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Central Government has set (External) 198 priority measures for local government . The VAT registration rate is indicator number 171 and measures the proportion of VAT registrations per 10,000 adults. The latest figures for the Lancashire County Council area, the broader Lancashire NUTS-2 area (which includes the two unitary authorities of Blackburn with Darwen and Blackpool), the North West, and the UK are all included in Table 4 (first column).
Photograph of a newly sprung plant
The Lancashire NUTS-2 Region has a large stock of VAT-registered businesses amounting to over 41,100 at the start of 2007. Most of these enterprises are small: nearly 70% have an annual turnover of less than £250,000. The local business stock expanded rapidly over much of the 1980s. The early 1990s provided a less favourable economic environment for new business growth but since 1997 there have been ten straight years of net stock growth in Lancashire. Growth over the latest period 2003-2007 has been above-trend.
The long-term pattern has been one in which the Lancashire business stock has grown at a very much slower pace than nationally and comparatively the region has had one of the poorest out-turns in the UK. Whilst business survival rates have tended to keep pace with or even exceed those nationally, business formation rates have been persistently lower than those achieved in the UK.
The structure of the business stock in Lancashire, despite signs of steady convergence with the nation, is still disproportionately represented by sectors like wholesale and retail, manufacturing, and hotels and restaurants. These are sectors in which net stock growth generally has been relatively sluggish or even negative. Conversely, sectors that have shown some of the highest year-on-year growth rates like the business, financial and other services, remain somewhat under-represented locally. This structural make-up has had a major moderating influence on the pace of local net new business stock growth and probably explains a large part of Lancashire's rather lack-lustre performance in business creation rather than any deep-seated lack of local entrepreneurship.
Information on the VAT-registered business stock is held by the Office for National Statistics (ONS) in the Inter-Departmental Business Register (IDBR). This is a comprehensive database of UK businesses based on inputs from three administrative sources: traders registered for VAT purposes; employers operating a Pay As You Earn (PAYE) scheme registered with HM Revenue & Customs; and incorporated businesses registered at Companies House. The IDBR covers businesses in all parts of the economy, other than some very small businesses (self-employed and those without employees and with low turnover) and some non-profit making organisations.
About 2.0m of the estimated 4.5 million enterprises in the UK are VAT-registered. VAT registrations and de-registrations are the best official guide to the pattern of business start-ups and closures. Because the majority of such businesses are small they are a useful indicator of the level of entrepreneurship and of the vitality of the business population. As such they are widely used in regional and local economic planning as a key performance measure. However, they do not give a wholly complete measure of start-ups and closures since companies need only register for VAT when their annual turnover passes £64,000 (and therefore excludes most of the smallest one-person businesses) and companies that de-register might not be shutting. However, some businesses do voluntarily register for VAT though their turnover is below the threshold. An estimated fifth of all registrations in 2006 had turnover below the VAT threshold.
Many factors influence the pattern of business start-ups. Among the most important are economic growth (encouraging new ventures and creating demand for business and personal services), the level of industrial restructuring and contracting-out, and the stock of people with management or small business experience. Prior to 1979, Lancashire, like much of the UK, was a region of large and often vertically integrated industrial and commercial companies, many employing thousands of workers. There was virtually no small companies enterprise policy. Subsequently, however a plethora of support measures have been introduced by government in the belief that small firms hold the key to sustained economic growth and to the creation of a significant number of new jobs.
At first the emphasis was firmly on large-scale programmes to encourage individuals (often unemployed) to start new companies. Through the use of the Enterprise Allowance Scheme subsidies were provided for new business starts by individuals. The increase in such new businesses was impressive and became a measure of the success of the enterprise culture at the time. There remained, however, doubts about the true "enterprise" nature of much of this activity and extent of its real contribution to economic growth per se. Many new companies were short-lived and often started in "easy" sectors with low entry barriers such as vehicle repairs, window-cleaning, taxi driving or hairdressing. Often, it appeared that many of the new companies simply displaced existing companies by being able to charge lower prices through having access to a subsidy, only to be displaced in turn when their subsidy ran out.
