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Businesses in the UK by amount of turnover

99% of registered businesses had a turnover of less than £25 million in 2011, but these businesses contributed just 39% of value added in the UK Business Economy

Business size has historically been defined by the number of people employed. However, with other factors of production enabling output improvements, an alternative measure of size is turnover.

This short story uses a snapshot of the ONS’s Annual Business Survey (ABS) to examine the characteristics of businesses registered for VAT and/or PAYE in the UK by the amount of turnover they generated in 2011.

Of the 1.9 million registered businesses in the UK Business Economy (48.2 Kb Pdf) in 2011, over 99% had a turnover of less than £25 million. However, these businesses accounted for just 58% of Business Economy employment and 39% of approximate Gross Value Added at basic prices (aGVA) (48.2 Kb Pdf)  (see Figure 1).

Although high turnover businesses (£500 million or more in 2011) represented less than 0.5% of all businesses in the UK Business Economy, they accounted for 18% of employment and 31% of value added. This shows that the average amount of value added per business is larger among high turnover businesses than it is among those with low turnover (less than £25 million in 2011).

Figure 1: Contributions to the UK Business Economy, 2011

Figure 1: Contributions to the UK Business Economy, 2011
Source: Office for National Statistics

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The industrial makeup of the Business Economy varied with the amount of turnover generated

The contribution of the Service sector to the number of businesses falls from 61% among businesses with a turnover of less than £25 million to 31% among those with a turnover of at £500 million or more (see Figure 2).

Meanwhile, the share of businesses contributed by the Distribution (Wholesale and Retail) and Production (including Agriculture (part), forestry and fishing) sectors increases with turnover. For example, the contribution of the Distribution sector to the number of businesses rises from 18% among businesses with a turnover of less than £25 million to 37% among those with a turnover of £500 million or more. This is possibly reflective of the capital intensive nature of the Distribution and Production sectors; with the exception of those smaller businesses operating in specialised markets, businesses will need to generate sufficiently high turnover to overcome the substantial fixed costs of operating viably.

Figure 2: Sector contributions to the number of businesses, 2011

Figure 2: Sector contributions to the number of businesses, 2011
Source: Office for National Statistics

Notes:

  1. The Production sector includes Agriculture (part), forestry and fishing.

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The contributions of the Construction and Production sectors to value added are similar to their contributions to the number of businesses regardless of turnover band (see Figures 2 and 3). However there are clear differences for the Service and Distribution sectors among businesses with high turnover.

Among businesses with a turnover of £500 million or more, the contribution of the Service sector to aGVA (46%) is notably larger than its contribution to the business count (31%). On the other hand, the Distribution sector contributes relatively less to aGVA (19%) than it does to the business count (37%) for these high turnover businesses. This suggests that, among businesses with a turnover of £500 million or more, average value added per business is relatively high in the Service sector, but relatively low in the Distribution sector.

Figure 3: Sector contributions to approximate Gross Value Added, 2011

Figure 3: Sector contributions to approximate Gross Value Added, 2011
Source: Office for National Statistics

Notes:

  1. The Production sector includes Agriculture (part), forestry and fishing.

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Businesses with high turnover were more likely to be foreign-owned, but those that were UK-owned contributed a larger share of value added

99% of businesses in the UK Business Economy in 2011 were UK-owned. However, foreign ownership becomes relatively more common as turnover generated in the UK increases. Of those businesses with a turnover of £500 million or more, more were foreign-owned than were UK-owned (53% and 47% respectively) (see Figure 4).

Figure 4: Ownership contributions to the number of businesses and approximate Gross Value Added, 2011

Figure 4: Ownership contributions to the number of businesses and approximate Gross Value Added, 2011
Source: Office for National Statistics

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Among businesses with a turnover of less than £500 million, foreign-owned businesses accounted for a slightly larger share of value added than the number of businesses (see Figure 4). However, among businesses with a turnover of £500 million or more, UK-owned businesses contributed the majority of value added to the UK Business Economy, despite being outnumbered by their foreign-owned counterparts.

This indicates that, on average, value added per business is higher for foreign-owned businesses than for UK-owned businesses in the lower turnover bands, but that the opposite is true among businesses with turnover of more than £500 million.

One possible explanation for this is that foreign-owned businesses with relatively low turnover may receive support from larger entities abroad, and will be able to make use of this support to add value to the Business Economy.

However, this relative advantage over UK-owned businesses may diminish as turnover increases. UK-owned businesses with a turnover in excess of £500 million are more likely to be able to compete with foreign-owned businesses of a similar size, irrespective of foreign support.

 

All the estimates in this release are experimental. Users are asked to take this into account when interpreting the data.

For the data behind this short story, please see the data tables. (130.5 Kb Excel sheet)

Background notes can be found on the ONS website (48.2 Kb Pdf) .

This short story is intended as a one-off piece of analysis with the 2011 ABS. However, we’d be pleased for you to contact us if you think that similar analyses for future years would be useful to you, or if you want to provide comments on this short story.


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