Section 4 Business Development

12. Business registrations and survival rates

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.

Chart 12(a)


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.
The very high registrations/population rate for London is likely to be, at least in part, a result of the high concentration of business in Central London and in-commuting of workers from other regions.

Chart 12(b)


Business survival

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.

Chart 12(c)


13. Entrepreneurship

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.

Chart 13

Table 13(b) details the proportion of adults who expect to start a business in the next three years. This can be used cautiously to gauge entrepreneurial intention across the UK. Between 2003 and 2005, the UK rate increased from 7 per cent to 8.7 per cent. This increase is reflected across the other regions except Wales and Scotland, where the rate decreased slightly.


14. Innovation through Research and Development, Co-Operation and New/ Improved Products

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.

Chart 14(a)

Chart and Table 14(b) show the proportion of employee jobs in high and medium-high technology manufacturing industries. Across the UK, 4.3 per cent of all employee jobs were classified as high or medium-high technology industries during 2004, a fall of 1.8 percentage points from the 1998 figure. This fall is due to two factors: a decrease of over 25 per cent in the number of UK high and medium-high technology jobs as well as some growth in other sectors of the economy over the 1998 to 2004 period. During 2004, even though the West Midlands saw a reduction of over 30 per cent between 1998 and 2004, it still had the highest proportion of this type of job (at 6.3 per cent of all employee jobs), with the lowest in London (at 1.2 per cent).

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.

Chart 14(b)

Gross Domestic Expenditure on Research and Development (GERD) as a percentage of total GVA is a measure commonly used for international comparisons. Table 14(c) draws together information on research and development spending in public and private sectors, incorporating Government and Higher Education sectors as well as business enterprises.

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.

Chart 14(c)


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.

Chart 14(d)

A further indicator of the level of innovation within industry is the proportion of turnover that can be attributable to new, improved and novel products. This can be used to signify the value added by a firmís innovation practices (e.g. through research and development). Table 14(e) shows that across the UK, 35 per cent of turnover in the manufacturing of electrical and optical equipment can be attributable to new, improved or novel products. This ranges from 51 per cent of turnover in Northern Ireland and the South East to 16 per cent of turnover in Scotland.