Business Demography, UK: 2013

• The number of UK business births increased by 28.5% from 270,000 to 346,000 between 2012 and 2013
• The number of UK business deaths decreased by 6% from 253,000 to 238,000 between 2012 and 2013
• The total UK business birth rate was 14.1% and the death rate was 9.7%. London was the region with the highest birth rate at 17.9% and the highest death rate at 10.6%
• In broad industry terms, business administration and support services had the highest business birth rate at 20.7% and finance and insurance had the highest death rate at 13.1%

The starting point for the calculation of business demography data is the concept of active businesses in a reference year. These are defined as businesses that had either turnover or employment at any time during the reference period. New business registrations are referred to as business births and the birth rate is calculated using the number of births as a proportion of the active enterprises.

In 2013 there were 346,000 business births in the UK. The birth rate increased from 11.4% to 14.1% between 2012 and 2013. This was caused by an increase of 28.5% in the number of births between 2012 and 2013. This rise coincides with the new Pay As You Earn (PAYE) Real Time Information (RTI) system, which was rolled out across businesses during 2013. (Please see background note 3 for more details.)

Businesses that have ceased to trade are referred to as business deaths and the death rate is calculated using the number of deaths as a proportion of the active enterprises. The death rate decreased from 10.7% to 9.7% between 2012 and 2013, the lowest death rate in the UK since 2008. This was caused by a 6% decrease in the number of deaths, from 253,000 to 238,000.

Figure 1 shows that in recent years the rate of business births per year has usually been higher than the rate of business deaths. This was the case leading up to the 2007 global financial market shock and subsequent economic downturn in 2008/09. Gross Domestic Product (GDP) grew by 2.6% in 2007, before falling by 0.3% in 2008 and by 4.3% in 2009.

As economic conditions worsened, the rate of business births began to fall in 2008 on a trend that continued into 2010, from a high of 12.3% to a low of 10.0%. This is likely to reflect uncertainty around the economic outlook at that time and constrained access to finance as the financial sector adjusted to the global shock.

The death rate of businesses in the UK fell slightly in 2008 before increasing sharply in 2009, rising above the birth rate. One factor behind this initial fall could be that a number of businesses continued to trade in the expectation that economic growth would resume quickly while benefiting from lower interest rates during this period. However, GDP growth did not return until 2010, by which time some of those businesses had ceased trading.

The rate of business births returned to a level higher than the rate of business deaths in 2011. This pick-up followed the economy’s emergence from the downturn and is consistent with the strengthening of the labour market since the end of 2011, with the employment rate increasing from its trough of 70.1% in September of that year.

These improvements in business birth and death rates mirrored a revival in broader labour market indicators. The October 2014 Economic Review identified a rise in the number of job to job flows over this period, largely as a consequence of increasing job mobility and a larger number of voluntary moves, both between industries and occupational groups. The improvements also coincided with a marked rise in the number of self-employed workers, which grew sharply from the middle of 2011. These trends may signal increasing employer and employee confidence, which may in turn have been reflected in the rising birth rate and falling death rate of businesses.

The relatively strong performance of GDP in 2011 and 2013 is reflected in the widening gap between the business birth rate and death rate in these years. The most recent data shows that the rate of business births has risen to 14.1%, its highest level since comparable records began in 2004, while the rate of business deaths has fallen to 9.7%, its lowest level since 2008.

There were approximately 2.45 million active businesses in the UK during 2013, an increase of 76,000 on 2012. Estimates for 2013 are available in greater geographical and industrial detail from the tables (1.72 Mb Excel sheet) published on the Office for National Statistics (ONS) website.

In 2013 the highest rate of business births occurred in business administration and support, at 20.7%. (The increase in births in this sector was driven by an increase of 12,000 births in business support service activities.) This was followed by professional, scientific and technical, at 17%.

Within the overall number of business births, professional, scientific and technical had the largest number of businesses at 77,000. Within professional, scientific and technical, the largest contributing industry was management consultancy activities, with 29,000 births (this was an increase of 8,000 on the 2012 figure.) There was also an increase of 5,000 births in architectural and engineering activities and related technical consultancy.

The highest business death rate, at 13.1%, was in finance and insurance. This was followed by accommodation and food services, at 12.7%. Within the overall number of business deaths, professional, scientific and technical had the largest number, at 42,000 (of which 16,000 came from management consultancy activities) followed by construction, at

Within the regions, London had the highest business birth rate at 17.9%, followed by the North East (14.7%) and North West (14.7%). Northern Ireland had the lowest birth rate, at 8.7%.

The region with the highest business death rate was London at 10.6%, followed by the North West, at 10.0%. All the regions experienced a decrease in the death rate between 2012 and 2013. The highest number of births and deaths were in London, at 84,000 and 50,000 respectively.

London has the highest number of active businesses in the UK and usually has the highest birth rate.

In 2013 London had 19% of active enterprises in the UK, compared with 16.6% before the economic downturn (2007). London experienced the highest birth rate in 2013, an increase of 3.1% percentage points compared with 2012. The increase in birth rate was due to an increase in the number of births across all districts of London, with inner London having a 9,500 increase and outer London having a 9,100 increase.

London may have the highest birth rate (17.9%), but it also has the highest death rate, of 10.6%. This means London has the highest turnover of enterprises (churn rate), which is supported by the survival figures.

London has consistently had relatively low 1 year survival rates in comparison with other UK regions. 89.7% of enterprises born during 2012 survived through to 2013, lower than the 1 year survival rates of the UK as a whole during the same period (91.2%). Similarly, London had low 5 year survival rates, with only 37.1% of business born in 2008 surviving through to 2013, compared with 41.3% in the UK as a whole.

The UK 5 year survival rate for businesses born in 2008 and still active in 2013 was 41.3%.

By region, the highest 5 year survival rate was in the South West, at 45.5%, while the lowest was in London at 37.1%, which mirrors the churn rate seen in the business birth and death data.

By broad industry, some notably high 5 year survival rates include health, with a survival rate of 53.4% and education, with a survival rate of 51.7%. Finance and insurance was the lowest, with only 31.4% of businesses surviving for 5 years.

Survival rates are available from 1 year to 5 year in greater geographical and industrial detail via the tables published on the ONS website (1.72 Mb Excel sheet).