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Scottish Economic Statistics 2003

A5 Statistical Information on Businesses in Scotland

Paul Teasdale and Katie Walker, Scottish Executive

Introduction

In recent years the Analytical Services Division in the Enterprise and Lifelong Learning Department has adopted a programme of work to improve the sources of information on businesses in Scotland. This allows a clearer picture of changes in the structure of the corporate sector to be developed, and provides information on the Scottish Executive's progress on economic development.

In this article, the main current sources of statistics are described, and it can be seen that these now present a much fuller picture than was previously available. The programme of work involves developing the analysis of the Inter-Departmental Business Register (IDBR) and developing new surveys to address areas of interest not covered by official statistics.

Supplementing information from ONS sources (IDBR and LFS) with sample surveys into business processes and decisions will give us an improved picture and understanding of small business in Scotland. This article begins by presenting some findings from analysis of the IDBR then introduces the other sources and explains how they complement one another.

The Inter Departmental Business Register (IDBR)

The IDBR is a database maintained by the Office of National Statistics (ONS) derived from VAT registrations and PAYE records. It was set up in 1995 and is updated using the Annual Register Inquiry and other ONS business surveys like the ABI. The IDBR therefore includes all businesses with at least one employee paid under PAYE or with a turnover above 55,000, and together these account for about 95% of employment in Scotland.

Scottish Economic Statistics contains a regular feature on the corporate sector, derived from the IDBR (see chapter 2 of this publication and http://www.scotland.gov.uk/stats/scs-00.asp). In this article we illustrate the analytical potential of longitudinal analysis of businesses that was introduced for the first time last year.

The SES has in recent years included information on the number of businesses with their employment and turnover, split by broad industrial classification and LEC. However the IDBR also includes:

• date of first registration (back to 1973 when VAT was introduced),
• postcode allowing more detailed geographical analysis,
• split of employment between employees and self employed proprietors,
• whether the business is registered in Scotland or elsewhere,
• number of establishments in the enterprise,
• legal status (company, partnership, sole proprietors, government, public corporation, non-profit making),
• detailed industry classification.

Information is available on request with the qualification that it cannot be in such detail that individual business might be identified.

The following section illustrates the information available from the IDBR on the population of registered businesses, before presenting some results of our longitudinal analysis which begins to look at the dynamics of individual businesses. ⁵

Some features of the corporate sector in 2001

There were 149,300 registered enterprises operating in Scotland in 2001 (see table 2.3 for distribution by LEC). Further examination of the IDBR tells us that of these enterprises:

• 4,000 were not headquartered in Scotland. Not surprisingly these were mostly large employers and they accounted for 27% of jobs in Scotland.
• about 140,000 had only one establishment or site. The remaining 9,165 enterprises had a total of 41,160 sites
• 2,300 (1.6%) were large firms with 250 or more employees in the UK but only 815 employed 250 or more people in Scotland
• 50,000 were registered as companies (see table 2.A for further details of legal status).

Chart A5.1 shows, for the businesses based in Scotland, the date of first registration (2001 is not shown as the year was incomplete). Near a quarter of firms had registered in the past three years - but these new firms were nearly all small, so in all they accounted for only 7% of employment. The median period since registration was 8 years. A couple of features in the chart require some explanation. The figure for 1993 is exceptionally high because of a change in VAT regulations that caused existing businesses in particular sectors to register for VAT for the first time. The minor peak in 1990 reflects the high number of registrations in that year rather than an unusually high survival rate.

Chart A5.1: Number of enterprises in Scotland in 2001, by year of registration

As well as the data on enterprises the IDBR includes information on individual establishments. Among single site firms the average number employed was 5. The average number of per establishment in multi-site firms was 26.

Longitudinal Analysis: Survival, Growth and Job generation

An important development in the last two years has been the use of the IDBR for longitudinal analysis; that is examining how individual firms change over time. As each business has a unique identifier it is possible to see how they have increased or reduced employment. Some initial results of this analysis were included in SES 2002. Here we present an update using improved measurement procedures. We have used 1998 as the starting point in this analysis because the IDBR was still new in 1997. Enterprises in central and local government are excluded from the analysis.

The longitudinal analysis allows us to consider:

• the probabilities of survival and growth, and how these are affected by size, sector or age;
• the number of fast growth firms;
• job creation and destruction.

Survival

Table A5.1 shows that overall 29% of businesses closed between 1998 and 2001, while 20% increased their employment. (Some of the "closures" may have been the result of a business moving out of Scotland or the restructuring of an enterprise group.)

