Section Menu

Technical Notes for PSA 6

URN No: 02/1613/A6

PSA Target 6. Help to build an enterprise society in which small firms of all kinds thrive and achieve their potential, with (i) an increase in the number of people considering going into business, (ii) an improvement in the overall productivity of small firms, and (iii) more enterprise in disadvantaged communities.

(i) an increase in the number of people considering going into business

Data
Number of people thinking about starting a business, also known as “would-be entrepreneurs”. This data comes from the SBS Household Survey of Entrepreneurship, conducted by the Small Business Service’s Research and Evaluation Unit (Strategy Directorate). The sample size was about 6,000 people. It was a telephone survey, lasting approximately 20 minutes. The sample was drawn to over-represent areas with a high proportion of ethnic-minority residents. This was then weighted out to more accurately reflect the England population. It is not a National Statistics product.

Supporting information will be the Total Entrepreneurial Activity (TEA) Index supplied by the Global Entrepreneurship Monitor (GEM), which is produced by the London Business School/Babson College, sponsored by SBS. GEM is also not a National Statistics product and employed a similar methodology to the Household Survey above, with a sample of 5,500 people in the UK.

Definitions
People – the share of the resident population of England aged 16 to 64 (in Household Survey) or of the UK over 16 (in GEM).

Considering going into business – known as “would-be entrepreneurs” – people are asked “have you recently thought about starting your own business or buying into an existing business?” Those who answered “yes” are then asked “is this something you are thinking of doing in the near future, within the next two years or so, or further in the future than that?”, so supporting information on “when” is also available.

Supporting information also from TEA – this is made up of the total numbers of people involved in nascent (start-up) business and in new firms which have operated for up to 42 months.

Timing
The baseline is from the 2001 SBS Household Survey. The 2001 Survey was the first of its kind, so we have no indication of the trend in the proportion of “would-be entrepreneurs” until the next survey is carried out in 2003. The target should be achieved by the 2005 Household Survey.

The results of the Household Survey are published around 6 months after the fieldwork period. The 2003 survey is planned for July 2003, with results published in early 2004. The 2005 Household Survey is planned for summer 2005, with results published in early 2006.

GEM is an annual production. The most recent GEM report was for 2001, the results of which were published in April 2002.  GEM 2002 results will be released on 12 December 2002.

Territorial Scope
The Household Survey covers England only. GEM has UK coverage.

Success Criterion
To increase the number of adults considering going into business or becoming self-employed from 12% in the 2001 Household Survey to 14% in the 2005 survey.

(Since the Household Survey of Entrepreneurship is a sample survey of 6,000 adults, only changes of more than one percentage point in the rate from survey to survey are statistically significant.)

Supporting Information
The Household Survey also found that 5.8% percent of adults were considering going into business or becoming self-employed within the next two years.

GEM 2001 found that the UK had a TEA index of 7.7, ie 7.7 people in every 100 were involved in either running a new business or starting one. The UK is roughly middle-ranked out of the 29 countries covered by GEM.

Changes to Measuring the Target
The Household Survey was originally planned to be an annual survey but is now to be conducted every 2 years. The absence of a survey in 2002 means that information on progress towards this target will not be available for some time yet.  

(ii) an improvement in the overall productivity of small firms

Data
Productivity will be measured using data from the ONS Annual Business Inquiry (ONS ABI), and supporting information from the ONS Inter-Departmental Business Register (ONS IDBR) (of all businesses registered for VAT and/or PAYE).

These data are National Statistics products. Government statisticians meet regularly to check ABI methodology through an ABI User Group. The DTI is an important part of this group. The ABI is a annual survey of around 70,000 businesses, conducted in two parts: financial and employment data. Businesses with more than 250 employees are surveyed every year, with smaller businesses surveyed less frequently to reduce administrative burden. Certain industries are excluded, such as public administration.

The ABI is a sample survey, and data is therefore subject to sampling errors. However, the survey data is subjected to a number of validation and consistency checks, including outlier detection.

The IDBR covers businesses in all parts of the economy, other than some very small businesses (self-employed and those without employees and low turnover) and some non-profit making organisations. With 2.1 million businesses listed it provides more than 99% coverage of UK economic activity. (Although the IDBR covers all sectors, certain industries are excluded from calculations of turnover/employment, including financial intermediation, and employment agencies (labour recruitment and provision of personnel)).

Definitions
Productivity – Gross Value Added (GVA) per employee (ABI)

Gross Value Added – represents the income generated by businesses out of which is paid wages and salaries, the cost of capital investment and financial charges, before arriving at a figure for profit. It includes taxes on production but not subsidies or taxes on products. GVA data from the ABI is currently measured in terms of basic prices.

Employee – data is available for total employees and full/part time workers. A measure of productivity based on hours worked is not available from the ABI.

Small firms – the baseline uses the SME definition of enterprises with fewer than 250 employees.

Turnover divided by total employment (IDBR) is also a supporting measure of productivity.

Timing
1999 and 2000 ABI data are available, via a special analysis. Annual updates are planned, with a time lag of at least 18 months, ie 2001 data will not be available until mid 2003 at the earliest. Changes to data collection mean that historical data on a comparable basis is not available pre 1998 so long-term trend data is not available.

