The contribution of Small Businesses to Northern Ireland

Transcription

1 The contribution of Small Businesses to Northern Ireland

2 Foreword from the Federation of Small Businesses The Federation of Small Businesses (FSB) would like to thank the Ulster University Business School and the Ulster University SME Centre for producing this report in response to our request for an independent assessment of the economic and social contribution of SMEs in Northern Ireland. In particular we would like to thank Kirsty McManus, Director of the Centre for SME Development, for coordinating the report, Dr Robert Kerr and Ian Smyth of the Department of Management and Leadership for the survey report, and Dr Mark Bailey of the Department of Accounting, Finance and Economics, for the economic analysis. The research consists of two strands, an analysis of the economic value of the small business sector, and an analysis of the results of a survey which sought to identify the key challenges for SMEs. The results and findings of the research clearly demonstrate that collectively SMEs make the majority contribution to Northern Ireland. Small and medium-sized companies and self-employed people, together, provide; 75% of employment, 75% of turnover and 81% of GVA in NI s private sector. Furthermore, SMEs actually employ more people than NI s large companies and the public sector combined 1. Socially too, SMEs play a major role. As demonstrated in this survey of 200 SMEs, small businesses make a substantial contribution to the socio-cultural fabric of their local area, by employing staff who were previously long-term unemployed, by engaging with schools, colleges and community groups, and by donating time, services and money to local charities. The survey found that 80% of small businesses here intend to grow, which clearly indicates the potential of the sector to expand and flourish under the right conditions. Addressing issues that prevent or discourage growth would therefore contribute significantly to the local economy, not least in employment terms, as the Executive attempts to rebalance the economy towards private sector growth. A number of key themes emerged from the survey results. Most significantly, respondents called for: a reduction of business rates and corporation tax, better broadband provision, more help with online/marketing activity, better availability of skilled staff, a reduction in bureaucracy and regulation, a VAT reduction, and action to address late payments. It is also apparent that we need to capture the enthusiasm, potential and creativity in our population by enabling and encouraging new start-ups. Business registrations in Northern Ireland plummeted in 2009 and again in 2012, from a position in 2005 when NI had the highest start-up rate in the UK. In addition, the five year survival rate of new firms, which used to be the highest, is now the lowest of any UK region or nation. But notably, the most pressing concerns of the small business sector for the future are those of political uncertainty and economic stagnation. These issues must be addressed. The FSB is exploring many of the issues raised by members in more detail in a series of position papers through which we will further identify policy solutions and recommendations. 1 DETI, Quarterly Employment Survey, Table 5.10 (March 2014 figures); ONS Business Population 2014

3 We will be capturing the main findings of all of the research carried out in our forthcoming NI Assembly Election Manifesto, which we hope will raise awareness of small businesses needs and concerns, and assist election candidates and elected members of all parties and political positions when they are developing their own Manifestos, and most importantly, when preparing for and implementing the next Programme for Government and Economic Strategy. This report shows that micro and small businesses are the most important type of business in Northern Ireland. However, when it comes to improving conditions for conducting business, they feel largely overlooked and underestimated. The FSB will be expecting action, not just commitments, and we will be monitoring progress and holding the next government to account. Wilfred Mitchell OBE FSB Policy Chairman NI

4 Foreword from Ulster University Business School It is often said that small and medium sized businesses are an important part of the economy in Northern Ireland but to what extent is this the case? It was to answer this question that the Federation of Small Businesses asked the Ulster University Business School s SME Centre to provide an impartial opinion on both the importance of small and medium sized businesses to the Northern Ireland Economy, and what issues concern such businesses. Through research led by Kirsty McManus, Director of the SME Centre, supported by Dr Robert Kerr, Ian Smyth and Dr Mark Bailey, it was found that there are over 118,000 businesses in the small and medium sized businesses sector (SMEs) 1 in Northern Ireland. These SMEs account for approximately 75% of turnover and employment in the private sector; significantly more than for the UK as a whole where the turnover share is less than 50% and the employment share is approximately 60%. We know that SMEs buy more of their labour and materials from their local economy than compared to larger firms, the SME sector is 81% of private sector non-financial GVA or nearly half of total GVA of Northern Ireland. Also, because of the sectoral mix of expected job creation in the next few years, over 19,500 (89%) of the 22,000 new private sector jobs projected to be created in Northern Ireland s economy between 2014 and 2018 are expected to be in SMEs. Unfortunately the picture is not all good news as Northern Ireland is the one UK region where business births and deaths (registration and deregistration) are roughly equal, as opposed to births being substantially more than deaths, with sharp drops in 5 year survival rates for new firms over the last 5 years in all local government areas, but especially in Belfast and Castlereagh with 70% of firms born in 2008 not surviving to Thus, the research has revealed that small businesses are an important part of the Northern Ireland Economy, but what are the key challenges and opportunities for SMEs? In our research which included a survey of 200 small businesses across all sectors in Northern Ireland, it was found that the major barriers identified as impacting on business success were related to cash-flow (48%), taxation (46%), marketing costs (41%), regulatory issues (38%), availability of skilled staff (35%) and energy costs (35%) with the marketing costs being a greater obstacle with smaller SMEs than larger SME employers and the availability of skilled staff ranking higher as an issue than previous research would suggest. The overwhelming majority (80%) of SMEs plan to grow their own business over the next two years and perceive the key supportive mechanisms to be access to, and the cost of, finance, help with marketing and online activity, and the reduction of business rates. Their big concerns for the future are political uncertainty, the overall economy, cash flow and the availability of skilled labour. The key messages coming from the research show the importance of SMEs to the Northern Ireland Economy, and that support in a number of key areas (business taxation, better broadband provision, more help with online/ marketing activity, increased access to skilled staff, less bureaucracy and regulation) will help their growth and benefit the future economy of Northern Ireland. Professor Marie McHugh Dean of the Ulster University Business School 1 defined as from sole operators to up to 249 employees

