Business demography, UK: 2016

• The number of UK business births continued to increase from 383,000 to 414,000 between 2015 and 2016, a birth rate of 14.6% compared with a rate of 14.3% in 2015.

• The number of UK business deaths also increased from 283,000 to 328,000 between 2015 and 2016, a death rate of 11.6% compared with a rate of 10.5% in 2015.

• London was the region with the highest birth rate at 17.5% and the highest death rate at 14%.

• In broad industry terms, business administration and support services had the highest business birth rate at 23.1% and finance and insurance had the highest death rate at 17%.

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 businesses.

Businesses that have ceased to trade (identified through de-registration of the administrative units, that is, VAT and Pay As You Earn (PAYE) are referred to as business deaths. The death rate is calculated using the number of deaths as a proportion of the active businesses.

The Business Demography publication reference period records the number of active businesses over a year. Up to this point this has been measured from a single point in November one year to a single point in November the following year. For example the 2015 publication measured the number of active businesses taken from a specific date in November 2014 to the same date in November 2015. For this 2016 release and in the future the reference period has moved to December. The reference points for this publication are December 2015 to December 2016.

The Eurostat and OECD manual recommends waiting for two years after the reference period to allow for reactivations before deaths figures are calculated. We have departed from the manual at this point. Instead, we have estimated the number of reactivations and adjusted the data accordingly. This adjustment has been applied to all industries, by removing units from the death data. This can lead to different percentage adjustments at the lowest level of aggregation. Since the level of reactivations is subject to some uncertainty, the latest two years in the publication are considered to be provisional and subject to revision. Table 8 shows the adjustments made to the death data for reactivations.

For the purpose of this release the term “business” is used to represent an enterprise. An enterprise can be defined as the smallest combination of legal units (generally based on VAT and/or PAYE records) that is an organisational unit producing goods or services, which benefits from a certain degree of autonomy in decision-making, especially for the allocation of its current resources. An enterprise carries out one or more activities at one or more locations. An enterprise may be a sole legal unit.

To support this release a set of datasets in greater geographical and industrial detail have been produced.

We recommend treating the data with caution when it is broken down to a lower geographical level. In recent years multiple registrations at a single postcode have caused large fluctuations in the data. A paper Multiple registrations at a single postcode has been produced regarding this issue.

Please note that all data are rounded to protect confidentiality. The figures in the tables are rounded individually therefore the sum of component items may be slightly different to the totals shown.

Since 2011, the rate of business births has continued to exceed the rate of deaths and the gap in rates has continued to widen in recent years until the beginning of 2016 (Figure 1). From 2015 to 2016 the gap has shrunk. Following continued economic improvements since the economic downturn of 2008 and 2009, the rate of business births has continued to outpace business deaths. However, the larger increase in the business death rate may reflect the uncertainty around the economic outlook towards the end of 2016, following the UK’s EU referendum’s results.

The improvement in the rate of business births continues due to increased employment and strengthening of the labour market. In 2016, the employment rate rose to a record high of 74.4%, though the annual increase of 0.7 percentage points in 2016 was smaller relative to the increase of 0.8 percentage points to 73.7% in 2015. Lower interest rates have persisted and were cut to a record low of 0.25% in August 2016, following the EU referendum in June 2016. This further reduced financing costs for businesses and potentially offset some of the speculative uncertainty.

The death rate increase is in line with consumer price inflation, which consistently grew over 2016 and the depreciation of sterling, which fed through to higher raw materials and import prices. The combination of these two factors may have discouraged the birth of new businesses.

The broader economic backdrop is indicative of why business creation has continued to grow. Gross domestic product (GDP) has continued to grow for a seventh successive year in 2016 continuing to drive the business births’ rate up. The April 2017 Economic review highlights that the UK had strong economic growth over 2016 at 1.8%. The slight decline in GDP growth from 2.2% in 2015 may be indicative of why the growth in the business birth rate was the smallest in four years and why the rate of business deaths has continued to increase.