The probability of closure falls as size and age increase. The table shows that 22% of large firms closed while the figure for micro firms was 30%. Older firms were more likely to survive: 63% of those that had registered in 1994-1997 survived a further three years from 1998 compared with 83% of those that had registered in 1984-1987

Table A5.1: Firms changing size between 1998 and 2001

Business Growth

Tables showing a movement of firms between size bands are now a standard output in SES. Table 2.4 presents a "transition matrix". It organises the firms according to their size in 1998 and in 2001, and shows the number of firms for which the change in employment was such that they changed size band. It also includes 42,000 new firms. "New" here means new to Scotland so includes firms based elsewhere in the UK opening their first establishment in Scotland. These account for a significant proportion of job creation in new firms - pointing to the important role of inward investment.

Table 2.4 shows that 3,200 micro firms employing fewer than 10 people in 1998 had moved into a higher size band by 2001 (and in doing so added 39,000 jobs). Meanwhile 30% had closed. To identify the number of high growth firms among recent start-ups, Table 2.5 looks at only the enterprises that registered in Scotland in 1998. It shows that of the micro firms, 185 had moved into a higher size band by 2001 (contributing 2,600 additional jobs) while 44% had closed.

Job Generation

We now turn to the effect this change in size had on the total number of jobs. Table A5.2 builds on the previous table, adding the associated numbers in employment in 1998 and 2001.

This table shows that, from the population of businesses in 1998:

• in the 30,000 growing enterprises the number of jobs increased by 366,000;
• 42,600 closures resulted in the shedding of 336,000 jobs while contractions resulted in the loss of a further 181,000 jobs;
• jobs in large enterprises were more stable: 37% of the jobs in micro firms had gone by 2001 compared with 27% of jobs in the large firms;
• in all size bands losses exceed job generation in existing companies and overall employment fell by 151,000 (8%).

Table A5.2: Changes in employment between 1998 and 2001

Nonetheless, total employment was higher in 2001 than in 1998 because, as Table 2.4 shows, employment in openings more than offset the net job loss among the stock of enterprises.

Within these openings we can distinguish businesses that are new registrations and those that were registered in 1998 but did not have a presence in Scotland. Table A5.3 shows that the new firms accounted for 81% of the openings but just 46% of the associated employment.

Table A5.3: Employment in enterprises opening in Scotland between 1998 and 2001.

In 2001 there were 1.8 million jobs in registered enterprises outside the public sector. Thirty-three percent of these (595,000) had been created in the past three years: that is adding together the jobs in new enterprises and the additional jobs in growing firms. As noted above some of the changes could be the effect of the ownership of an establishment changing hands (that would count simultaneously as a closure of one business and expansion of another). So, although these jobs are new to the particular enterprise they are not all new to the economy. Conversely, while we can say that businesses shed half a million jobs that is not the same as saying that half a million people lost a job or that the number of jobs were lost to the economy. ⁶ But nonetheless the figures do show a healthy rate of change in the economy.

Additional sources of information

There are, however, many questions on the business population that cannot be answered with the IDBR, for example information on the owners or on the actions of the business. In order to get as full an understanding of the small business sector in Scotland as we need, we have to complement it with other sources.

The Labour Force Survey (LFS)

The main estimate of the number of people who are self-employed comes from the Labour Force Survey. This is a quarterly survey of households and is the primary source of labour market data. The LFS gathers information on employment and personal characteristics. There are other sources of information on the numbers of self-employed people (Inland Revenue, the Census and National Insurance records) but they are not very helpful, because there is a long time before publication and little detail.

The LFS can tell us quite a lot about the people running small businesses (age, sex, qualifications, current training, hours worked, housing tenure, family and second jobs). Several academic studies of self employment have made use of the LFS and as a similar survey is carried out in every EU country it provides a source for international comparisons. The LFS shows that, although a smaller proportion of the workforce in Scotland is self employed than in the UK as a whole, those that are have the same characteristics (75% male, median age 43, median time in business 8 years) [figures for Spring 2002]. However the LFS does not tell us much about the business (just industry, broad location, number employed), or about attitudes of respondents.

The LFS is also used (along with data from the Survey of Personal Incomes and the Family Resources Survey) in constructing an estimate of the number of unregistered businesses and therefore the total number of businesses in Scotland (see the methodology section for explanation).

The 'Omnibus' Survey

To gather information on issues facing small businesses the Executive began an "omnibus" survey in 2001. The survey has been developed in collaboration with the Small Business Service in England. The survey was extended to Scotland in autumn 2001 and 2002. The questionnaire consists of a set of core questions supplemented by modules that change with each survey. The core topics cover:

• characteristics of the business;
• assessment of their main obstacles;
• use of external advice including public support agencies (Small Business Gateway in the Scottish Enterprise area or Business Information Source in Highlands & Islands);
• personal characteristics of owners.

