The Scottish Government

Table 2.A: Legal status of enterprises in Scotland, 2004

Source: Scottish Executive, ONS ( IDBR)
Note: Totals may note equal the sum of the constituent parts due to rounding.
1 Registered for VAT and/or PAYE

Private Sector

Table 2.1 shows that the estimated number of enterprises in the private sector (excludes central and local government) in Scotland was 270,245 in November 2004. The associated employment and turnover of these enterprises was 1.9 million and £182 billion respectively.

Table 2.2a shows that the sector with the most enterprises was the Business Activities, Real Estate and Renting sector (17%) followed by the Construction sector (16%). The sector with the least number of enterprises was the Mining, Quarrying and Utilities sector (0.9%). The Business Activities, Real Estate and Renting sector also had the most employment in 2004 (16%) followed closely by the Manufacturing sector (13.8%) and the Retail Trade and Repairs sector (13.5%). Manufacturing generated the greatest proportion (19%) of turnover of all the sectors. Chart 2.1 shows the data by employee sizeband for 2004.

Registered Enterprises

The figures above relate to all enterprises operating in Scotland. This includes registered enterprises ( i.e. those registered for VAT and/or PAYE) and unregistered enterprises (enterprises with no employees estimated from a combination of surveys). Information on the location of enterprises is, however, only available for registered firms, and Table 2.3 shows the location of the registered enterprises by Local Enterprise Company area. The areas with the most registered enterprises and employment were Edinburgh and Lothian (16% of enterprises and 19% of employment), Grampian (12% of enterprises and 11% of employment), and Glasgow (11% of enterprises and 16% of employment). The higher number of enterprises but lower employment in Grampian compared to Glasgow, indicates that Grampian has a smaller average business size than Glasgow.

Chart 2.1: Employment in small, medium and large enterprises, by industry group, 2004

Source: Scottish Executive, ONS ( IDBR)

VAT Statistics

Statistics on VAT registrations and de-registrations, as well as the start-of-year stocks of all VAT registered businesses, are released annually by the Small Business Service ( SBS) at the Department of Trade and Industry. They provide detailed information by local authority, region, parliamentary constituency and industrial sector at a UK level. It does not represent a complete picture of UK business activity as only companies with an annual turnover of £58,000 or more ( VAT threshold for 2004/05), are required to register for VAT. The figures consequently exclude over half of all firms. VAT statistics are available on a consistent basis for all of the UK, allowing comparisons with Scotland.

It is important to note that the SBS data differs from the Scottish Executive data because they only includes enterprises who have their headquarters in Scotland and are registered for VAT. The Scottish Executive figures additionally include enterprises which are based outside of Scotland but have a business unit in Scotland, and also those enterprises which are not registered for VAT but are registered for PAYE.

Chart 2.2 shows how the stock of VAT registered enterprises has increased steadily since 1996, while also demonstrating that the highest year on year percentage changes took place in 1998 and 1999.

Chart 2.2: Change in stock of VAT registered enterprises in Scotland, 1994-2004

Source: DTI, SBS 2004

Business Registrations and De-registrations

The SBS statistics on VAT registrations and de-registrations are the best official source for estimating business start-ups and closures, bearing in mind the exclusions mentioned previously. It should be noted that the number of business de-registrations is not a direct measure for the number of business "failures". Businesses can de-register for VAT for a number of reasons, e.g. de-registration could be associated with a merger with another firm to form a new business.

Table 2.4 shows the stock of enterprises and new registrations and de-registrations, along with per head figures in order to make them comparable across all Scottish local authorities and the UK. Scotland has a lower rate of both registrations and de-registrations (both 29 per 10,000 population) compared to the UK (38 and 37 per 10,000 population respectively). However, these rates vary across Scotland. While Stirling, Highland, and Aberdeenshire have high registration and de-registration rates (all above 35) compared to the Scottish average; West Dunbartonshire, Inverclyde, and North Ayrshire have relatively low levels (all 20 or below). This is reflected by the business stock figures; of all the mainland local authorities, business density ( VAT registered stocks per 10,000 population) is highest in Highland, Aberdeenshire, and Stirling, and lowest in West Dunbartonshire, Inverclyde, and North Ayrshire. This would suggest a correlation between business density and the level of registration and de-registration.

Business Survival Rates

Business survival rates can be calculated using the SBSVAT statistics. The survival rate is the proportion of businesses that register for VAT in a given year that have not de-registered within a certain timescale. Businesses that are registered for VAT can be tracked from the time they first register until the time that they notify HM Revenues & Customs that they have ceased trading or that their turnover has fallen below the VAT threshold. The turnover threshold for VAT registration at the beginning of 1994 was £45,000, rising each year to £58,000 in April 2004.