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6 Part One The Importance of Small Businesses to the Northern Ireland Economy Prepared by: Dr Mark Bailey Course and Subject Director - Economics Ulster University Business School T: E: mf.bailey@ulster.ac.uk W:

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8 Contents Executive Summary 3 Policy issues 3 Population 4 Turnover 5 Employment 7 GVA 10 Firm Births, Deaths and Survival Rates 12 Geographical location 14 Small Business Rates Relief 20 Sectoral composition 23 Taxation 26 The Future 27 Data Sources and References 29

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10 Executive Summary There are over 118,000 businesses in the SME sector (defined as from sole operators up to 249 employees) in Northern Ireland - most of whom are defined as sole operator businesses. However, over 30,000 of them have employees. All of the broad sectors of the private sector in Northern Ireland are at least 99% made up of SME firms. The SME sector accounts for approximately 75% of turnover in the private sector in Northern Ireland, which is significantly more than the UK as a whole, where the share of SME turnover in private sector turnover is less than 50%, or for Wales or Scotland where the share of SME turnover in private sector turnover is just under 60% and just under 50% respectively. The SME sector in Northern Ireland is 81% of private sector non-financial GVA and 47% of total GVA. Official government figures state that the smaller the size of the firm the greater the GVA contribution as a percentage of turnover, with micro businesses (fewer than 10 employees) contributing almost double the GVA per of turnover than large businesses (greater than 250 employees) - 45p per of turnover compared to 23p per. The SME sector accounts for over 75% of all private sector employment in Northern Ireland, which is significantly more than the UK as a whole where the share of SME employment in the private sector is around 60%; in Scotland the share of SME employment in the private sector is around 60%; Wales is roughly comparable to Northern Ireland in terms of the SME share of private sector employment. The SMEs in the Wholesale and Retail Trade (including Repair of Motor Vehicles and Motorcycles) account for over 20% of all private sector employment in Northern Ireland. Over 19,500 (89%) of the 22,000 new private sector jobs projected to be created between 2014 and 2018 are expected to be in SMEs. Northern Ireland is the one UK region where businesses births and deaths (registration and deregistration) were almost equal, at roughly 9% of registered businesses in 2014; the UK business birth rate in 2013 was 14.1% and the death rate was 9.7%. Since 2009, Northern Ireland has been persistently below the rest of the UK in terms of the net change in the number of business registrations, with an annual decline in the total number of businesses registered. There have been sharp drops in 5-year survival rates for new firms over the last 5 years in all areas, but there have been especially sharp drop in survival rates in both Belfast and Castlereagh for firms born in 2008, with over 70% of firms born in 2008 not surviving to Policy issues How do we make the business environment in general, but especially for SME businesses, as conducive to job creation in Northern Ireland as is the case for the UK? How do we make the 5 year survival rate for new businesses the same as in the rest of the UK addressing the decline of the last 5 years? How do we encourage business creation to increase to the UK level? 3

11 Population The first key question is how many Small Businesses (SMEs) are there in Northern Ireland? There are over 118,000 in total, most of which are zero employee businesses but over 30,000 have employees. Table 1 - Private Sector population in Northern Ireland Number of firms Number of firms Number of firms Zero employees % Micro (1-9) % Small (10-49) % Medium (50-249) % SME (0-249) Other (250 +) % Figure 1 - Private Sector population in Northern Ireland in 2014 by firm size Medium (50-249), 865, 1% Small (10-49), 5025, 4% Other (250 +), 140, 0% Micro (1-9), 26765, 23% Zero employees, 86000, 72% 4

12 Table 2 - Change in the Private Sector population in Northern Ireland Number of firms Change from 2012 to 2013 Change from 2013 to 2014 Zero employees 0.98% 5.15% Micro (1-9) -6.88% 5.77% Small (10-49) -0.10% -0.30% Medium (50-249) 0.00% 2.37% SME (0-249) -0.95% 5.02% Other (250 +) 3.70% 0.00% The number of firms in the zero and micro-sized firm sectors increased in 2013/14 by over 5% in each case (albeit after a similar sized decline in 2012/13 for the micro firm sector). Historical precedence, especially for the zero employees sector, would suggest that this may be a result of people leaving larger firms in a recession and deciding to create their own business rather than re-entering employment. Turnover Small businesses are a key part of the private sector in Northern Ireland. Figures from the Department for Business, Innovation and Skills 2 for the last three years show all SMEs (defined as from sole operators up to 250 employees) contributing approximately 75% of turnover in the private sector in Northern Ireland. Table 3 - Turnover in the private sector in Northern Ireland Turnover millions % Turnover millions % Turnover millions Zero employees % % % Micro (1-9) % % % Small (10-49) % % % Medium (50-249) % % % SME (0-249) 39, % % % Other (250 +) % % % % 2 These figures are taken from Business Population Estimates for the UK and Regions 2012, 2013 and Figures before 2012 in the earlier Small and medium-sized enterprises for the UK and regions data series are not comparable because of methodological changes. 5

