Enterprise and Business

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The North East has fewer businesses per head of population than other UK countries or regions. But growth in the number of businesses has exceeded that national average in recent years.

Introduction The Regional Economic Strategy (RES) identified a substantial short-fall in the numbers of businesses per capita in the North East. In recent years, whilst the number of North East business start-ups and stocks have increased at faster rates than the national average, there needs to be further and continued improvement to make any significant inroads in closing the enterprise gap with the rest of the country. Much of the data used in this chapter covers the period up to the end of 2008 – and as such does not include analysis that entirely reflects the current recession. Links to other relevant reports can be found at the end of this chapter. For more up to date economic analysis please refer to One North East's latest Economic Intelligence Update.

Business Stock The BERR/ONS publication ‘Business start-ups and closures: VAT registrations and de-registrations’ was released for the final time on 28 November 2008. On the same day the new ONS Business Demography: Enterprise Births and Deaths publication was released. This annual series has now replaced the BERR/ONS VAT registered publication. This change has been required because of EU regulation and means some changes in methodology which effect enterprise stocks and rates in particular. The main difference is that in addition to VAT registered businesses, the new methodology includes non-VAT registered enterprises that are registered for PAYE. Business Demography statistics also count businesses that were active at any time during the reference year. These differences mean that Business Demography business stocks are somewhat higher than the VAT registered. For ease of comparison between regions and to try and preserve some continuity in this report some of the new business demography figures have been presented as rates per 10,000. In 2009, the North East had 246 enterprises per 10,000 resident adult population compared to the UK average of 379 and the lowest of all UK regions. Regions with low stock rates also tend to have low registration and de-registration rates. In the case of the North East, the stock rate, the registration rate and the de-registration rate are all around 65% of the equivalent UK rate. However, comparatively good regional economic performance over the period 2002 - 2008 saw the registration rate in particular start to increase over this period, although 2009 data indicates that this rate of growth slowed during the recession.

The period 2004 - 2009 saw the region’s business stock rate increase at a faster rate than the UK average. This period saw 45,485 businesses births in the region compared to 37,685 business deaths. This represents a net increase of 7,800 in the North East business stock over this period, an annual average increase of 1,300. However, 2009 alone saw a net decrease of 790 businesses. The new ONS business demography data shows that in 2009 there were 6,625 births and 7,415 deaths. The ONS define 'births' as follows "A birth is identified as a business that was present in year t, but did not exist in year t-1 or t-2. Births are identified by making comparison of annual active population files and identifying those present in the latest file, but not the two previous ones." The ONS define 'deaths' as follows "A death is defined as a business that was on the active file in year t, but was no longer present in the active file in t+1 and t+2. In order to provide an early estimate of deaths, an adjustment has been made to the 2008 and 2009 deaths to allow for reactivations." Both VAT-registration data for the period 1995 - 2007 and Business Demography data for the period 2005 - 2009 (Registered Business Stock) are presented below to enable comaparison of growth rates over time.

Despite this recent improved performance the region still lags well behind the rest of the country, with business stocks per 10,000 adults at 65% of the UK rate at the end of 2009, ahead though of the recent VAT registeration low point of 57.8% in 1998. To match the 2009 national stock rate would require an additional 34,280 businesses – taking the stock from the present 63,660 to 97,940. Finally, the graph below shows how the region’s stock of businesses has changed since 1994. Business stock data has been calculated using a different methodology since 2004. Up to 2007, changes in the Business Stock used analysis of VAT-only data, produced by BIS. Business demography data published by ONS from 2008 onwards presents changes to Business Stock based on VAT and/or PAYE registrations dating back to 2004. The data from both sets of figures has been graphed below - therefore caution should be used when comparing it the previous years as data is now presented that captures businesses below the VAT threshold.

Births, Deaths and Survival The EU methodology changes how the business birth and death and rates are calculated. For example, VAT registration and de-registration rates were presented in terms of the number of businesses per 10,000 adult population. Applying EU methodology means that Business Demography birth and death rates are presented in terms of the population of active enterprises. In the North East there were 6,625 enterprise ‘births’ in 2009 – a birth rate of 10.4%. This is the second highest birth rate in UK behind London. The region’s business death rate of 11.6% in 2009 was slightly lower than the figure for the UK

In terms of business survival, the region demonstrates similar survival rates to the rest of the country. These rates are improving slowly over time.

SMEs Small and medium enterprises (SMEs) statistics (published annually at the national level and biennially regionally) attempt to estimate the total number of private sector enterprises in the country, whether they be small (less than 50 employees), medium (50 to 249 employees) or large (250+). This is a slightly wider measure than either the VAT registered or Business Demography statistics above because SME statistics attempt to estimate the number of enterprises that are neither registered for VAT not operate the PAYE scheme in addition to those which are. Reflecting national trends, the vast majority of enterprises in the region are small. Of the 133,620 private sector enterprises in the North East at the start of 2007, 96,980 had no employees. This type of business could be either a sole trader or a partnership with self-employed owner-managers. There were 30,250 enterprises employing between 1 and 9 workers. Note that the term micro-business is sometimes used and is generally considered to be a subset of small-businesses but with less than 10 employees only.

SME statistics also provide a breakdown by turnover. Whilst 99.8% of all private sector enterprises are SMEs, they contribute 61.6% of total employment and 50.1% of turnover.

The North East has seen the fastest growth in SME numbers over the 3 year period to the start of 2009. The number of SMEs in the region grew by 27,900 or 25.3% from the start of 2005 to the start of 2008. This was the fastest increase of any part of the UK and significantly above the UK rise of 10.2%.

Entrepreneurial activity The Global Entrepreneurship Monitor (GEM) for 2009 suggests that the proportion of the adult population engaged in entrepreneurial activity in the North East is not significantly different from any other UK region apart from Scotland. The reported difference in national and regional rates narrowed between 2002 and 2008, but widened slightly by 0.5% in 2009. In 2009 the North East rate stood at 4.9% compared with the UK rate of 5.8%. The chart below shows the total entrepreneurial activity (TEA) rate for the North East and the UK. TEA is estimated using survey-based methods operated by the GEM. The survey takes a broad definition of entrepreneurship as ‘any attempt at new business or new venture creation, such as selfemployment, a new business organisation or the expansion of an existing business by an individual, teams of individuals, or established business’