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The government has been accused of fiddling with company start-up statistics in an attempt to mask concerns over the business climate.
Competitiveness minister Stephen Timms assertion that there are now "a record number of small businesses in the UK" is because there are more sole traders registering as limited companies rather than a surge in start-ups, the Forum of Private Business (FPB) said.
The FBP points to a new report by the European School of Management, commissioned by shadow chancellor George Osborne, to support its position.
Despite an increase in the overall business population, growth has been in decline over the past five years, the report indicated.
The proportion of businesses achieving an annual turnover in excess of £1 million in their first five years fell dramatically from 29 per cent in 1998 to 16 per cent in 2006.
The report also said that while there were more than 4.4 million businesses registered in 2006 compared to 3.8 million in 2001, red tape, skills shortages and rising taxation were significant barriers to growth.
Len Collinson, national chairman for the FPB, said: "The fact of the matter is there are no more employers than there were in 1997. This increase in the number of small firms is all about more companies without employees."
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