13 Figure 2 - Turnover in the private sector in Northern Ireland in 2014 by firm size ( millions) This is significantly more than for the UK as a whole, where the share of SME turnover in the private sector is less than 50%. Zero employees, 5804, 11% Other (250 +), 14,630, 27% Micro (1-9), 9935, 18% Medium (50-249) 11,802, 21% Small (10-49), 12,732, 23%, Table 4 - Turnover in the private sector in the UK Turnover millions % Turnover millions % Turnover millions % SME (0-249) % % % Other (250 +) % % % It is also significantly more than for Wales or Scotland where the share of SME turnover in the private sector is less than 60% in Wales and less than 50% in Scotland. 6

14 Table 5 - Turnover in the private sector in Wales Turnover millions % Turnover millions % Turnover millions Zero employees 6, % 6, % 7, % Micro (1-9) 12, % 12, % 13, % Small (10-49) 11, % 12, % 12, % Medium (50-249) 12, % 13, % 13, % Other (250 +) 30, % 31, % 32, % % Table 6 - Turnover in the private sector in Scotland Turnover millions % Turnover millions % Turnover millions Zero employees 12, % 12, % 12, % Micro (1-9) 24, % 24, % 26, % Small (10-49) 24, % 25, % 28, % Medium (50-249) 28, % 36, % 32, % Other (250 +) 108, % 104, % 105, % % One interesting phenomena is the marginal decline in the share of the turnover cake that NI SMEs are taking in Northern Ireland over this 3 year period, from 75.2% to 73.4% (a drop of 1.8 percentage points), which suggests that although the numbers have been broadly consistent, their average turnover has not been rising in line with that of the rest of the private sector. This does seem to have been a UK wide phenomena. Employment A similar story exists for employment, with the SME sector accounting for over 75% of all private sector employment in Northern Ireland. 7

15 Table 7 - Private Sector employment in Northern Ireland by firm size Zero employees Number of employees thousands % Number of employees thousands % Number of employees thousands % % % Micro (1-9) % % % Small (10-49) % % % Medium (50-249) % % % SME (0-249) % % % Other (250 +) % % % % Figure 3 - Private Sector employment in Northern Ireland in 2014 by firm size Other (250 +), , 24% Zero employees, 96000, 19% Medium (50-249), 84000, 16% Micro (1-9), , 21% Small (10-49), , 20% This shows a similar picture as for the total number of small and medium enterprises, with the number of individuals employed in the SME sector rising over the past 3 years by 1.05% (compared to 1.20% for the private sector as a whole). 8

16 This employment share of the SME sector is again significantly more than for the UK as a whole, where the share of SME employment in private sector turnover is around 60%. Table 8 - Employment in the private sector in the UK Number of employees thousands % Number of employees thousands % Number of employees thousands SME (0-249) 14, % % % Other (250 +) 9, % % % It is also significantly more than Scotland, where the share of SME employment in the private sector is around 60%; Wales is roughly comparable at around 75%. % Table 9 - Employment in the private sector in Scotland Number of employees thousands % Number of employees thousands % Number of employees thousands Zero employees % % % Micro (1-9) % % % Small (10-49) % % % Medium (50-249) % % % SME (0-249) % % % Other (250 +) % % % % Table 10 - Employment in the private sector in Wales Number of employees thousands % Number of employees thousands % Number of employees thousands Zero employees % % % Micro (1-9) % % % Small (10-49) % % % Medium (50-249) % % % SME (0-249) % % % Other (250 +) % % % % 9

17 The 1.05% growth in SME employment over these 3 years is good news for the Northern Ireland economy, but is put in shade somewhat by the 7.28% increase in SME employment over the same period in the UK (and the 5.60% increase in total private sector employment in the UK between 2012 and 2014). The suggestion that arises from this difference is that the business environment for businesses of all sizes, but especially SME businesses, is not as conducive to job creation in Northern Ireland as is the case for the UK as a whole. This is not purely a Northern Ireland versus England difference, as the employment growth rates for SMEs over the 3 year period under analysis are 7.11% in Wales and 4.70% in Scotland. GVA Turning to GVA (which is the value added by firms to the economy as opposed to their turnover which involves purchases from other firms and individuals), small firms are an important component of the total income of the Northern Ireland Economy 3 Table 11 - Northern Ireland Private Sector Non-financial and Total GVA by firm size Firm Size % of Private Sector Nonfinancial GVA % of Total GVA Zero employees 14% 8% Micro (1-9) 25% 14% Small (10-49) 22% 13% Medium (50-249) 20% 11% Other (250 +) 19% 11% 3 This was calculated using turnover data from the Business Population Estimates for the UK and Regions 2014 and median value added for registered businesses, 2013 ( sty-abs-median-2013.html ) 4 The use of private sector non-financial GVA is because whilst in many industries, it is straightforward to sensibly measure output (i.e. count the number of items sold and the monies received for them) that is not the case for financial services along with public sector output and the output of many non-financial business services, such as consultancy and advertising. The main indirect measure of output used in the UK National Accounts is known as Financial Intermediation Services Indirectly Measured (FISIM) which is calculated on deposits and loans assuming that the output of all the implicit services associated with loans and deposits is captured in the margin that the bank makes on them. A detailed discussion of this issue is to be found in Burgess, S. (2011), Measuring financial sector output and its contribution to UK GDP, Bank of England Quarterly Bulletin, 2011 Quarter 3, pp ( quarterlybulletin/qb pdf ) 10

