ICAEW chart of the week: UK business births and deaths

My chart this week illustrates the choppy economic waters facing UK businesses as more stopped trading than were created over the course of 2022.

Bar chart going down vertically from Q1 2017 to Q4 2022 showing business closures and creations on the left and the net decrease or net increase on the right.

Q1 2017 -78,950, +97,340, +18,390
Q2 2017 -96,390, +80,930, -15,460
Q3 2017 -82,555, +86,380, +3,825
Q4 2017 -67,655, -73,975, +6,320
Q1 2018 -86,775, +88,295, +1,520
Q2 2018 -80,550, +95,715, +15,165
Q3 2018 -65,660, +79,410, +13,750
Q4 2018 -72,375, +76,730, +4,355
Q1 2019 -77,990, +97,110, +19,120
Q2 2019 -91,410, +95,675, +4,265
Q3 2019 -74,440, +84,970, +10,530
Q4 2019 -67,990, +77,970, +9,980
Q1 2020 -96,660, +89,910, -6,750
Q2 2020 -72,665, +73,415, +16,170
Q3 2020 -60,415, +76,585, +16,170
Q4 2020 -78,965, +82,080, +3,115
Q1 2021 -86,600, +101,845, +15,245
Q2 2021 -88,515, +91,400, +2,885
Q3 2021 -83,235, +81,165, -2,070
Q4 2021 -87,040, +79,870, -7,170
Q1 2022 -110,515, +98,730, -11,785
Q2 2022 95,155, +89,225, -5,930
Q3 2022 -79,305, +67,390, -11,915
Q4 2022 -82,390, -69,445, -12,945

The Office for National Statistics (ONS) published its latest quarterly experimental statistics on business births and deaths on 2 February 2023. This reports that business closures have increased since before the pandemic at the same time as business creations have fallen, resulting in net reductions in the number of VAT- or PAYE-registered businesses operating in the UK over the past six quarters.

The statistics are taken from the government’s Inter-Departmental Business Register, a database of approximately 2.8m businesses registered for either PAYE or VAT, just over half of the estimated 5.5m businesses operating in the UK (according to the Department of Business & Trade). The difference principally relates to sole traders with turnover below the VAT threshold who have not voluntarily registered for VAT, or for PAYE if they trade through a company. There is also a time lag on reporting the closure of businesses where a business continues to be registered, with the ONS waiting for several periods of zero VAT or zero payrolls before recording a business as closed.

The statistics are labelled as experimental because they are not as rigorous as annual statistics, but the advantage is that they provide data on business births and deaths in 2022, for which we will not get a full set of annual numbers until towards the end of this year. 

As our chart illustrates, the quarterly net change in businesses in 2017 was +18,390, -15,460, +3,825 and +6,320 respectively, followed by +1,520, +15,165, +13,750, +4,365 in 2018, +19,120 and +4,265, +10,530 and +9,980 in 2019. The pandemic saw a fall in business closures as government support enabled businesses that would otherwise have stopped operating to stay alive, with a net decrease of -6,750 in Q1 2020 followed by net increases of +750, +16,170, +3,115 in the second, third and fourth quarters of 2020. 

A spurt in business creations in early 2021 saw net increases of +15,245 and +2,885 in the first two quarters, before net decreases of -2,070 and 7,170 in the last two quarters of 2021. With pandemic support measures coming to an end and the onset of the energy crisis, the trend moved further into negative territory with quarterly net closures of -11,785, -5,930, -11,915 and -12,945 in 2022.

Quarterly business deaths averaged around 81,400 in 2017, 76,300 in 2018, 78,000 in 2019, 77,200 in 2020, 86,300 in 2021 and 91,800 in 2022, while quarterly business births averaged around 84,700 in 2017, 85,000 in 2018, 88,900 in 2019, 80,500 in 2020, 88,600 in 2021 and 81,200 in 2022.

These numbers will not be pretty reading for Kemi Badenoch, the new Secretary of State for Business and Trade. With interest rates on the rise, energy costs still at very high levels and consumers cutting back on spending, the risks are that many more existing businesses will cease trading, while business creations may continue to be subdued.

One crumb of comfort is that businesses founded during downturns are believed to do better than those founded in good times. So, if you are thinking of striking out on your own with a new business idea, there may be no better time than now.

This chart was originally published by ICAEW.

ICAEW chart of the week: UK businesses

UK businesses: average revenue / person. No employees (4.8m people) £63k. Employers (22.7m people) £170k.

The #icaewchartoftheweek is on the 5.9m UK businesses reported by the Department for Business, Energy & Industrial Strategy (BEIS) to have been in operation at 1 January 2019, generating a total of £4.1tn in revenue each year.

According to the annual statistics published a couple of weeks ago, there are 4.5m businesses with no employees, generating an average revenue of £63k for the 4.8m person involved (this includes partnerships). This contrasts with the 1.4m businesses with employees with 22.7m people engaged at an average revenue of £170k per person. 

Unsurprisingly, the 3.2m sole traders, freelancers, partnerships and personal companies not registered for VAT or PAYE (a total of 3.5m people engaged, generating an average revenue of £34k per person) have much lower average revenues than the 1.2m that are (1.3m, generating an average of £141k). Most part-time freelancers and self-employed contractors included in the former will have no need to register for VAT, while the latter will include VAT-registered consultants and other highly-paid individuals that are self-employed or employed via their own companies.

Most of the 1.4m employers are small businesses (up to 99 staff), employing 9.9m people with an average revenue of £149k per person (not shown in the chart). These include 141,135 businesses with only 1 employee (0.3m people generating an average of £83k), 751,205 businesses with 2-4 employees (2.1m, £158k), 399,365 with 5-19 employees (3.7m, £136k) and 96,505 businesses with 20-99 employees (3.8m, £162k).

There are 12,055 medium sized businesses with 100-249 employees (1.9m people in total, generating an average of £205k), while 7,685 large businesses employed 10.9m people at an average revenue of £182k per person.

There are some important caveats. Firstly, the numbers employed may include some double counting, as people can be involved in more than one business in different capacities. In addition, it is important to note that revenue is not the same as profit, and the numbers do not analyse the cost-structure of different sizes of business.

To see the underlying data, visit https://www.gov.uk/government/statistics/business-population-estimates-2019.