Section 4 Business Development
This measure reflects an aspect of entrepreneurial activity in the formation rate of new firms and their ability to survive their first three years of trading.
VAT registrations as a percentage of business stock
An indicator of business formations is the number of new Value Added Tax (VAT) registrations each year as a percentage of enterprises registered for VAT at the end of that year.
The figures in Table 12(a) detail VAT registrations for manufacturing, services and the rest of the economy, while Chart 12(a) illustrates total VAT registrations as a proportion of business stock. Registration rates in manufacturing industries were lower in all English regions (and Northern Ireland) during 2004 than in 1998. Registration rates in 2004 for Wales and Scotland have increased slightly on their 1998 figure. A similar pattern can be seen in service industries, rates falling in every English region (and Scotland) between 1998 and 2004, and with Wales and Northern Ireland showing a moderate increase in this period.
The impact of these changes on the UK rate for all industries is a drop from 11 per cent of business stock in 1998 to 9.6 per cent in 2001, then increasing to 10.5 percent in 2003 followed by a decrease to 10 per cent in 2004. Between 2003 and 2004, the rate for all industries fell in all English regions.
London had the highest business formation rates in all the years shown for manufacturing, services, and other industries. The relative positions of the other regions and countries did not change markedly between 1998 and 2004, but it is evident that the gap between London and the rest of the UK has narrowed in recent years as registration rates in London have declined more quickly than in other regions.
VAT registrations as a percentage of the adult population
Table 12(b)(i) details business VAT registration per 10,000 adults resident in each region while Table 12(b)(ii) presents registrations per head of adult population in the form of an index where UK=100. Chart 12(b) compares the indices for 1999 through to 2004.
London had the highest rate of VAT registrations in 2004 at over 157 per cent of
the UK average. Between 1998 and 2004, registrations per head were lowest in the
North East (between 20 and 23 registrations per 10,000 adults each year), at
just over half of the UK rate in 2004. However, between 1998 and 2004 the
indices of all southern English regions fell, with the greatest drop in London
of almost 15 points, while it rose in all northern regions, with Yorkshire and
the Humber displaying the biggest increase of 7.4 points. The index in all the
devolved administrations also increased during this period, with a 9 point
increase in Wales.
Business survival rates detail the proportion of businesses remaining registered for VAT three years after their initial registration, that is, the year shown in Table 12(c) plus 3. Survival rates for the UK have been rising since 1993. Three-year survival rates were just over 62 per cent for firms first registered during 1993, and increased over the years to a high of 67.4 per cent for businesses registered during 1997, with a slight fall to 66.5 per cent for businesses registered in 1999. Chart 12(c) indicates that this overall pattern has been repeated in most of the English regions, as well as in Wales and Scotland.
In addition to business start-up and business survival rates, a general measure of Total Entrepreneurial Activity (TEA) is an indicator of the enterprise within a region. Individuals adding value to the work they do by acting entrepreneurially can contribute to overall competitiveness and productivity. See Definitions section.
TEA (as a proportion of the total adult population) in the UK increased from 5.4 per cent in 2002 to 6.4 per cent in 2003 and dropped to 6.0 percent in 2005. Most regions have shown variable rates of TEA, with only Yorkshire and the Humber showing growth in all years up to 2005. The rate of TEA increased in all regions between 2002 and 2005. London had both the biggest increase (2.7 percentage points over the three years to 2005) and the highest levels of entrepreneurial activity in 2005 at 8.3 per cent.
Expenditure on Research & Development (R&D) measures the extent to which sectors are innovating by developing and exploiting new technology, software and ideas. R&D activity can be a stimulant to the competitiveness of firms within a region.
Research and Development and employment in high and medium-high technology industries
Chart 14(a) represents the value of business R&D as a proportion of regional GVA for 1997 to 2003. The R&D data used in this chart and in Table 14(a) are taken from the Survey of Business Enterprise Research and Development and the regional economic accounts, both produced by the ONS (see Definitions).
It is evident that R&D as a proportion of GVA is significantly higher in the East of England than any other region, at 4.1 per cent in 2003, with proportions relatively low in Yorkshire and the Humber and London as well as in Wales, Scotland and Northern Ireland. Across regions, expenditure on R&D is higher, as a proportion of output, in the manufacturing sector than in the services sector. R&D expenditure in manufacturing in the East of England was 18.4 per cent of GVA in 2002, while the next highest spend was in the South East, at 14 per cent of GVA. Northern Ireland and Yorkshire and the Humber had the lowest proportional spend on R&D in manufacturing, at 2.2 per cent and 2.3 per cent of GVA respectively.
Over the period 1995 to 2003, Wales has seen the proportion of GVA spent on manufacturing R&D increase three-fold, from 1.1 to 3.3 per cent. During the same period, the expenditure on R&D in the East of England has seen an almost 6 percentage point increase, from 12.6 to 18.4 per cent of GVA, the largest increase in the UK.
The fall in the level of high and medium-high technology jobs between 1998 and 2004 occurred in every region and country. London and Scotland have been particularly affected, with decreases in the level of these jobs of 37 and 32 per cent respectively.
Between 1998 and 2003 in the UK, GERD in each sector has remained fairly constant at around 1.3 per cent for business, around 0.2 percent for Government and around 0.4 per cent for Higher Education. In the same period, the West Midlands have seen the largest decrease in both business GERD (0.4 percentage points) and government GERD (0.3 percentage points). Higher education GERD has remained fairly flat across all regions.
Co-operation and new or improved products
Innovation co-operation is the extent to which firms actively participate in joint innovation projects (including research and development) with other organisations. Chart 14(d) shows the percentage of firms within each region reporting co-operation agreements on innovation activities. These figures are based on a sample survey of businesses and are subject to sampling error and the estimates are therefore shown with 95% confidence intervals. See Definitions section for more details on the Community Innovation Survey (CIS).
As can be seen from the chart, confidence intervals for most regions overlap making it difficult to form firm conclusions. However, using the point estimates with caution, most of the regions have similar proportions of firms reporting co-operation agreements (roughly 13-14 per cent) with the exception of Northern Ireland, which has 8 per cent of firms with agreements. The overall UK figure, of around 13 per cent of firms, represents a fairly robust estimate with small confidence intervals.