18 Figure 4 - Northern Ireland Private Sector Non-financial GVA in 2014 by firm size Share of Private Sector Non-financial GVA Other (250 +), 19% Zero employees, 14% Medium (50-249), 20% Micro (1-9), 25% Small (10-49), 22% Therefore, firms with less than 250 employees are 81% of private sector non-financial GVA and 47% of total GVA. Partly this importance of the SME sector for overall GVA is due to the differences in value added as a percentage of turnover by employment size, which shows that the smaller the size of the firm the greater the value added as a percentage of turnover, with total value added being 45% of total turnover for micro businesses, compared with 23% for large businesses as shown below. Figure 5 - Value added as a percentage of turnover by employment size, This chart is taken from the median value added for registered businesses, 2013 element of the Business Population Estimates for the UK and Regions 2014 ( sty-abs-median-2013.html ) 11

19 The biggest sectors contributing to this GVA are Manufacturing, Construction and the broad Wholesale and Retail Trade and Repair of Motor Vehicles and Motorcycles sector, in each of which the SME sector adds over 1 billion to GVA in Northern Ireland. SME Firms in the Professional, Scientific and Technical Activities sector are almost of that magnitude of importance to the overall economy. Firm Births, Deaths and Survival Rates At a regional level, Northern Ireland is the one UK region (based on the 2014 Business Demography Report from the Office of National Statistics) where businesses births and deaths (registration and deregistration) were almost equal at roughly 9% of registered businesses. Most other UK regions or nations have 3% or more births than deaths, with the UK business birth rate in 2013 averaging 14.1% and the death rate averaging 9.7%. This concern becomes somewhat more heightened when one looks at the trend for recent years which has 2013 as a good year for Northern Ireland. Since 2009 Northern Ireland has been persistently below the rest of the UK in terms of the net change in the number of business registrations (i.e. births less deaths) with an annual decline in the total number of businesses registered. Figure 6 - Net change in the number of business registrations 6 6 Office of National Statistics (2014), Business Demography th November 2014 ( ) 12

20 How do survival rates in Northern Ireland compare to the rest of the UK? Table 12-5 year business survival rates by UK region Firms born in 2005 Firms born in 2006 Firms born in 2007 Firms born in 2008 North East North West Yorkshire and The Humber East Midlands West Midlands East London South East South West Wales Scotland Northern Ireland UK The 5 year survival rate for firms born in Northern Ireland varies by year from being the highest for a UK region or nation for firms born in 2005, to the lowest of any UK region or nation for firms born in The broad pattern, albeit over a short period, is one of sharp decline which is an issue of concern the differences at a local level, as we will see later, are even more of a concern. 13

21 Geographical Location Where are the SMEs in Northern Ireland located? For this we need to turn to the Inter Departmental Business Register (IDBR), which tells us that most of the old local councils had at least 1,000 SMEs in their boundaries. Table 13 - SME population in Northern Ireland by LGD Firms with less than 250 employees in a given year Council Antrim 1,985 2,010 2,055 2,040 1,980 2,005 1,940 1,845 Ards 2,595 2,665 2,725 2,675 2,565 2,520 2,495 2,390 Armagh 3,155 3,215 3,230 3,225 3,155 3,145 3,160 3,070 Ballymena 2,750 2,785 2,835 2,805 2,705 2,715 2,715 2,610 Ballymoney 1,430 1,495 1,495 1,450 1,430 1,440 1,415 1,335 Banbridge 2,160 2,270 2,260 2,270 2,225 2,190 2,175 2,180 Belfast 8,640 9,030 8,995 8,770 8,525 8,445 8,430 8,635 Carrickfergus Castlereagh 1,390 1,460 1,520 1,530 1,475 1,415 1,385 1,375 Coleraine 2,355 2,370 2,345 2,260 2,185 2,170 2,135 2,065 Cookstown 2,115 2,240 2,325 2,345 2,280 2,275 2,325 2,260 Craigavon 2,765 2,850 2,885 2,865 2,780 2,735 2,690 2,625 Derry 2,760 2,840 2,825 2,795 2,695 2,675 2,645 2,590 Down 2,805 2,945 3,005 2,915 2,835 2,785 2,720 2,720 Dungannon 3,275 3,350 3,380 3,370 3,325 3,315 3,330 3,310 Fermanagh 4,035 4,230 4,275 4,215 4,130 4,195 4,165 4,110 Larne 1,130 1,140 1,205 1,170 1,140 1,130 1,170 1,125 Limavady 1,315 1,395 1,425 1,400 1,360 1,320 1,320 1,265 Lisburn 3,695 3,865 3,910 3,840 3,765 3,735 3,730 3,695 Magherafelt 2,555 2,610 2,665 2,605 2,505 2,535 2,505 2,455 Moyle Newry and Mourne 4,450 4,720 4,865 4,855 4,740 4,655 4,605 4,600 Newtownabbey 1,855 1,940 2,055 2,015 1,940 1,875 1,875 1,855 North Down 2,080 2,155 2,200 2,155 2,075 2,060 2,020 1,885 Omagh 3,170 3,300 3,390 3,355 3,220 3,175 3,190 3,190 Strabane 1,950 1,990 2,030 2,000 1,935 1,900 1,925 1,945 7 Local Government District 14