Table 2.5 shows the survival rates in Scotland up to 10 years after registration. These figures suggest that since 1994, survival rates in Scotland have been rising, despite levelling off in recent years. For example, of all the businesses who registered in 1994, 86.5 per cent were still registered one year later. This 1 year survival figure had risen to 91.1 per cent by 2003.

Regional Selective Assistance ( RSA)

RSA is the main national scheme of financial assistance to industry. It provides discretionary grants to firms creating or safeguarding employment in the Assisted Areas ( AAs) - areas designated for regional aid under European Community law. The current AA map will be in place until end December 2006. A new AA map, once approved by the European Commission, will be implemented on 1 January 2007.

The RSA scheme's purpose is to encourage firms to implement projects that will enhance the competitiveness, employment prospects and overall prosperity of the AAs. It is operated in Scotland by the Enterprise and Lifelong Learning Department of the Scottish Executive.

Over the last 5 financial years 2001/02 to 2005/06, the Executive received 1,118 applications for RSA totalling almost £514.9 million (Table 2.6). Over the same period 816 offers of RSA were accepted totalling over £281.5 million, linked to planned capital investment of £1.2 billion and the proposed creation and safeguarding of 40,161 jobs. £204 million was paid out to companies in these years.

Of the above figures, UK-owned firms accounted for £172.8 million of the accepted offers of RSA, relating to projects with planned investment of £758.8 million and the anticipated creation or safeguarding of 24,813 jobs (Table 2.7). UK firms therefore represented 81 per cent of the total number of cases, 61 per cent of the total value of offers accepted and 62 per cent of potential jobs.

Over two thirds of the RSA offers accepted were from manufacturing companies (Table 2.8) and these accounted for 67 per cent of the total value of RSA offers accepted over the last 5 years.

Payment of RSA is made in instalments, typically over several years as job and project expenditure targets are met. Not all accepted offers result in full payment, as projects are sometimes scaled down or abandoned before payments are made. The accepted offer figures quoted in the tables, therefore, represent the maximum amount potentially payable, and not the total actually paid to date. All job numbers given here are based on firms' forecast figures, and are subject to change depending on future economic conditions and other factors affecting the businesses concerned.

All RSA grant agreements include legally enforceable conditions under which the department can seek full or partial recovery of grant monies paid, should breaches of the agreement arise. Over the period 2001/02 to 2005/06, £41.1 million was recovered from projects that had not fully met their grant agreement obligations.

Further information on the RSA scheme can be found on our website at www.rsascotland.gov.uk.

Innovation in Scottish Industry

Introduction

Innovation is a key driver of productivity, and firms' competitiveness increasingly depends on the ability to generate and exploit knowledge. R&D, technology transfer and diffusion play key roles in the innovation process. The remainder of this chapter looks at direct measures of innovation inputs and outputs, including:

• Innovative products and processes
• Research and development
• Commercialisation of academic knowledge
• Patents
• Use of e-commerce

Innovative products or processes

The Community Innovation Survey ( CIS) provides a regular snapshot of innovation inputs, outputs and the constraints faced by businesses in their innovation activities, across the range of industries and business enterprises. The fourth UK Innovation Survey ¹ ( CIS4) was conducted by the DTI in 2005 and provides information on the period 2002-2004.

The CIS4 found that 56 per cent of Scottish firms were innovation active, this is an increase of 12 percentage points since the last survey ², which covered the period 1998-2000. In comparison, innovation activity in the UK increased at a slower rate of 10 percentage points, from 47 per cent to 57 per cent.

Chart 2.3: Percentage of innovative enterprises introducing new products to market or new processes to industry, 2002-2004

Source: DTIUK Community Innovation Survey 2005

Chart 2.4: Innovation activity in Scottish firms, 2002-2004

Source: DTIUK Community Innovation Survey 2005

Table 2.9 shows that 28 per cent of Scottish businesses have implemented either product or process innovations. Scotland has one of the highest proportions of novel product innovations in the UK (Chart 2.3). Of the companies introducing product innovations 65 per cent introduced new products to the market, compared to the UK average rate of 59 per cent. Scotland also has a commensurate higher rate of turnover from sales of novel products ³.

The main type of innovation activity carried out by Scottish innovative firms is the 'acquisition of machinery, equipment and software' (Chart 2.4). In addition, 40 per cent of Scottish firms were involved in training activities, which is the highest proportion of all the UK regions.

