Business Demography, UK: 2014

• The number of UK business births increased by 1.2% from 346,000 to 351,000 between 2013 and 2014, a birth rate of 13.7% compared with a rate of 14.1% in 2013.
• The 351,000 business births in 2014 were the highest recorded since comparable records began in 2000.
• The number of UK business deaths increased by 3.5% from 238,000 to 246,000 between 2013 and 2014, compared with the decrease of 5.9% in 2013 (from 252,000 to 238,000).
• The total UK business birth rate was 13.7% and the death rate was 9.6%. London was the region with the highest birth rate at 17.7% and the highest death rate at 10.6%.
• In broad industry terms, business administration and support services had the highest business birth rate at 20.7% and accommodation and food services had the highest death rate at 13.1%.

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 enterprises.

In 2014, there were 351,000 business births in the UK. The birth rate decreased from 14.1% to 13.7% between 2013 and 2014.

Businesses that have ceased to trade (identified through de-registration of the administrative units, that is, VAT and PAYE) are referred to as business deaths and the death rate is calculated using the number of deaths as a proportion of the active enterprises. The death rate decreased from 9.7% to 9.6% between 2013 and 2014, the lowest death rate in the UK since 2008.

Figure 1 shows that, following the economic downturn of 2008 to 2009, the rate of business births increased in 2011 and has exceeded death rates since. This is reflected in the growing number of active enterprises since 2011. As the economy reached the trough of the downturn in 2009, businesses were born at a rate which was 1.7 percentage points lower than the death rate. This was likely to reflect uncertainty around the economic outlook at that time combined with constrained access to finance as the financial sector adjusted to the global shock. As the economy began to emerge from the downturn in 2010, this gap narrowed until 2011 when business births grew at a rate higher than business deaths.

The strengthening in the rate of business births is consistent with the strengthening of the labour market from an employment rate of 70.1% in September 2011 to 73.2% at the end of 2014. The September 2015 Economic Review highlighted the strength of the recovery in the employment rate following the economic downturn. As the labour market began to recover in 2012, job-to-job moves – an indicator of labour market confidence – rose sharply and this improvement may have given workers the confidence they need to move between employers and also the confidence to start new businesses.

Gross domestic product (GDP) performed relatively strongly in 2011 and 2013 and is reflected in the widening gap between the business birth and business death rates during these years. However, the gap between birth and death rates narrowed slightly in 2014 despite GDP reaching its highest growth rate since the recession. The most recent data shows that the rate of business births is 13.7%, down from its peak of 14.1% in 2013. The rate of business deaths has fallen to 9.6%, down from 9.7% in its lowest level since 2008.

The improvement in birth rates over time can possibly be explained by a range of broader economic indicators. During the economic downturn, interest rates were cut to a record low of 0.5%. This could encourage an increase in the business birth rate; however the rationing of credit may have curbed new business births during this period. When the availability of credit to businesses began to improve in late 2012, an increase in corporate borrowing may have supported the growth in the business birth rate.

There were approximately 2.55 million active businesses in the UK during 2014, an increase of 102,000 on 2013. Estimates for 2014 are available in greater geographical and industrial detail from the tables published on our website.

In 2014, the highest rate of business births continued to occur in business administration and support, at 20.7%, the same rate as 2013. (The increase in births in this sector was driven by an increase of 5,000 births in business support service activities.) The second highest rate occurred in finance and insurance at 17.6%, compared with 16.9% in 2013.

Within the overall number of business births, professional, scientific and technical had the largest number of businesses at 78,000. Within professional, scientific and technical, the largest contributing industry was management consultancy activities, with 30,000 births (this was an increase of 1,000 on the 2013 figure).

The highest business death rate, at 13.1%, was accommodation and food services (previously the second highest rate at 12.7% in 2013). This was followed by business administration and support, at 11.0%, compared with 10.7% in 2013. Within the overall number of business deaths, professional, scientific and technical had the largest number, at 45,000 (of which 17,000 came from management consultancy activities) followed by construction, at 31,000.

Within the regions, London had the highest business birth rate at 17.7%, followed by the North East (14.0%) and North West (13.7%). Northern Ireland had the lowest birth rate, at 8.7%.

The region with the highest business death rate was London at 10.6%, followed by the North East, at 10.2%. The highest number of births and deaths were in London, at 89,000 and 53,000 respectively.

The UK 5-year survival rate for businesses born in 2009 and still active in 2014 was 41.7%.

By region, the highest 5-year survival rate was in the South West, at 45.0%, while the lowest was in London, at 38.6%.

By broad industry, some notably high 5-year survival rates include health, with a survival rate of 51.8% and education, with a survival rate of 50.9%. Accommodation and food services was the lowest, with only 33.4% of businesses surviving for 5 years (also the highest death rate for 2014).

Survival rates are available from 1-year to 5-year in greater geographical and industrial detail via the tables published on our website.

An alternative measure of business demography uses “employer enterprises” – enterprise with at least 1 employee.

In this section, new data on employer enterprises are contrasted for the first time with the harmonised business demography data which includes both employer and non-employer enterprises.

The employer enterprise birth rate, as a proportion of all active employer enterprises, for 2014 was 14.6%, compared with a birth rate of 13.7% for all enterprises, as a proportion of all active enterprises.

The employer enterprise death rate for 2014 was 9.3%, compared with a rate for all enterprise deaths of 9.6%.

When looking at the breakdown by activity, the highest employer enterprise birth rate for 2014 was recorded in business administration and support services, at 22.3%, followed by transport and storage, at 20.3%.

The employer birth rates were mainly consistent with the all enterprise birth rates across the industry groups, with the exception of transport and storage, and finance and insurance.

Transport and storage had the largest difference between the employer birth rate and all enterprise birth rate with 20.3% compared with 17.5%; finance and insurance was the only group with a lower employer birth rate (15.0%) than the all enterprises birth rate (17.6%).

Employer enterprise death rates by broad industry group were mainly consistent with the all enterprise death rates apart from 3 categories: Construction, retail, and transport and storage. In each of these categories the employer death rates are lower than the all enterprises death rates. Construction shows an employer death rate of 8.9% compared with the all enterprises death rate of 9.9%; Retail 10.0% compared with 10.9% and transport and storage 9.1% compared with 10.2%.

Within the regions, London had the highest employer enterprise birth rate at 18.6%, with Northern Ireland having the lowest rate, at 11.5%. For all regions, with the exception of Northern Ireland, the rates were mainly consistent. In Northern Ireland the employer birth rate was 11.5% compared with the all enterprise birth rate of 8.7%.

Employer enterprise deaths by region were mainly consistent with the all enterprise death rates, with all regions having a lower employer death rate of between 0.2 and 0.7 percentage points.