Introduction

Business survival rates show the percentage of businesses that are still trading a certain number of years after they first started. Under the DTI's "Competitiveness Indicators" this business survival rate is one of the key measures used to give a picture of the relative competitiveness of UK geographical areas. It should be emphasised however that those businesses that cease trading should not necessarily be presumed as failures. Businesses close for many different reasons as well as failure (insolvency or bankruptcy). Many businesses are closed voluntarily: for example, the owner may have retired; the business may have been taken over; it might simply have exploited the available market; or it may have completed a time-limited task.

Different sources can be used to produce estimates of survival rates. For example, Barclay's Bank estimate survival rates by monitoring the openings and closures of business bank accounts. This paper uses estimates prepared by the Small Business Service (SBS) based on the use of VAT registrations and de-registration data. Businesses that are registered for VAT can be tracked from the time they first register until the time that they notify HM Revenue and Customs that they have ceased trading or that their turnover has fallen below the prevailing VAT threshold. The threshold of compulsory VAT registration at the start of 1994 was an annual turnover of £45,000. In line with national inflation, annual increases raised this threshold figure to £61,000 at the beginning of 2006. This level is sufficient to include most mainstream small businesses but will not include many micro and other small mostly self-employed businesses for which the Barclays-type data may be a better indicator. Overall, details from the Inter-Departmental Business Register suggest that at the beginning of 2005 there were over 1.8m VAT-registered businesses in the UK out of an estimated 4.3m businesses in total.

The published information shows survival rates at six monthly intervals up to 48 months, where available, though the main focus is on one and three-year survival rates. In previous SBS releases the survival rates were only made available for local; Business Link areas. For the first time the survival rates have now been calculated for local authorities. The full national dataset may be obtained from the Small Business Service website whilst Lancashire local authority figures are available from the Lancashire Profile Data Download Centre.

Results

The time span of the data is limited and it cannot be separated from the wider business cycle. Overall, however, seen from the perspective of both one-year and three-year rates, business survival has improved substantially over the past decade, though the more recent data shows this improvement to have tapered off over the latter year. Generally, the increase in business survival corresponds to the increase in the total stock of businesses over the same time frame.

In the latest year (2004) all but three Lancashire districts (Blackburn, Blackpool and Hyndburn) matched or exceeded the UK average one-year business survival rate. The best out-turns were for Chorley and South Ribble: with a business survival rate in 2004 of 96% these two districts ranked jointly with seven other UK districts as having the best performance in the UK. Poorest ranking Blackburn with Darwen with a business survival rate of 87% in 2004 occupied a joint 3rd lowest position in the UK.

Viewed over the full decade 1995-2004, all Lancashire districts have followed the national tendency towards improved business survival (Table 1). For the most part this improvement was most marked in those districts that began the period with the poorest survival rates. This characteristic was especially notable in Burnley which appears to have improved its business survival rate by twelve percentage points between 1994-2004 (the joint second-highest rate of increase in the UK).

Table 1 One-Year Survival Rates of VAT Registered Businesses, 1995-2004: Percentage of Businesses Still Trading after 1 Year

	Year of Registration										Change 1995-2004
	1995	1996	1997	1998	1999	2000	2001	2002	2003	2004
Burnley(1)	81	81	84	80	85	87	81	89	93	93	12
Chorley	92	88	93	88	89	90	89	93	92	96	4
Fylde(1)	88	89	86	88	88	92	91	95	93	92	4
Hyndburn(1)	82	81	86	83	83	83	92	87	93	90	8
Lancaster	88	88	89	88	86	91	96	94	95	93	5
Pendle(1)	88	83	86	84	93	94	93	91	91	93	5
Preston	87	81	82	90	88	88	91	92	94	92	5
Ribble Valley(1)	90	89	86	93	94	90	89	93	95	93	3
Rossendale(1)	86	89	86	77	84	91	88	88	94	94	8
South Ribble	90	89	88	86	90	93	88	93	92	96	6
West Lancashire	87	87	89	87	92	91	93	93	96	95	8
Wyre	90	88	89	90	90	92	91	95	96	94	4
LANCASHIRE COUNTY	88	86	87	87	89	90	90	92	94	93	5
Blackburn with Darwen	81	85	83	85	84	89	86	90	93	87	6
Blackpool	81	83	81	85	85	84	89	89	93	90	9
North West	86	86	87	88	89	89	90	92	93	92	6
United Kingdom	88	88	90	90	90	91	91	92	93	92	4
Note (1) The rate may at times be based on fewer than 200 VAT registrations and so caution is advised.
Source DTI Small Business Service - Survival Rates of VAT Registered Businesses, 1995-2004, February 2007

Three-year business survival rates have shown a similar pattern of increase over the period 1995-2002 with the gap in survival rates both between Lancashire and The UK and between districts having narrowed considerably (Table 2). The improvement was especially favourable in Lancaster and Burnley, though in the latter case the survival rate for businesses set up in 2002 still remained well below the UK average. Lancaster together with Ribble Valley were amongst the small group of authorities that for businesses set up in 2002 apparently enjoyed amongst the highest three-year survival rates in the UK. Blackpool and Hyndburn, however, were at the other end of the scale, ranking amongst the poorest performers in the UK.