Research and development

Scottish Gross Expenditure on R&D ( GERD) was £1,367 million in 2003. Higher Education Institutions accounted for the largest part at £575 million, followed by research undertaken by business costing £521 million and finally Government research expenditure of £271 million. GERD was 1.53 per cent of GDP in Scotland, 81 per cent of the UK ratio and two thirds of the OECD average of 2.25 per cent.

Business Enterprise Research and Develop-ment ( BERD) expenditure is measured annually through the ONSBERD survey. The most recent data from 2003 found that BERD expenditure in Scotland was 3.8 per cent of the UK total. BERD decreased from £640 million in the previous year to £521 million in 2003. However, over the long term BERD has increased in Scotland by 54 per cent in real terms from 1997 to 2003, compared to a real terms increase of 24 per cent in the UK.

Compared to the size of Scotland's economy, BERD expenditure is relatively low; in 2003 it was 0.58 per cent of GDP in Scotland, almost half of the UK equivalent. Nearly two thirds of Scottish BERD supported just three product groups: Pharmaceuticals; Radio, TV and communication equipment; and Precision instruments.

Commercialisation of Research by Higher Education Institutes

Universities and colleges contribute to the competitiveness of Scotland's economy through the commercialisation and transfer of knowledge. This activity is more intensive in Scotland than would be expected on the basis of its population size (8.5 per cent of the UK); this is in part due to the relatively higher number of Higher Education Institutes ( HEIs) in Scotland.

The Higher Education-Business and Community Interaction survey ( HE- BCI) ⁴ covers the strategies and activities undertaken by HEIs on the commercialisation of knowledge. Table 2.11 shows some selected results from the survey. In 2003-2004 14 spin-off companies were established by Scottish HEIs, bringing the number of active spin-off firms with some HEI ownership to 123. These firms employed 1,113 people, with a turnover of nearly £32 million.

Scottish HEIs generated £6.8 million from Intellectual Property ( IP) exploitation in 2003-2004, which was the second highest of the UK regions (Chart 2.5). Table 2.11 shows that during 2003-04 in the Scottish Higher Education sector 199 new patent applications were filed, 49 patent applications were granted and a total of 919 active patents were held. During the period 114 licences were also granted for third parties to use knowledge and technologies. These commercialisation activities accounted for between 5 per cent and 16 per cent of the UK total.

Chart 2.5: Total revenues from Intellectual Property by region, 2003-2004

Source: HE- BCI survey 2003-2004 (Not National Statistics)

Patents filed and granted

Patents represent an outcome of tech-nologically oriented innovation. The Patent Office ⁵ publishes statistics on a regional basis, which are derived from the postcode of the applicant. Table 2.12 shows that Scottish applicants filed 1,053 UK patents in 2005, which is 6 per cent of the UK total. The number of patents granted to Scottish applicants was 179, 5 per cent of the UK total in 2005. Since 2001 the number of patents that Scottish applicants have filed has increased from 4 per cent to 6 per cent of the UK total and the number granted has increased from 4 per cent to 5 per cent.

E-business

E-business processes are increasingly becoming more important for businesses, for improving and maintaining efficiency and competitiveness in the Scottish Economy. Adoption of these processes are currently measured via various surveys, within and outwith Scotland.

The Scottish E-Business Survey ( SEBS) is in its sixth year and is carried out by Scottish Enterprise and Highlands and Islands Enterprise. The survey samples around 8,000 businesses each year and takes the form of a voluntary telephone survey. This survey collates information on adoption of e-business applications and also attitudes to e-business and its perceived relevance to businesses. Table 2.14 shows the percentage of businesses that consider e-business to be important to their needs has increased to 60 per cent since 2004 and is at it's highest level since the survey began in 2001. This table also shows that more businesses are utilising e-business technologies in 2005. The percentage that use the internet and have their own website has increased from 70 to 73 per cent and from 41 to 45 per cent respectively. Again, these are the highest levels since the survey began. Furthermore, trading online is becoming more popular with record levels of the number of businesses ordering products online (44%) and allowing their customers to order online (28%).

The Scottish Executive's 'Framework for Economic Development in Scotland' ( FEDS) ⁶ notes the importance in strengthening of the electronic infrastructure in ensuring that Scotland has a communications network that allows business and individuals to exploit the opportunities presented by access to the internet and to e-commerce. Broadband, in particular, is potentially one of the major facilitators of e-commerce in both new and old enterprises, offering access to major new market opportunities and re-engineering existing processes to reduce costs and/or improve customer service. It is therefore encouraging to see that of all those businesses with an internet connection, the proportion using Broadband has increased significantly each year since 2002 to reach 61 per cent in 2005.

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