Business demography, quarterly experimental statistics, UK: July to September 2020

Experimental quarterly statistics on business creations or births and closures or deaths from the Inter-Departmental Business Register (IDBR) with high-level breakdowns by industry and region.

This is the latest release. View previous releases

Cyswllt:
Email Josh Martin

Dyddiad y datganiad:
15 October 2020

Cyhoeddiad nesaf:
To be announced

1. Main points

  • The number of businesses removed from the Inter-Departmental Business Register (IDBR) (business closures) in the UK in Quarter 3 (July to Sept) 2020 was slightly lower than the average in the third quarter of the past three years.

  • Business closures do not appear to have yet increased as a result of the coronavirus (COVID-19) pandemic, because of the time it takes for a business to close, delays in the reporting process, and government support for businesses.

  • Other indicators of business closures in the UK, and internationally, also show no sign of an increase in Quarter 3 2020.

  • The number of businesses added to the IDBR (business creations) in the UK in Quarter 3 2020 was slightly higher than in the third quarter of the past three years, after a fall in Quarter 2 2020.

  • Business creations tend to experience shorter lags than business closures, so the slowdown in Quarter 2 (Apr to June) 2020 and pick up in Quarter 3 2020 are more likely to reflect the coronavirus pandemic.

  • The composition of business creations is markedly different to previous quarters – the average business is smaller and far more likely to be in industries less affected by the coronavirus pandemic.

  • Data in this release are experimental and produced rapidly to support understanding of the impact of the coronavirus pandemic on the economy; our annual business demography publication remains the best source of information on business demography.

  • Alongside this release we have published new experimental analysis of business dynamism using a new dataset; this shows relatively small effects on business creations and closures during the economic downturn of 2008 to 2009.

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Quarterly data in this release are not entirely consistent with the annual business demography publication, which is a more accurate reflection of business births and deaths. The quarterly data in this release are broadly in line and provide new evidence using new methods.

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4. The long-term perspective

The data in this release only extend back to Quarter 1 (Jan to Mar) 2017, as these are new experimental data aiming to demonstrate the effect of the coronavirus (COVID-19) pandemic on business creation and closure. However, it is useful to compare with earlier years to understand the longer-term pattern of business creation and closure, especially during times of economic downturn.

Alongside this release we have published new experimental statistics of business dynamism (the rate of job creation and destruction because of business entry, exit and growth) using a new dataset. The data in that release are similar to the data used for the analysis in this publication, but the methods of compilation differ. The overlapping period between the two sets of estimates are similar, although care should be taken in drawing any comparisons.

Data from that release suggest that business creation fell, and business closure rose, during and after the economic downturn of 2008 to 2009. However, the direct effect appears relatively small and short-lived. In addition, and as shown also using insolvencies data in a previous blog post, the increase in business closures appears to occur around two quarters after the height of the recession.

While the coronavirus pandemic is clearly different to the economic downturn of 2008 to 2009 for a variety of reasons, this does suggest that the impact of the pandemic on business closures may not be seen in the data until later quarters.

The latest publication of UK business: activity, size and location contains data for 2020 based on a snapshot of the Inter-Departmental Business Register (IDBR) taken in the middle of March 2020, before the main effects of the coronavirus pandemic on the UK economy. Figure 2 in that publication shows the growth of the IDBR alongside that of gross domestic product (GDP) over a comparable period, and finds a close relationship. This demonstrates the importance of business creation and closure measures, such as those in this release, for understanding the growth in the economy. However, we would not expect the number of businesses in the UK to fall as rapidly as GDP in 2020, given the unprecedented situation.

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5. Business demography data

Business demography, quarterly experimental statistics, UK
Dataset | Released 15 October 2020
Experimental quarterly statistics on business creations or births and closures or deaths from the Inter-Departmental Business Register (IDBR) with high-level breakdowns by industry and region.

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6. Glossary

Business

For 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 Value Added Tax (VAT) and/or Pay As You Earn (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 also be a sole legal unit.

Business creations

Often referred to as business births, we refer to enterprises added to the Inter-Departmental Business Register (IDBR) as business creations in this release. Enterprises are added to the IDBR when a new business is identified from administrative sources, usually the VAT or PAYE systems.

Business closures

Business closures are removals from the IDBR. A business is removed from the IDBR if its turnover and employment are zero for several periods, or the Office for National Statistics (ONS) is notified the business has ceased trading through an administrative source. These are referred to as business deaths in our annual business demography publication and in other data.

This should not be confused with temporary business closures due to the coronavirus (COVID-19) pandemic, whereby a business pauses trading but is still an active business.

The Inter-Departmental Business Register (IDBR)

A database of all businesses in the UK registered for VAT and/or the PAYE income tax system. There are approximately 2.7 million businesses on the IDBR. The IDBR is the register of UK businesses used as a sampling frame for ONS business surveys.

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7. Measuring the data

This section outlines important information about the data in this release. This is a new release of Experimental Statistics, and the information in this section is important to correctly interpret it.