Combined, the recent trends in economic growth and the labour market suggest a slower but still improving economy.

There were approximately 2.83 million active businesses in the UK during 2016, an increase of 135,000 on 2015 (Table 1). Estimates for 2016 are available in greater geographical and industrial detail from the datasets.

In 2016, the highest rate of business births continued to occur in business administration and support, at 23.1%, compared with a rate of 20.4% in 2015. The second-highest rate occurred in transport and storage at 23.0%, compared with 20.3% in 2015 (Table 2).

Within the overall number of business births, professional, scientific and technical had the largest number of businesses at 86,000. Within professional, scientific and technical, the largest contributing industry was management consultancy activities, with 36,000 births, the same as the 2015 figure.

The highest business death rate, at 17.0%, was finance and insurance compared with 13.3% in 2015. This was followed by business administration and support, at 15.4%, compared with 10.1% in 2015. Within the overall number of business deaths, professional, scientific and technical had the largest number, at 62,000 (of which 26,000 came from management consultancy activities) followed by business administration and support, at 43,000.

Within the regions, London had the highest business birth rate at 17.5%, followed by the East (15.8%) and West Midlands (15.5%). Northern Ireland had the lowest birth rate, at 10.2% (Table 3).

The region with the highest business death rate was London at 14.0%, followed by Scotland at 11.8%. Northern Ireland had the lowest death rate, at 9.2%.

The highest number of births and deaths were in London, at 102,000 and 82,000 respectively.

When using this release please use lower geography data with caution. Factors like umbrella companies or virtual offices can cause large volatility to the data year-on-year. This affects mainly single employee businesses. Large numbers of businesses can be registered at a single address and therefore distort the geographical location and industry of the businesses, as well as business demography changes. This is because the classification and the location of the individual businesses reflect the management company or virtual office rather than the individual business.

The UK five-year survival rate for businesses born in 2011 and still active in 2016 was 44.1% (Figure 2).

By region, the highest five-year survival rate was in the South West, at 47.0%, while the lowest was in London, at 41.7%.

By broad industry, some notably high five-year survival rates include health, with a survival rate of 54.1% and property, with a survival rate of 51.1%. Accommodation and food services were the lowest, with only 34.6% of businesses surviving for five years.

Survival rates are available from one-year to five-year in greater geographical and industrial detail via the datasets.

An alternative measure of business demography uses “employer businesses” – businesses with at least one employee.

The employer business demography data collection was set up to enable the collection of internationally comparable statistics. It is regulated by law in the European Statistical System and forms the most important data source for the entrepreneurial performance indicators.

Employer enterprise births include new enterprises with at least one employee as well as existing non-employer enterprises that have become employer enterprise. Deaths are enterprises that died with at least one employee, as well as enterprises that cease to employee staff.

The employer business birth rate, as a proportion of all active employer businesses, for 2016 was 15.3% and the employer business death rate for 2016 was 11.5%.

Breakdown by broad industry group

When looking at the breakdown by activity, the highest employer business birth rate for 2016 was recorded in transport and storage, at 24.7%, followed by business administration and support services at 24.2% (Table 4).

The highest employer business death rate for 2016 was recorded by finance and insurance, at 17.1%, followed by property at 16.9%. Property was the industry where the death rate increased the most from 2015 to 2016 with a difference of 9.3%. The retail industry had the least increase with a difference of only 0.5%.

Breakdown by region

Within the regions, London had the highest employer business birth rate at 18.0%, which is a decrease of 1.5% compared with 2015. Wales had the lowest birth rate at 12.9%, which is the same birth rate as 2015 (Table 5) .

The region with the highest death rate was London at 14.1%, which subsequently has risen by 3.8% compared with 2015. Northern Ireland had the lowest death rate at 9.1%, which is an increase of 2.3% compared with 2015.

The Business demography Quality and Methodology Information report contains important information on:

• the strengths and limitations of the data and how it compares with related data
• users and uses of the data
• how the output was created
• the quality of the output including the accuracy of the data