Table 2 Three-Year Survival Rates of VAT Registered Businesses, 1995-2002: Percentage of Businesses Still Trading after 3 Years

	Year of Registration								Change 1995-2002
	1995	1996	1997	1998	1999	2000	2001	2002
Burnley(1)	53	62	52	55	64	59	64	67	14
Chorley	72	69	74	66	67	68	68	71	-1
Fylde(1)	68	70	65	67	70	68	70	73	5
Hyndburn(1)	56	61	65	58	59	59	64	63	7
Lancaster	66	68	70	65	62	70	78	82	16
Pendle(1)	64	57	67	67	66	71	71	73	9
Preston	65	59	64	68	65	67	69	68	3
Ribble Valley(1)	70	70	71	74	74	69	68	81	11
Rossendale(1)	58	66	65	56	65	69	67	68	10
South Ribble	69	69	70	67	70	73	70	71	2
West Lancashire	70	70	69	70	70	69	73	75	5
Wyre	69	68	70	72	74	69	68	75	6
LANCASHIRE COUNTY	66	66	67	66	67	68	70	73	7
Blackburn with Darwen	56	64	62	58	61	59	59	66	10
Blackpool	55	57	59	59	58	62	60	64	9
North West	63	64	65	65	66	66	68	71	8
United Kingdom	66	67	69	68	68	68	70	71	6
Note (1) The rate may at times be based on fewer than 200 VAT registrations and so caution is advised.
Source DTI Small Business Service - Survival Rates of VAT Registered Businesses, 1995-2004, February 2007

Businesses generally have a higher chance of closure (or de-registration) during the first three years of operation than at any other time. After this period the year-on-year number of de-registrations is much lower. This characteristic is illustrated in Table 3 which shows business survival rates up to ten years for the whole of the United Kingdom.

Table 3 Survival Rates of Registered Businesses up to 10 Years, Whole of UK: Percentage Still Trading

	1995	1996	1997	1998	1999	2000	2001	2002	2003	2004	2005
6 months	94.7	94.9	95.5	95.7	95.8	96.0	96.5	97.2	97.8	97.9	98.6
12 months	88.1	88.3	89.7	89.9	90.1	90.5	91.4	92.1	93.0	92.1
18 months	81.2	82.1	83.8	83.9	84.1	84.8	85.9	86.6	87.0	86.9
24 months	75.2	76.5	78.1	78.1	78.4	79.1	80.0	81.1	81.9
30 months	69.9	71.3	73.1	72.6	73.0	73.6	74.5	76.0	77.5
36 months	65.6	66.9	68.5	67.7	68.3	68.4	69.7	71.3
42 months	61.7	62.8	64.2	63.2	63.6	63.8	65.1	67.7
48 months	58.3	59.2	60.3	59.2	59.5	59.8	61.2
54 months	55.1	55.8	56.8	55.4	55.7	56.1	58.2
60 months	52.2	52.6	53.3	51.9	52.4	53.0
66 months	49.5	49.9	50.2	48.9	49.5	50.7
72 months	47.0	47.2	47.3	46.2	47.0
78 months	44.7	44.7	44.7	43.7	45.1
84 months	42.5	42.4	42.5	41.6
90 months	40.3	40.3	40.3	39.9
96 months	38.4	38.4	38.5
102 months	36.5	36.7	37.1
108 months	34.9	35.1
114 months	33.4	33.9
120 months	32.1
Source DTI Small Business Service - Survival Rates of VAT Registered Businesses, 1995-2004, February 2007

How long a company stays in business is influenced by many different factors. Geographic location, type of industry or activity, size and age are some predictable influences that can affect how long a business stays active. For example, some business sectors like retailing, hotels and restaurants tend to have much higher de-registration rates than others (e.g. agriculture), so other things being equal, areas with a higher mix of these would have a lower business survival rate. Unforeseen factors or "events" can also affect the survival of a business, including market influences such as the number and size of competitors and new entrants, changes in technology, as well as general macro economic conditions. Clearly, from the perspective of an entrepreneur investing in a new business, a longer survival rate is desirable as this implies a higher return on the initial investment. However, longer survival rates are not necessarily optimal for the economy overall.

Many studies have shown that high levels of business churn (that is, high levels of both business entry and exit) can be interpreted as a favourable characteristic as it can lead to improvements in productivity and economic growth as more productive or innovative businesses displace less efficient incumbent businesses. It can be viewed as promoting a healthy and competitive economy reflecting a steady process of adjustment from declining to growing industries. In contrast, a static market with little entry and exit will have longer survival rates but may be less efficient and as such may be seen as a sign of undesirable stagnation. Beyond a certain point, of course, very high levels of churn or turbulence could also be seen as a sign of unhealthy instability.