From the early 1990s emphasis changed to helping small companies "with growth potential" – in effect, trying to "pick winners", always a dubious proposition. The number of new business starts fell from the heady levels seen previously but the belief was that the "quality" or economic contribution of such businesses rose. This policy was further enhanced in the late 1990s with a government programme to establish 10,000 high-growth start-ups, embracing both numerical and quality targets. The evidence for the wider success of these programmes, ignoring short-term macroeconomic considerations, remains unclear. The key to any assessment is whether a new company simply leads to the displacement of other companies with no improvement for customers, or whether it develops a new customer base and generates new economic activity through stimulating new suppliers. The latter type of business, by creating new added value clearly contributes to economic growth, but the former does not.
Full datasets of VAT business registrations and de-registrations for the whole of the UK down to district authority and parliamentary constituency level can be obtained from the (External) Department for Business Enterprise & Regulatory Reform (BERR) website . All Lancashire and constituent district authority figures used in this paper can be found in the Lancashire Profile Data Download Centre .
New business start-ups continue to be created faster than existing companies wither and die. In 2006 an estimated 3,630 new businesses were registered for VAT in the Lancashire NUTS-2 sub-region, equivalent to about 70 every week. This number of registrations was some 70 or 1.9% fewer than in the previous year but was on a par with the longer-term annual average. At the same time the number of de-registrations or closures also fell, to 2,865, the lowest number for well over a decade. In net terms the total stock of businesses in Lancashire is therefore estimated to have increased by a relatively buoyant 765 or by 1.9% over the course of the year 2006, suggesting continuing conditions of positive business confidence in the area (Table 1). The local net stock increase over the year was more or less in line with the UK average (+2.0%) but rather lower than that recorded for the wider North West Region (+2.3%).
Graph showing how the VAT-registered business stock in Lancashire County, Lancashire NUTS-2, the North West and the United Kingdom has changed from 1994 to 2007 - see text for details
Source
BERR - VAT Registrations and De-registrations
Figure 2
Net Change in Stock of VAT Registered Businesses, Lancashire NUTS-2, 1994-2006
Bar chart showing the net change in the stock of VAT-registered businesses in Lancashire NUTS-2 from 1994 to 2006 - see text for details Source BERR - VAT Registrations and De-registrations
The Lancashire sub-region has had a very mixed pattern of VAT business stock change over the past few decades. Over the 1980s and early 1990s the pace of new business formation throughout the UK was exceptionally buoyant. Whilst Lancashire participated in this expansion with an unprecedented number of new small businesses being created, year-on-year it still lagged well behind growth in the UK at large. In terms of its net gain in the number of businesses, Lancashire had one of the poorest out-turns in the UK. Post-1991, business de-registrations locally exceeded new registrations further widening the gap with the national average. The downward drift in business stock numbers levelled out in 1997 since when there has been uninterrupted business stock growth through to the end of 2006 for which the most recent data is available.
Viewed over the full period 1994-2007 for which comparable data is now available, the stock of VAT businesses in Lancashire expanded by nearly 4,000 to total over 41,000, a net increase of 10.6%. That in Lancashire County fared slightly better recording a net gain of 12.4%. However, despite a steadily improving out-turn, particularly evident since 2003, the Lancashire position still compares unfavourably with the net increase of 14.8% recorded for the North West and to an even greater extent with the net gain of 20.7% in the UK at large (Figures 1 and 2).
Comparatively the 10.6% increase 1004-2007 in the Lancashire NUTS-2 business stock (12.4% in Lancashire County) not only stands unfavourably with the UK trend but also against other English counties. For example, out of the 44 former English shire and metropolitan counties, Lancashire ranked a very disappointing 41st in terms of business stock change in a range that extended from net gains of over 30% in areas like Berkshire, Buckinghamshire and Oxfordshire, to less than 10% in Cumbria, Cornwall & the Isles of Scilly and lowest ranked Tees Valley.
The County of Lancashire fared little better, ranking as joint 35th alongside Lincolnshire out of the 40 'new' English shire and metropolitan counties. Elsewhere in the North West Region, business stock growth 1004-2007 was most robust in Cheshire, exceeding the UK average and ranking the County 14th in the UK. Merseyside with business stock growth of 16.5% ranked mid-way in the table. Growth in Greater Manchester was slightly above that of Lancashire but that in Cumbria at 10% was below in 3rd from bottom position.
