Business demography, UK: 2018

• The number of UK business births has remained broadly similar between 2017 and 2018, moving from 382,000 to 381,000, a birth rate of 12.9% in 2018 compared with 13.1% in 2017.

• The number of UK business deaths decreased from 362,000 to 336,000 between 2017 and 2018, a death rate of 11.4% compared with 12.4% in 2017.

• London had the highest business birth rate at 15.9%, whereas the North West had the highest death rate at 13.5%.

• The transport and storage (including postal) industry had both the highest business birth and death rates, at 17.8% and 16.5% respectively.

• 14,000 businesses in the UK have seen high growth measured by employment between 2015 and 2018.

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 (identified through registration of the administrative units, that is, Value Added Tax (VAT) and Pay as You Earn (PAYE)) are referred to as business births. The birth rate is calculated using the number of births as a proportion of the active businesses. Businesses that have ceased to trade (identified through de-registration of the administrative units) are referred to as business deaths. The death rate is calculated using the number of deaths as a proportion of the active businesses.

The Eurostat and Organisation for Economic Co-operation and Development (OECD) manual on business demography recommends waiting for two years after the reference period to allow for reactivations before deaths figures are calculated. In this release, we estimated the number of reactivations and adjusted the data accordingly. This adjustment has been applied to all industries, by removing units from the death data. This can lead to different percentage adjustments at the lowest level of aggregation. Since the level of reactivations is subject to some uncertainty, the latest two years in the publication are considered to be provisional and subject to revision. Table 9 of the dataset shows the adjustments made to the death data for reactivations.

For the purpose of this release, the term “business” is used to represent an enterprise. An enterprise can be defined as the smallest combination of legal units (generally based on VAT and/or PAYE records) that is an organisational unit producing goods or services, which benefits from a certain degree of autonomy in decision-making, especially for the allocation of its current resources. An enterprise carries out one or more activities at one or more locations. An enterprise may also be a sole legal unit.

In recent years the number of multiple business registrations at a single postcode observed on the Inter-Departmental Business Register (IDBR) have increased, impacting on numbers of births, deaths and survival rates. There are several reasons why these multiple registrations can occur, for example, the increase in use of management and personal service companies, virtual offices and foreign internet sellers. In order to help users assess the impact of these registrations, an article on multiple registrations has been published to explain this issue in more detail with a dataset giving rounded counts at district level for births of these businesses.

At the end of the year we will be carrying out a review of this publication, such that next year’s publication will likely have changes in the way data are compiled or presented. We will be reaching out to users for feedback on this in early 2020.

To support this release a set of datasets in greater geographical and industrial detail have been produced. Please note that all data are rounded to protect confidentiality. The figures in the tables are rounded individually therefore the sum of component items may be slightly different to the totals shown.

Figure 1 shows that both business birth and death rates fell in 2018. The fall in the birth rate in 2018 is relatively smaller than the fall in 2017. The fall in the death rate in 2018 follows a relatively strong increase in 2017. As a result, the gap between the two rates has widened compared with 2017, when the gap between the rates was the smallest since 2012.

There were approximately 2.94 million active businesses in the UK during 2018, an increase of 14,000 on 2017 (Table 1). Estimates for 2018 are available in greater geographical and industrial detail from the dataset.

Following a peak in 2016, business births have continued to decrease year-on-year but at a slower rate compared with 2017, down to 381,000 in 2018 from 382,000 in 2017. Business deaths have also decreased year-on-year, down to 336,000 in 2018 from 362,000 in 2017.

Whilst the highest rate of business births in 2018 occurred in transport and storage (including postal) at 17.8% (Table 2), there was still a fall from the previous rate of 18.5% in 2017. One of the main contributors to this is freight transport by road, where business births grew substantially between 2013 and 2016 but started to decrease in 2017 and continued to do so in 2018.

Transport and storage (including postal) also saw the highest rate of business deaths at 16.5% compared with 15.3% in 2017.

Many of these businesses are single employee companies that tend to be registered for a short period of time, so the nature of these businesses can cause large numbers of business births and deaths.

The fluctuations observed in specific industries regarding single employee limited companies in recent years coincided with the amendment made by HM Revenue and Customs (HMRC) to the Intermediaries Legislation (IR35), concerning “off-payroll” working in the public sector. This has led to education seeing a large drop in the percentage of deaths, from 18.8% in 2017 to just 9.3% in 2018.