22 There seems to be no obvious pattern of one area having sustained growth or sustained decline. Focusing just on the last 2 years, four areas have witnessed sharp drops in the number of firms North Down with a decline of 175 firms (8.66% of its total in 2011); Antrim with a decline of 160 firms (8.25% of its total); Ballymoney with a decline of 105 firms (7.42% of its total); and Ards with a decline of 130 firms (5.21% of its total). No other LGD had a 5% rise or fall in the number of SMEs between 2011 and 2013, with most witnessing a fall except Omagh (0.47% growth), Belfast (2.25% growth), and Strabane (2.34% growth) 8. 8 It is worth remembering that this data source is using a definition of SMEs which excludes many of the zero employee firms in particular but it is the only source available which takes us down to a more local level. 15

23 Table 14 - SME population in Northern Ireland in 2013 by LGD and size Council Firms Firms with less than 10 employees (micro firms) Firms with between 10 and 49 employees (small firms) Firms with between 50 and 250 employees (medium firms) Antrim 1, % 9.49% 1.36% Ards 2, % 8.79% 0.84% Armagh 2, % 6.84% 1.30% Ballymena 2, % 7.85% 1.15% Ballymoney 1, % 7.12% 0.75% Banbridge 2, % 7.11% 0.69% Belfast 6,970 1, % 15.75% 3.53% Carrickfergus % 10.07% 2.68% Castlereagh 1, % 13.09% 2.55% Coleraine 1, % 10.17% 1.45% Cookstown 2, % 7.08% 0.88% Craigavon 2, % 11.24% 1.90% Derry 2, % 12.74% 1.74% Down 2, % 7.90% 0.92% Dungannon 3, % 6.95% 1.36% 16

24 Fermanagh 3, % 5.23% 0.97% Larne 1, % 8.89% 0.44% Limavady 1, % 6.32% 1.19% Lisburn 3, % 10.42% 1.62% Magherafelt 2, % 6.11% 1.43% Moyle % 4.79% 0.60% Newry and Mourne 4, % 7.93% 1.30% Newtownabbey 1, % 12.94% 3.23% North Down 1, % 11.14% 1.59% Omagh 2, % 5.80% 0.94% Strabane 1, % 5.66% 0.51% Most SME firms are in the micro firm size band, but some LGDs have over 10% in the small and medium size bands, with Belfast having nearly 20% in the small and medium bands combined. 17

25 Table 15 - Births of new businesses for Northern Ireland by Local Government District, 2013 Firm Births Council 2013 NORTHERN IRELAND 4,855 Antrim 120 Ards 170 Armagh 170 Ballymena 130 Ballymoney 60 Banbridge 140 Belfast 1,040 Carrickfergus 65 Castlereagh 130 Coleraine 145 Cookstown 115 Craigavon 210 Derry 240 Down 175 Dungannon 160 Fermanagh 195 Larne 70 Limavady 85 Lisburn 295 Magherafelt 130 Moyle 45 Newry and Mourne 345 Newtownabbey 160 North Down 200 Omagh 145 Strabane 115 Belfast has the most firm births in 2013 with 1,000 new firms born. 18

26 Table 16-5 year business survival rates by Northern Ireland LGD Survival rates of firms born in a given year Council Firms born in 2005 Firms born in 2006 Firms born in 2007 Firms born in 2008 Antrim Ards Armagh Ballymena Ballymoney Banbridge Belfast Carrickfergus Castlereagh Coleraine Cookstown Craigavon Derry Down Dungannon Fermanagh Larne Limavady Lisburn Magherafelt Moyle Newry and Mourne Newtownabbey North Down Omagh Strabane This table reinforces the sharp drop in 5 year survival rates noted earlier but highlights that some LGDs had very substantial drops Antrim, Ballymena, Banbridge, Belfast, Castlereagh, Craigavon, Fermanagh, Lisburn, Moyle, Newtownabbey and Strabane all had drops of over 10% in the 5 year business survival rate, while Cookstown had a 5% increase. The extremely sharp drop in survival rates in both Belfast and Castlereagh for firms born in 2008 is of particular note, with over 70% of firms born in 2008 not surviving to

27 Small Business Rates Relief If we look at the number of firms qualifying for Small Business Rate Relief (SBRR) from Land and Property Services 9 there are some interesting geographical differences in the percentage of firms eligible in each local government district. Table 17 - Firms eligible for Small Business Rate Relief by Northern Ireland LGD District Council Number of Properties benefitting from Small Business Rate Relief in 2014/15 % of total firms in Northern Ireland eligible for Small Business Rate Relief in LGD % of firms in each LGD eligible for Small Business Rate Relief based on 2013 IDBR geographical distribution figures Antrim % 37.40% Ards % 45.61% Armagh % 29.15% Ballymena % 38.51% Ballymoney % 33.18% Banbridge % 30.92% Belfast % 55.14% Carrickfergus % 55.03% Castlereagh % 40.15% Coleraine % 49.10% Cookstown % 25.66% Craigavon % 47.92% Derry % 54.71% Down % 43.38% Dungannon and S.Tyrone % 29.43% Fermanagh % 30.19% Larne % 42.13% Limavady % 35.02% Lisburn % 39.00% Magherafelt % 29.94% Moyle % 45.87% 9 The data on the number of Properties benefitting from Small Business Rate Relief in 2014/15 in each local government district was provided in response to a request by the Statistics Branch of Land and Property Services. 20