In respect of the 46 English Unitary Authorities Blackburn with Darwen's stock increase 1994-2007 of 10.7% placed it as a lower middle ranked 34th performer. Blackpool, however, actually recorded a net stock loss over the period of -6.0% - the only England UA to do so and ranked in bottom placed 46th behind Torbay UA. Other than the Orkney Islands, Blackpool was the lowest placed out of all forms of local authority in the UK.
Overall, the VAT data reveal that in absolute terms, the size of the Lancashire NUTS-2 business stock is quite large. At the start of 2007 there were more than 41,100 registered businesses in the sub-region. Only six other former shire counties (all in the South East) had a larger business base. However, the slower pace of net new business registrations locally is steadily eroding Lancashire's share of the total national stock. In 1980 Lancashire accounted for 2.7% of the UK stock; by the start of 1994 this share had dropped to 2.3% and again, by 2006, to 2.1%.
Figure 3 Business VAT Registrations and De-registrations, Lancashire NUTS-2, 1994-2006Map showing how the number of business VAT registrations and de-registrations has changed in Lancashire NUTS-2 from 1994 to 2006 - see text for details
Source
BERR - VAT Registrations and De-registrations
The net change in the size of the business stock over a period of time is the result of a high annual turnover rate as new businesses are formed and existing ones cease trading or fall below the prevailing VAT annual turnover threshold (which stood at £64,000 from April 2006). In 2006 the 3,630 new businesses that were registered for VAT in Lancashire were equivalent to 9.0% of the business stock, whilst 2,865 businesses were removed from the VAT register - some 7.1% of the stock. Over the past decade new registrations in Lancashire have exceeded de-registrations every year since 1997 and since 2001 this positive balance has increased considerably (Figure 3).
In all but one year (2003), the rate of new business formation in the Lancashire NUTS-2 area has been consistently at, or more typically below the national average ever since the early 1980s when such data first became available. Over the twelve-year period 1994-2006 the mean annual rate of new business formation was half a percentage point lower than that in the UK. There has been some apparent narrowing of this differential over the past few years but it is too early to say whether this reflects a real step improvement or is related to the wider business cycle (Table 2). In only two out of the eleven identifiable broad sectors - financial intermediation and business services, did the mean rate of local new business formation over the period exceed the national average (Table 3). These two sectors (together with hotels and restaurants) also enjoyed the highest business formation rates in absolute terms. The lowest formation rates by a large margin were in the agricultural sector (reflecting its more conservative nature), followed by manufacturing and education and health services. (Note that data for the mining/energy and water sectors is based on very small rounded numbers and the calculated rates are unreliable).
On the other side of the equation the local area's business survival rate has also been fractionally below that of the UK with, on average, 91.1% of businesses in existence at the start of each year still trading at the end of twelve months compared with 91.3% nationally. However, as in the case of business start-ups, this position relative to the UK is very much improved over the period. Survival rates tended to be highest in the agricultural sector and lowest in hotels and restaurants for which seasonal factors relating to the tourism trade are partly responsible. The local hotels and restaurants sector also has a lower average survival rate than in the UK. In manufacturing industry, traditionally one of the County's strengths, business survival rates were higher than those in the UK, though this was matched by a much poorer performance in terms of new business formation, factors possibly reflecting the more mature nature of many of Lancashire's manufacturing sectors.
An alternative way of looking at local business stock activity is via the "population rate" – measuring the number of registrations, de-registrations or stock of enterprises per 10,000 resident adults (Table 4). Using population to calculate such rates aids comparisons between locations of different sizes, though such comparisons can be less robust in areas where there is a high level of labour market or business activity across boundaries. In 2006 the broader Lancashire NUTS-2 region had a registration rate per 10,000 adult population of 31 compared with a much higher figure in the UK of 37. However, partly offsetting this, the de-registration rate of 25 enterprises per 10,000 population was rather lower than the UK average of 29. The stock of businesses per 10,000 adults in the Lancashire area at 349 was somewhat below the UK average of 394.
