of founders navigating tax policy, capital constraints, hiring, and regulation in real time. If we want to fix the commercialisation gap in UK deep tech, we need to listen to operators and study where companies stall, not just celebrate research output.”
Hear, hear! Now is your chance to do something invaluable (in under 10 minutes).
XOX
Our new buddies at SXSW London have asked us to share two opportunities I think will interest many of you.
First, the London Venture Spotlight: a university-affiliated pitch competition designed to platform emerging startups developing technologies that felt like science fiction just a few years ago. First prize is £100,000 in investment and an on-stage slot at SXSW Pitch in Austin. Find out more here.
Second, SXSW London is also looking for mentors to deliver pre-booked 1:1 sessions with festival attendees, matched by industry expertise. Mentors contribute 100 minutes in total — five focused 20-minute conversations. They’re also seeking roundtable leads for intimate, facilitated group discussions of 10–15 delegates, lasting one hour. Register your interest here.
Our Next Events
An Audience with the Rt Hon Jeremy Hunt MP
🗓 Tuesday, 24 February 2026
🕐 5pm to 7pm
📍 Westminster, London
ℹ️ Join us in Westminster for an exclusive fireside chat with Jeremy Hunt, exploring the UK economy, entrepreneurship and politics
⏩ Request a place
Ecosystem Builders Meetup: Birmingham
🗓 Thursday, 5 March 2026
🕐 11am to 12.30pm (workspace available for the whole day)
📍 The Compound, Birmingham
ℹ️ Our first Ecosystem Builders Meetup in Birmingham
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Founders Dinner: Philanthropy at the Frontier of UK Science
🗓 Wednesday, 11 March 2026
🕐 7pm to 10pm
📍 Central London
ℹ️ A roundtable dinner for exited science and technology founders to discuss funding mechanisms for the UK’s fundamental research and frontier innovation
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Fora Founders’ Coworking Day
🗓 Friday, 13 March 2026
🕐 10am to 5pm
📍 King’s Cross, London
ℹ️ Join us for a relaxed day of coworking and connection at The Jellicoe, bringing founders together to work side by side, share insights, and network from morning coffee through the afternoon
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Ecosystem Builders Meetup: Level39 (Canary Wharf)
🗓 Thursday, 9 April 2026
🕐 9.30am to 11am
📍 Canary Wharf, London
ℹ️ An informal morning meetup at Level39 – a workspace and network for innovators, investors, and industry experts in Canary Wharf
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Ecosystem Builders Meetup: Exeter
🗓 Friday, 24 April 2026
🕐 11am to 12.30pm
📍 Exeter Innovation Hub, Exeter
ℹ️ Our first Ecosystem Builders Meetup in Exeter
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News and Views
A surge in tax receipts has given the Chancellor more fiscal breathing space ahead of the Spring Statement
“Our lost opportunity was not just down to those who didn’t take risk, it was down to us failing to value those who did,” said Kanishka Narayan in a speech on the Government’s vision for AI in Britain’s startup ecosystem
Why better investment opportunities — not simply more money — is what Europe really needs to compete
Sam Bowman argues that banning social media for under-16s risks doing more harm than good (Paywall — Washington Post)
Tom Clougherty sets out a plan to finally deal with Britain’s punitive marginal tax rates (Paywall — The Times)
The Enterprise Research Centre published its latest State of Small Business Britain report, showing that digital technology adoption is accelerating among businesses of all sizes
Robert Jenrick pledged to retain the Office for Budget Responsibility if Reform comes to power (Paywall — Financial Times)
The case for workplace inefficiency (Paywall — The Economist)
The US Supreme Court ruled that President Trump’s sweeping tariffs are unlawful
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If you haven’t already, it would be great if you would consider joining The Entrepreneurs Network. Our Supporters, Advisers and Corporate Partners are essential in helping us understand what entrepreneurs need to flourish and are closely connected with our work. If you already support us — thank you.
Friends of the Network
The Portfolio Method Live with June Angelides MBE
🗓 Friday, 27 February 2026
🕐 9am to 12pm
📍 Huckletree, Leadenhall
ℹ️ Join June Angelides MBE as she introduces The Portfolio Method, a practical framework for entrepreneurs ready to structure their multiple revenue streams for long-term growth
⏩ Find out more (Free Ticket Discount: TEN)
Megaverse × Townhouses: Is This the Future?
🗓 Saturday, 28 February 2026
🕐 7pm to 10pm
📍 Bristol
ℹ️ Join interactive studio Megaverse and Indie-Rock band Townhouses for a fully immersive live show exploring new ways audiences and artists can connect
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Kingsley Napley’s Tech Briefing
🗓 Wednesday, 4 March 2026
🕐 6pm to 8pm
📍 Shoreditch, London
ℹ️ What tech businesses need to know in 2026
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Grow London: International Women’s Day 2026
🗓 Thursday, 5 March 2026
🕐 9.30am to 2.30pm
📍 Plaisterer’s Hall, One London Wall
ℹ️ London & Partners is convening over 200 founders, investors, government leaders, and corporate innovators
⏩ Find out more
How We Made It: How Two Beauty Founders Broke Into the Mainstream
🗓 Thursday, 5 March 2026
🕐 12pm to 1pm
📍 Online
ℹ️ An honest conversation with founders who’ve navigated the messy reality of building a beauty business from the ground up
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Best wishes,
Philip
Philip Salter
Founder
The Entrepreneurs Network
Nice idea