28 Newry and Mourne % 33.15% Newtownabbey % 50.51% North Down % 52.20% Omagh % 27.90% Strabane % 30.13% The percentage of firms in each LGD eligible for Small Business Rate Relief varies from 26% in Cookstown to 55% in both Belfast and Carrickfergus, with the average being 40%. Table 18 - Properties receiving Small Business Rate Relief since 2010 and average amount received since 2010 by Northern Ireland LGD 10 District Council Number of properties receiving SBRR since 2010 Total amount of Small Business Rate Relief since 2010 Average amount of Small Business Rate Relief since 2010 Antrim 879 1,696,978 1,931 Ards ,412,934 1,768 Armagh ,333,410 2,085 Ballymena ,383,532 1,918 Ballymoney 569 1,025,887 1,803 Banbridge 832 1,595,564 1,918 Belfast ,556,334 2,020 Carrickfergus 525 1,056,047 2,012 Castlereagh 714 1,184,372 1,659 Coleraine ,456,586 1,970 Cookstown 756 1,330,074 1,759 Craigavon ,955,224 1,878 Derry ,118,819 1,769 Down ,582,957 1,982 Dungannon and S.Tyrone ,716,685 1,906 Fermanagh ,151,296 1,679 Larne ,542,805 1,671 Limavady 601 1,071,536 1,783 Lisburn 594 1,099,275 1, The data is from Department of Finance and Personnel (2014) - Reval 2015 NI Local Briefings [online at index/reval2015ni/local_briefings.htm ] 21

29 Magherafelt 982 1,597,396 1,627 Moyle ,657 1,876 Newry and Mourne ,435,721 1,815 Newtownabbey ,229,653 1,885 North Down ,124,616 1,788 Omagh ,094,777 1,961 Strabane 703 1,366,477 1,944 The average amount of Small Business Rate Relief received since 2010 is 1877, with some geographic variation between Larne (the lowest at 1671) and Armagh (the highest at 2085). This difference is mainly due to adjusting for valuation changes over time, with properties in Larne receiving the largest negative valuation change (-13%) in the recent revaluation of non-domestic properties in Northern Ireland (which took effect with the 2014/15 rates bills), and properties in Armagh receiving the largest positive valuation change (+23%). 22

30 Sectoral composition How do the small firms break down by sector? The 2014 Business Population Estimates breaks the population of small firms down by sector as follows: Table 19 - Share of enterprises in Northern Ireland for Industrial Sectors by employment size Sector Zero employees Micro (1-9) Small (10-49) Medium (50-249) Other (250 +) Less than 250 A Agriculture, Forestry and Fishing 14, % 3, % % % % 17, % B, D and E Mining and Quarrying; Electricity, Gas, Steam and Air Conditioning Supply; Water Supply; Sewerage, Waste Management and Remediation Activities % % % % % % C Manufacturing 7, % 1, % % % % 9, % F Construction 19, % 4, % % % % 24, % G Wholesale and Retail Trade; Repair of Motor Vehicles and Motorcycles 5, % 5, % 1, % % % 13, % H Transportation and Storage 4, % % % % % 5, % I Accommodation and Food Service Activities % 2, % % % % 3, % J Information and Communication 2, % % % % % 3, % K Financial and Insurance Activities % % % % % 1, % L Real Estate Activities 1, % % % % % 1, % M Professional, Scientific and Technical Activities 5, % 2, % % % % 7, % N Administrative and Support Service Activities 2, % % % % % 3, % P Education 1, % % % % % 2,065 23

31 P Education 1, % % % % % 2,065 Q Human Health and Social Work Activities 10, % 1, % % % % 12, % R Arts, Entertainment and Recreation 4, % % % % % 4, % S Other Service Activities 3, % 1, % % % % 5, % Total 86, % 26, % 5, % % % 118, % 24

32 So all sub-sectors of the private sector in Northern Ireland are at least 99% made up of SME firms. Sector Table 20 - Share of private sector employment in Northern Ireland for Industrial Sectors by employment size Zero employees Micro (1-9) Small (10-49) Medium (50-249) Other (250 +) A Agriculture, Forestry and Fishing 58.06% 38.71% 3.23% 0.00% 0.00% B, D and E Mining and Quarrying; Electricity, Gas, Steam and Air Conditioning Supply; Water Supply; Sewerage, Waste Management and Remediation Activities 0.00% 0.00% 0.00% % 0.00% C Manufacturing 8.86% 10.13% 16.46% 18.99% 45.57% F Construction 42.86% 32.65% 18.37% 6.12% 0.00% G Wholesale and Retail Trade; Repair of Motor Vehicles and Motorcycles 2.86% 35.71% 38.57% 14.29% 8.57% H Transportation and Storage 26.67% 26.67% 33.33% 13.33% 0.00% I Accommodation and Food Service Activities 0.00% 29.41% 44.12% 26.47% 0.00% J Information and Communication 37.50% 25.00% 25.00% 12.50% 0.00% K Financial and Insurance Activities 33.33% 33.33% 33.33% 0.00% 0.00% L Real Estate Activities 99.84% 0.16% 0.00% 0.00% 0.00% M Professional, Scientific and Technical Activities 21.74% 34.78% 34.78% 8.70% 0.00% N Administrative and Support Service Activities 12.00% 16.00% 12.00% 20.00% 40.00% P Education 99.95% 0.00% 0.05% 0.00% 0.00% Q Human Health and Social Work Activities 30.56% 16.67% 27.78% 25.00% 0.00% R Arts, Entertainment and Recreation 50.00% 12.50% 25.00% 12.50% 0.00% S Other Service Activities 36.36% 63.64% 0.00% 0.00% 0.00% Most sectors in the Northern Ireland economy are entirely comprised of SMEs with regard to employment, the exceptions being Manufacturing (54.43% of employment is in SMEs), Administrative and Support Service Activities (60% of employment is in SMEs) and the Wholesale and Retail Trade (91.43% of employment is in SMEs). In all other sectors within the private sector, 100% of employment is in SMEs. 25