Supporting information from the IDBR is also available, with a 9 month time lag, ie data relating to end-2002 will be available in Autumn 2003.

Progress will be measured annually with a 2006 target date.

Territorial Scope
UK

Success criterion
The productivity of SMEs and all firms will be measured annually over the period 1999 to 2006, using data from the Annual Business Inquiry. Productivity is defined as gross value added (GVA) per employee.

The measure of success is for the productivity of SMEs to increase by more than the productivity of all firms, accompanied by an overall increase in UK productivity over the economic cycle (measured under PSA Target 1).

Supporting Information
In 1999, GVA per employee in SMEs (0 to 249 employees) was about 92% that of large firms (more than 249 employees).  In 2000, SME productivity was 93% that of large firms.  (The 1999 figure of 92% is a correction to the 68% figure previously quoted. This is due to a policy decision at the ONS – financial sector data has now been excluded from the data provided by the ONS, due to quality issues, and the new figure reflects the exclusion of this sector. Data for the education and health sectors are also excluded from this measure, as they are calculated on a different basis for National Accounts purposes.)

However, part-time working is more prevalent in large firms than SMEs, so changing the measure to count two part-time workers as one rather than two employees affects the figures slightly: on this basis, SME productivity was 90% and 92% that of large firms in 1999 and 2000 respectively.

In both 1999 and 2000 SMEs were more productive than large firms in four sectors: energy; construction; wholesale, retail and repairs; and real estate, renting and business. SMEs were less productive in four sectors: manufacturing; hotels and restaurants; transport, storage and communications; and other community, social and personal services.

For the SME sector, over two-thirds of total GVA and total employees are in just three sectors: manufacturing; wholesale, retail and repairs; and real estate, renting and business. Therefore changes in these sectors will have a larger impact on SME productivity as a whole.

Latest Outturn
SME productivity increased by 6% between 1999 and 2000, while the UK productivity as a whole increased by 5% (measured at basic process). We have no trend data available.

Turnover/employment data from the IDBR shows a 4% increase between 1999 and 2000 for SMEs compared to a 3% increase for all enterprises (basic prices). 2001 IDBR data shows that turnover/employment was unchanged in SMEs (0%) compared to a 1% increase in all firms as a whole (basic prices). 

(iii) more enterprise in disadvantaged communities

Data
VAT registrations per 10,000 resident adults, or self-employment data as an alternative.

The Small Business Service produces both self-employment figures (through the Household Survey) and VAT registration rate figures (using data from the ONS IDBR. Self-employment figures are also available from the quarterly Labour Force Survey (ONS).

ONS data is National Statistics. The Index of Multiple Deprivation (IMD) rankings were put out to public consultation before being agreed in 2000. Self-employment data comes from the SBS Household Survey of Entrepreneurship (see under (i) above).

The ONS Labour Force Survey is based on interviews with around 61,000 households in the UK every quarter. It is a National Statistics product, and data is only published where sample sizes are large enough to enable robust comparisons.

Definitions
Enterprise – VAT registrations, self-employment levels or those running a business.

Disadvantaged communities – the 20% most deprived wards according to the IMD.

More – at least a one percentage point reduction in the shortfall of VAT registrations per 10,000 adults compared to the 20% least deprived wards each year.

A small number of inner city wards – particularly in London – are excluded from the measure.

Timing

The target should be achieved by 2004.

The baseline is from 2000, based on VAT registrations data, which is published annually. Data for 2004 will be available by end 2005.

Self-employment data comes from a biennial SBS survey, the first of which took place in 2001, or via the ONS LFS survey, with results released three months after the end of each quarter’s coverage period.

The next SBS Household Survey is planned for summer 2003, with results available in early 2004.

Territorial Scope
England.

Success Criterion
Reducing the gap between VAT registrations in the 20% most deprived and 20% least deprived wards by at least one percentage point each year.

The gap between most and least deprived (both areas and people) in terms of self-employment should also be reduced.

Baseline
In 2000 there were 31 VAT registrations per 10,000 resident adults in the 20% most deprived wards, compared with 49 per 10,000 in the 20% least deprived wards. This was a shortfall of 35.5%. (Data have been revised due to improvements in the methodology used. Data are also subject to further revisions, particularly when the ONS publishes new population estimates.)

In 2001 the SBS Household Survey recorded that 15% of people in the 20% most deprived wards were self-employed or running a business, compared with 19% in the 20% least deprived wards.

Latest Outturn
In 2001 there were 30 VAT registrations per 10,000 resident adults in the 20% most deprived wards compared with 46 per 10,000 in the 20% least deprived wards. This is a gap of 34.4%, a narrowing of just over one percentage point in rates between 2000 and 2001. In general, VAT registrations per 10,000 resident adults in England fell from 41 in 2000 to 39 in 2001.

Changes to Measuring the Target
The baseline currently only covers disadvantaged areas, rather than groups. More work is underway to collect data on self-employment rates by gender and ethnic groups, monitor changes in self-employment rates over time, and set appropriate targets.

The Labour Force Survey and the SBS Household Survey of Entrepreneurship are both being considered as sources.