Modules included so far in Scotland include e-commerce, raising finance, energy saving, late payment. The sample of 1,000 Scottish firms is stratified to achieve a sufficient number of respondents in each size band. It is hoped that this survey, with its modules, will provide a vehicle for gathering information on topical issues - reducing the need to do ad hoc surveys, thus reducing the cost to the Executive and the burden on business.

One valuable product of this survey is that for the first time, we have information on the proportion of businesses with an owner who is female or who is from an ethnic minority (see Box A2). The omnibus survey covers ground that is also covered in some other surveys such as the quarterly surveys by Lloyds TSB or the occasional survey by the Federation of Small Businesses (their UK-wide survey to gather opinions from small business owners in late 2001 included 1,900 responses from Scotland). The Executive's omnibus survey is based on a representative sample and the design allows deeper probing of issues. It also provides the opportunity for selecting sub samples with shared characteristics for further investigation.

To address questions about the factors influencing business performance (for instance what is the effect of spending on research, training or the use of external advice) requires deeper information, following firms over time. The Executive is taking steps, with a team led by Professor Richard Harrison of the Centre for Entrepreneurship Research at Edinburgh University, to establish a panel of firms that will provide data to help the analysis of the links between behaviour and performance. The study will gather information on the business environment (nature of competition) and the business strategy e.g. raising finance, innovation and R&D, use of external advice including use of the enterprise networks. The firms will be revisited two years after the initial survey to see how performance has changed (as indicated by sales, employment, profits). The work is still in its early stages.

Overview

There are other important questions for which other sources are more appropriate. For instance, there are two sources for the number of new businesses. First VAT registrations - that is mostly businesses with a turnover of over 55,000. There is also a more comprehensive measure in the number of new business accounts opened with the four main banks in Scotland, published by the Committee of Scottish Clearing Bankers (CSCB). However, the VAT figures provide the main series for comparisons with the rest of the UK or over time. Being administrative records they give detail by industry and location. They also provide the basis for measuring the headline survival rates. VAT data show that about 10% of business de-register each year to be replaced by a roughly similar number of fresh registrations.

For other issues, other specific sources have to be used. These include:

• Companies House data ( www.companieshouse.gov.uk);
• the Annual Business Inquiry (ABI) (see http://www.nomisweb.co.uk;
• the Scottish Production, Construction and Services Databases (SPD/SCD/SSD) based on raw ABI data (see http://www.scotland.gov.uk/about/ELLD/EI/0016170)
• Business Enterprise Research and Development Survey - an annual ONS survey (see page 77) http://www.scotland.gov.uk/stats/bulletins/berd-03.asp;
• Futureskills Scotland - published a report on a survey of Employer Skills Needs in mid 2002 which included questions on recruitment, vacancies, skill shortages, and training ( http://www.futureskillsscotland.org.uk/uploadedreports/Skills-in-Scotland.pdf);
• Lloyds TSB Business Monitor - a quarterly survey of over 2,000 businesses in Scotland that gathers information on levels of confidence. Other smaller surveys such as the CBI's industrial trends survey cover similar subjects;
• management information from the enterprise networks provides information on their clients.

Table A5.4 shows, for a selection of topics, sources which provide useful information on Scottish businesses.

Table A5.4: Sources of information on firms in Scotland

	IDBR	LFS	Omnibus	Other
Size of the population
Number of businesses	*		VAT*, Companies House
New businesses				VAT*, CSCB Companies House
Closures				VAT*, Companies House, DTI Insolvencies
Survival rates				VAT*, Companies House
Employment				ABI*
Business Performance
Financial turnover				SPD/SCD/SSD
Growth record				SPD/SCD/SSD, panel
Gross Value Added				SPD/SCD/SSD
Profits				panel
Personal characteristics of owners
Sex			*	Census
Race				Census
Opinions
Barriers/Obstacles				FSB, Lloyds TSB
Satisfactions with public support				Management Information
Optimism				Lloyds TSB
Business Strategy
Objectives
Innovation and R & D				BERD*, panel
Use of advice				panel
Use of public businesssupport services				management info, panel
Recruitment & human resource management				FSS, panel

Further Work

The Enterprise & Lifelong Learning Department aims to further improve its analysis of the dynamics of businesses in Scotland. It is hoped that the IDBR can be further developed: for instance to explore the scale of mergers and acquisitions. Looking further ahead, we hope that linking the IDBR to other sources could facilitate further analysis of the impact of R&D expenditure, or evaluation of the impact of the business support provided by the enterprise networks.

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