33 Table 21 - SME employment in Northern Ireland by Industrial Sector Sector SME Employment (thousands) A Agriculture, Forestry and Fishing 32 B, D and E Mining and Quarrying; Electricity, Gas, Steam and Air Conditioning Supply; Water Supply; Sewerage, Waste Management and Remediation Activities C Manufacturing 45 F Construction 54 G Wholesale and Retail Trade; Repair of Motor Vehicles and Motorcycles H Transportation and Storage 20 I Accommodation and Food Service Activities 42 J Information and Communication 14 K Financial and Insurance Activities 10 L Real Estate Activities 9 M Professional, Scientific and Technical Activities 25 N Administrative and Support Service Activities 19 P Education 4 Q Human Health and Social Work Activities 42 R Arts, Entertainment and Recreation 10 S Other Service Activities Employment in SMEs is a major component of the Northern Ireland economy with 451,000 of the 509,000 in the private sector being employed in SMEs; indeed SMEs in the Wholesale and Retail Trade (including Repair of Motor Vehicles and Motorcycles) account for over 20% of all private sector employment in Northern Ireland. Taxation A response to a parliamentary question estimated that in 2010/11, firms with fewer than 50 employees contributed 21% of PAYE revenues in the UK. The response noted that it was not possible to identify tax revenue raised from small businesses on a consistent basis as the necessary information on turnover, assets and employment is not routinely collected on tax returns for every head of duty Written Answers to Questions Treasury - Monday 24 October 2011 online at cmhansrd/cm111024/text/111024w0001.htm#

34 The Future The Economic Policy Centre (EPC) at Ulster University projects that 22,000 net jobs will be created in Northern Ireland between 2014 and 2018, which they break down by sectors as shown below. Table 22 - Projected changes in SME employment in Northern Ireland by Industrial Sector between 2014 and 2018 SME employment share (my figures) EPC forecast job growth (thousands) Projected share of job growth attributable to SMEs (my figures) A Agriculture, Forestry and Fishing % B, D and E Mining and Quarrying; Electricity, Gas, Steam and Air Conditioning Supply; Water Supply; Sewerage, Waste Management and Remediation Activities % C Manufacturing 54.43% F Construction % G Wholesale and Retail Trade; Repair of Motor Vehicles and Motorcycles 91.43% H Transportation and Storage % I Accommodation and Food Service Activities % J Information and Communication % K Financial and Insurance Activities % L Real Estate Activities % M Professional, Scientific and Technical Activities N Administrative and Support Service Activities P Education % Q Human Health and Social Work Activities % % % R Arts, Entertainment and Recreation % S Other Service Activities % If we assume that the new jobs are split between the SME and non-sme sectors according to the current share of employment by sector, then over 19,500 of these 22,000 jobs projected will be in SMEs. 27

35 This is backed up by both the findings in our survey, that 80% of the firms surveyed plan to grow their business over the next 2 years, and also the latest InterTradeIreland s Quarterly Business Monitor survey for January to March 2015, which says that 41% of Micro firms and 57% of Small firms view their current business environment as being one of growth. 12 This is online at 28

36 Data Sources and References Burgess, S. (2011), Measuring financial sector output and its contribution to UK GDP, Bank of England Quarterly Bulletin, 2011 Quarter 3, pp [available online at pdf] Department of Finance and Personnel (2014) - Reval 2015 NI Local Briefings [online at ] InterTradeIreland (2015), InterTradeIreland s Quarterly Business Monitor survey: Quarter [available online at business_monitor/ ] Northern Ireland Statistics and Research Agency (2015), Inter Departmental Business Register, 4 th February 2015 [ available online at ] Office of National Statistics (2012), Business Population Estimates for the UK and Regions 2012, 19 th December 2012 [available online at statistics/bis-business-population-estimates ] Office of National Statistics (2013), Business Population Estimates for the UK and Regions 2013, 5 th November 2013 [available online at statistics/business-population-estimates-2013 ] Office of National Statistics (2014), Business Demography th November 2014 [available online at business-demography/2013/index.html ] Office of National Statistics (2014), Business Population Estimates for the UK and Regions 2014, 26 th November 2014 [available online at government/statistics/business-population-estimates-2014 ] Office of National Statistics (2015), Business Population Survey median value added for registered businesses, 2013, 15 th January 2015 [available online at ons.gov.uk/ons/rel/abs/annual-business-survey/median-value-added-per-registeredbusiness--2013/sty-abs-median-2013.html ] Statistics Branch of Land and Property Services (2015), Number of Properties benefitting from Small Business Rate Relief in 2014/15 in each local government district [ provided in response to an request ] 29

37 30

38 Part Two FSB (NI) Business Survey 2015 Report Prepared by: Dr Robert Kerr Ulster University Business School Department of Management and Leadership Room 01K17A Shore Road Newtownabbey Co. Antrim BT37 0QB Tel: +44 (0) Ian Smyth Ulster University Business School Department of Management and Leadership Room 01K14 Shore Road Newtownabbey Co. Antrim BT37 0QB Tel: +44 (0) Miss Kirsty McManus Ulster University Business School Ulster University Shore Road Newtownabbey Co. Antrim BT37 0QB Tel:

39 Contents Executive summary 3 Introduction 5 Survey results 7 Business sector 7 Employment 8 Main customer 9 Main customer location 10 Barriers or obstacles to business success 11 How Government can address these issues 17 Main source of business support 18 Business growth 19 Encouraging business growth 20 Future concerns 21 Priority areas for FSB s manifesto 22 Capturing SME contribution to society 23 Summarising main themes 26

40 Executive Summary The FSB (NI) Business Survey 2015 is a Northern Ireland wide survey of SMEs conducted by the Ulster University SME Centre and Ulster University Business School on behalf of the FSB. The main aims of the survey were: 1. To assess the direct contribution of small businesses to the overall NI economy. 2. To identify the key challenges for SMEs in areas such as access to finance, procurement, skills, innovation, local Government reform, exporting. The survey format and questions were established after extensive consultation and focus group activity. This led to the predominant use of open-ended questions within the survey, inviting SME owners to respond to questions in their own words. The survey was launched on the 2 nd June 2015 and closed on the 17 th June A total of 200 complete and usable responses were received. The business sector profile of respondents was broadly in line with previous FSB survey findings and indicates a similar representative sampling of Northern Ireland SMEs. Ninety per cent of the survey respondents employ staff (a rise from previous surveys) with the majority hiring between 1 to 5 employees (52 per cent). The main customer base for the surveyed SMEs is the general public (47 per cent), followed by small private sector small firms (29 per cent), private sector large firms (14 per cent) and the Government sector (10 per cent). Only 15 per cent of the respondents had a main customer outside of Northern Ireland. These were predominantly GB based (7 per cent), the rest of Europe (3 per cent), outside of Europe (3 per cent) and the Republic of Ireland (2 per cent). Given that previous research has noted the high level of export trade activity within Northern Ireland due to the proximity to the Republic of Ireland, it is perhaps surprising that this is the main customer location for relatively few SMEs. The main barriers or obstacles identified by SMEs as impacting on business success were cash flow/ getting paid 48 per cent, profit taxes: corporation / VAT 46 per cent, competition 44 per cent, business rates 43 per cent, cost of marketing / promotion 41 per cent, compliance and regulations 38 per cent, employment taxes 36 per cent, energy costs 35 per cent and availability of skilled support 35 per cent. The cost of marketing / promotion was rated higher than expected and is a greater obstacle with smaller SMEs (ranked 3rd) than larger SME employers (ranked 12 th ). Availability of skilled staff was also ranked higher than previous research findings would suggest. Business rates is the highest ranked obstacle for organisations primarily selling to the general public. Cash flow / getting paid was highest ranked obstacle for SMEs trading with the Government Sector, and for large or small firms within the private sector but was not as critical for SMEs dealing with the general public (ranked 8 th ). When asked how Government could address these issues the top coded response centred on the reduction of bureaucracy and regulation followed by reducing business rates, better broadband provision, a reduction or help with PAYE / NI / Income Tax, a VAT reduction or threshold increase, and payment deadline enforcement and supply chain protection. Other proposed solutions include reducing corporation tax, better access to affordable finance, investment in education and training for schools and universities, more support and investment for small business not Foreign Direct Investments, a rebalance of procurement processes to better suit SMEs and a reduction in energy and fuel prices. 3

41 The main source of business support identified by SMEs was FSB (15 per cent), followed by Invest NI (11 per cent), the internet (11 percent), accountants (9 per cent) then mentors / business network / partners (8 per cent). Nine per cent of SMEs did not know where to go for support. Eighty per cent of SMEs plan to grow their own business over the next two years. The top three reasons given for why an SME is not planning to grow are: the small firm owners believe they are already at capacity and cannot grow any further; the cost of employing additional members of staff; the ongoing political and economic uncertainty leads to hesitation around expansion. When asked what three things would help their business grow, the top three coded responses include access to and cost of finance (44 coded responses); help with marketing and online activity (41) and the reduction of business rates (41). When asked about their two big concerns for the future the respondents identified political uncertainty (33 coding references); the economy (24); cash flow (21) and the availability of skilled labour (19) as the most pressing concerns. When asked to identify what the priority areas for a manifesto should be, the joint top response was cut corporation tax and reduce business rates, followed by better funding and investment for small businesses, less bureaucracy and regulation, and political and economic stability. A number of key themes are present within the survey results. Whilst the importance placed on a theme can vary dependant on the question, a number of obvious themes are recurrent. Most significantly, the reduction of business rates and corporation tax, better broadband provision, more help with online/marketing activity, access to skilled staff, less bureaucracy and regulation and VAT reduction being notable recurrences. Employment in SMEs is a major component of the Northern Ireland economy. Other notable ways SMEs contribute to the Northern Ireland economy, and society in general include: Sixty eight per cent hire a workforce mainly composed of people from the local area Over a quarter hire staff that were previously long-term unemployed Twenty three per cent engage in staff apprenticeship schemes Thirteen per cent hire people with a disability One in four choose a charity of the year Over half donate money / products or time to a good cause. Forty two per cent engage with local schools / colleges Thirty seven per cent engage with local community groups Nearly all SMEs (95 per cent) indicate a long term intention to remain within the local area, with roughly a quarter of them identifying employing and hiring a local workforce as one of the most important ways their business contributes to their local community. 4