The Department for Business, Enterprise and Regulatory Reform (BERR) has revealed the results of its 2006/07 Annual Small Business Survey of 10,000 small firms. Almost half said they were producing new products and services, and 65% of respondents with employees said they had ambitions to grow.

In contrast, a study carried out by the European School of Management (ESM), commissioned by Shadow Chancellor, Tatton MP George Osborne, has claimed that small business growth is in decline. In its interim report, the ESM said that the proportion of businesses achieving an annual turnover in excess of £1 million in their first five years has fallen dramatically from 29% in 1998 to 16% in 2006.

"Entrepreneurs are, by their very nature, ambitious. However, this alone does not amount to progress or growth," said the FPB's Chief Executive, Phil Orford. "The ESM's research suggests that the situation is, in fact, becoming much harder for small firms. Certainly, our members are telling us that the burden of tax, red tape and unfair competition is preventing them from growing."

The ESM also revealed that only 6.8% of small firms achieved a turnover of more than £7 million in their first five years; a far lower rate than the 16.3% elsewhere in Europe. Since 2002, this figure has continually fallen in the UK, whilst rising across Europe.

According to the ESM's report, there were more than 4.4 million small businesses registered in 2006, compared to 3.8 million in 2001, but the cost of complying with employment red tape increases as the business grows, causing many firms to struggle.

The FPB believes that the reason for this increase in ‘new' firms is more to do with greater numbers of micro businesses and self-employed people officially registering, rather than a surge in new start-ups, as claimed by the then Competitiveness Minister, Stephen Timms, earlier this year.

BERR's survey also showed that women continue to be significantly under-represented in enterprise, with only 14% of small businesses with employees led by women.

"Getting more women into business is a challenge, not just for gender equality but for national economic success. We would have 700,000 more businesses if proportionally as many British women as American women started businesses," said the Department's new Competitiveness Minister, Baroness Shriti Vadera.