A high proportion of new businesses are likely to fail. It is generally reckoned that businesses have a higher chance of de-registering during the first three years than at any other time. After this period the year-on-year number of de-registrations is much lower. Information provided by ONS on the age of VAT-based enterprises shows that across the UK, close to 17% of businesses are less than two years old with those that have been trading for more than ten years comprising 44% of the total stock. Comparatively, Lancashire has a marginally lower proportion of businesses that have been trading between 2-10 years balanced by a higher share trading for more than 10 years:
Bar chart showing the net change in business stock for several industry sectors in Lancashire and the United Kingdom from 1994 to 2007 - see text for details
Figure 5
Comparative Structure of the Business Stock, 2007
Bar chart showing the share of the business stock for several industry sectors in Lancashire NUTS-2 and the United Kingdom in 2007 - see text for details
Source
BERR - VAT Registrations and De-registrations
The net change in the size of the business stock over the twelve-year period 1994-2007 conceals wide variations in the performance of individual sectors of activity. Within the Lancashire sub-region just six of the eleven sectors enjoyed net stock gains (Figure 4). These gains were most spectacular in Business Services (+69%) and Financial Intermediation (+67% and in both instances comfortably exceeded growth nationally, though from a proportionally smaller base. Business services have also been the fastest growing sector in Lancashire over recent years in terms of new employee job creation. The largest stock losses in the sub-region were in the relatively small education and health sector, wholesale and retail trades and agriculture. The number of manufacturing businesses has also fallen steadily year-on-year, having recorded a 6% drop between 1994-2007, similar to that of the UK. Business stock growth in hotel and restaurant businesses at around 18% was much slower than that nationally.
These overall changes, which continue a general long-term tendency of steady convergence between the local and national business structure patterns, resulted in a start of year 2007 Lancashire stock relative to the UK still disproportionately represented by wholesale and retail businesses, and to a lesser extent, manufacturing and hotels and restaurants (Figure 5). In contrast, both finance/business services and public administration/other services remained under-represented compared with the UK average.
The fastest rates of stock growth have been in those sectors in which Lancashire has the lowest comparative representation. Conversely, in many of the sectors in which Lancashire has an above-average share compared with the UK, rates of stock loss have been high. As in the case of many other local economic indicators, this structural make-up has had a major moderating influence on the pace of new business stock growth in statistical terms. An indication of the size of this effect can be given by 'standardising' the data for industrial mix - that is, calculating the overall percentage change that would have occurred in Lancashire had the industrial structure been the same as that for the UK as a whole and had the growth rate for each sector been as observed locally. On this 'weighted' calculation, the net change in the Lancashire business stock 1994-2007 would have been growth of 19.0% rather than the 10.6% increase that actually occurred – a rate far closer to the 20.7% national average. Inherited industrial structure therefore probably explains a large part of Lancashire's relative under-performance in business creation rather than any deep-seated lack of local entrepreneurship.
The majority of the VAT-registered enterprises in Lancashire are small – nearly 69% have an annual turnover of less than £250,000 and about 17% have a turnover of below £50,000. Traditionally, relative to the UK Lancashire has tended towards having a rather smaller proportion of its enterprises with turnover in the higher size bands and a slightly greater emphasis on firms within the £100,000-£249,000 range, reflecting in part a higher proportion of branch or multiple businesses within the County with their VAT registrations lodged with their head offices located elsewhere in the UK. This effect has been diminishing over recent years and the local structure today is much close to that of the UK.
Viewed in terms of employment there is a similar emphasis on small companies. Nearly three-quarters of Lancashire VAT-based enterprises employ fewer than 5 people and 97% employ less than 50 people. Relative to the UK Lancashire has a slight bias towards companies employing 20 or more people but this is not significant.
Industry information for the Lancashire VAT-registered stock below the broad sectors shown above is not available. However, data at the Standard Industrial Classification (SIC,2003) three digit or "group" level is available for the UK as a whole. This information covers 219 individual industry groupings. For illustration, Table 6 shows the top ranking fifty industries in terms of their national stock growth rates between 1994-2007.
This page was compiled by Peter Kivell .
All enquiries from the media should be sent to Corporate.Communications@lancashire.gov.uk .
Any other questions about the content of this page may be sent to EconInfo@lancashire.gov.uk .
For all enquiries about the county council's services , contact the Customer Service Centre on 0845 0530000 (01772 530000) or at Enquiries@css.lancscc.gov.uk .
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