At a regional level, London had the highest business birth rate in 2018 at 15.9%, followed by the North West at 14.3% (Table 3). The main industry impacting the births in London is retail, with retail sales via mail order houses or via internet making up the largest percentage of those businesses.

The region with the highest business death rate was the North West at 13.5%, which was the region with the highest birth rate last year. Similar to the births last year, business administration and support services, as well as transport and storage (including postal), contributed the most to the business death increases in the North West over the last five years. Northern Ireland had the lowest death rate at 7.9% and was the only region that has seen a decrease in the number of business deaths between 2013 and 2018.

When using this release please use lower geography data with caution. Factors such as management companies or virtual offices can cause large volatility to the data year-on-year. This affects mainly single employee limited companies. Large numbers of businesses can be registered at a single address and therefore distort the geographical location and industry of the businesses, as well as business demography changes. This is because the classification and the location of the individual businesses reflects the management company or virtual office rather than the individual business.

The survival rates show the percentage of businesses that survived into 2018. In recent years, comparisons of survival rates have shown little change year-on-year.

The UK five-year survival rate for businesses born in 2013 and still active in 2018 was 42.4% (Figure 2). Since 2013, the region with the highest five-year survival rate has been the South West at 45.6%. In 2018, the industry with the highest five-year survival rate was education at 49.5%.

The UK one-year survival rate for businesses born in 2017 was 89.0% and the region with the highest one-year survival rate was the East Midlands at 90.8%; the highest-surviving industry was motor trades at 93.2%.

High growth for the purpose of this bulletin measures all businesses with an average growth in employment of greater than 20% per year over a three-year period (between 2015 and 2018). The size threshold used to identify these businesses is that they have 10 or more employees. The high growth rates have been calculated from 2018 active business counts with 10 or more employees.

At UK level, out of 282,000 businesses in 2018 that have 10 or more employees, 14,000 or 5% have been classed as being high growth, an increase of 0.3 percentage points compared with the previous year.

Breakdown by region

London was the region with the largest number of businesses showing high growth measured by employment between 2015 and 2018, a count of 2,850 or 5.8%. The South East had the second-largest high growth at 2,030 businesses or 5.1%. Northern Ireland had the smallest number of high growth businesses at 320 or 4.3% (Table 4).

Breakdown by broad industry group

The industry with the highest percentage of businesses in high growth measured by employment was information and communication at 8.5%, followed by finance and insurance at 8.0%. The industry with the smallest percentage of high growth businesses was property at 3.4% (Table 5).

The employer business demography is an alternative measure of business demography based on businesses with at least one employee. It was set up to enable the collection of internationally comparable statistics. It is regulated by law in the European Statistical System and forms the most important data source for the entrepreneurial performance indicators.

Employer enterprise births include new enterprises with at least one employee as well as existing non-employer enterprises that have become employer enterprises. Deaths are enterprises that died with at least one employee, as well as enterprises that cease to employ staff. It is important to remember that these counts include single employee companies where the employee is also the owner-director.

The employer business birth rate, as a proportion of all active employer businesses, for 2018 was 13.4% and the employer business death rate for 2018 was 11.4%.

Breakdown by broad industry group

When looking at the breakdown by activity, the highest employer business birth rate for 2018 was in business administration and support services at 17.9%, followed by retail at 17.8% (Table 6). Retail was the industry where the birth rate increased the most from 2017 to 2018, with a difference of 1.5 percentage points, a slowdown from the increase it had of 3.2 percentage points between 2016 and 2017.

The highest employer business death rate for 2018 was in transport and storage (including postal) at 16.5%, followed by business administration and support services at 15.7%. Retail was the industry where the death rate increased the most, from 9.5% in 2017 to 11.9% in 2018.

Breakdown by region

Within the regions, London had the highest employer business birth rate in 2018 at 16.2%, which is an increase of 0.7 percentage points compared with 2017. The South West had the lowest birth rate at 10.8%, which is an increase of 0.1 percentage points compared with 2017.

The region with the highest death rate in 2018 was the North West at 13.6%, a 1.6 percentage point increase since 2017. Northern Ireland had the lowest death rate at 8.1%, which is an increase of 0.1% compared with 2017 (Table 7).

The Business demography Quality and Methodology Information report contains important information on:

• the strengths and limitations of the data and how it compares with related data

• users and uses of the data

• how the output was created

• the quality of the output including the accuracy of the data