Time of recording

Business creations and closures in these data are based on the date on which the action occurs on the Inter-Departmental Business Register (IDBR). Data for this release are extracted from the IDBR weekly and are allocated to quarters according to the date of the Friday of that week, as most major updates to the IDBR occur at the end of the working week. This may lead to some misallocation between quarters.

The date a business is added to the IDBR is generally on the same day, or within a few days, of the legal creation of the business as a company with Companies House. However, this can be several weeks after the effective birth of the business. For business closures, the registration process can take a little longer, as the death of a business may be long and complex. The “effective” death of a business may occur several months before its actual death from a legal perspective. A business is removed from the IDBR if information from HM Revenue and Customs (HMRC), Office for National Statistics (ONS) business surveys, Companies House or The Insolvency Service indicates it is no longer active. The ONS proves deaths by contacting companies if necessary.

Frequency of data

The IDBR is updated from four main sources:

  • Value Added Tax (VAT)
  • Pay As You Earn (PAYE)
  • ONS business surveys
  • Companies House

The updates occur in various frequencies from daily to annual. Because the important PAYE update is quarterly, a shorter time period analysis of business creations and closures would be very volatile. As such, this source is best suited to quarterly publications.

Turnover and employment data

The turnover data on the IDBR are mostly derived from VAT or ONS business survey records. Employment data on the IDBR are derived from PAYE or ONS business survey records. In some cases, values are imputed from administrative data. The turnover data are updated annually, every September, from available data. Employment data are updated more frequently for some businesses but at least annually for all businesses.

The turnover and employment data for business closures are the stored values at the last update while the business was active on the IDBR, often the last annual update. These figures are not adjusted for inflation, so the average turnover would be expected to rise slowly over time in line with inflation.

For business creations, the value for turnover is usually that estimated by the business upon registration with HMRC for VAT. The employment value is the number of actually registered employees on their PAYE scheme if they have one, and it is imputed if they do not. This value is revised on the IDBR when more up-to-date data are received, but it is not revised in these statistics.

Data on turnover and employment on the IDBR should not be used to measure economic growth or the growth of the labour market – other ONS sources are preferred for these purposes. Data points are generally reasonably current for larger businesses, but they are less so for smaller businesses.

Feedback

The ONS welcomes feedback from users on whether they find this release on business creations and closures to be helpful. Please email us at idbrdas@ons.gov.uk regarding whether you would like to see an ongoing quarterly release of these figures.

Other releases

Alongside this release, we have introduced a weekly indicator of company incorporations and dissolutions with Companies House in our weekly faster indicators publication. There is also a blog available that explains some of the important things to bear in mind about these data.

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8. Strengths and limitations

Timeliness

In line with international guidance from Eurostat and the Organisation for Economic Co-operation and Development (OECD), our official statistics on business demography are published a year after the reference period to allow for reactivations before deaths figures are calculated. We have published these quarterly data to provide a more timely indicator of business creations and closures to support understanding of the impact of the coronavirus (COVID-19) pandemic on the UK economy, but these data will not be entirely consistent with our annual publication, and that remains the superior measure of business demography.

More detail about the Inter-Departmental Business Register (IDBR) the annual official statistics on business demography is available.

Relationship with other data

This publication provides the first quarterly estimates of businesses added to, and removed from, the IDBR. However, there are many other publications drawing on other data sources to provide estimates of either business creation or business closures at different frequencies. These are briefly outlined in this section.

Quarterly official statistics from Companies House include the number of company incorporations, dissolutions and removals from their register. Companies and businesses are not the same in these statistics – companies are legal entities, as registered with Companies House; businesses are statistical entities, arranged by the Office for National Statistics (ONS) on the IDBR, which better reflect their economic activity. Some types of company are present with Companies House but not on the IDBR or in Value Added Tax (VAT) returns, such as small single-person limited companies.

We have published new weekly indicators of company incorporations and voluntary dissolutions using data from Companies House in our faster indicators publication, but this covers only one route for a business to be removed from the IDBR.

There are many ways for a business to close or die, of which “insolvency” is only one. Data from the Insolvency Service on company insolvencies therefore do not reflect all business closures – insolvencies typically account for a small fraction of business closures, although they tend to be the highest profile.

Data from the Business Impact of Coronavirus (COVID-19) Survey (BICS) include estimates of the proportion of surveyed businesses that have “temporarily ceased trading”. Businesses that are still active but temporarily ceased trading because of the coronavirus pandemic are not removed from the IDBR and therefore are not reflected in the data in this release.

BICS also reports data on the proportion of responding businesses that have permanently ceased trading. This is based on a filter question in the survey to reduce burden for those businesses that have closed down, as the survey is not relevant for them. As such, those estimates are not intended to capture business closures, so the data in this release are preferred.

The data in this release are most similar to the concepts of business births and deaths in the annual business demography statistics, which are badged as National Statistics. The calculation of business births and deaths in the annual publication is more robust than in this publication and follows international guidance. The data in this release have been created rapidly to provide insight on the coronavirus pandemic, and they should be treated with caution.  

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Manylion cyswllt ar gyfer y Bwletin ystadegol

Josh Martin
josh.martin@ons.gov.uk
Ffôn: +44 (0)1633 455425