Despite economic uncertainty, Cumbrian firms show signs of resilience

He says: "While large firms and organisations are the major providers of employment in local economies, it is nonetheless the case that the vast majority of businesses are small. The most recent published data indicate that 98% of all businesses in Cumbria employ less than 50 people. In fact, 89% of Cumbrian businesses are actually classed as “micro”, employing less than ten. This, of course, is not unusual – these figures are all very close to the national average for the UK.

It is instructive, therefore, not only to ask which sectors in Cumbria generate most employment (which tends to emphasise sectors with larger businesses), but also to ask, which activities are most prominent in generating and sustaining business enterprises in the county.

We can get some idea of this by observing the Cumbrian economy through a lens provided by data on the numbers of business enterprises operating in different sectors. The UK Office for National Statistics publish data on counts of business enterprises based on VAT registrations and PAYE tax records. This gives some very useful insights into the significance of small businesses in local economies.

The most recent data is for March 2023. At that reference point, the data indicates that there were 22,705 business enterprises operating in Cumbria. Significantly, 4,670 (or 22.6%) of these are in the Agriculture, forestry & fishing industrial category which illustrates the distinctive character of the farm sector in the county. The next largest categories in terms of number of enterprises are in Construction (2,955 or 13%) followed by Accommodation & Food Services (2,130 or 9.4%), Professional, Scientific & Technical Services (2,095 or 9.2%) and Retailing (7%). The data in effect, brings to prominence sectors of the economy that are characterised by large numbers of smaller businesses – hence Manufacturing only accounts for 4.7% of enterprises and Health only 2.8%.

The trend over time makes this data useful in attempting to understand the impacts of economic changes and related circumstances on the business community. Across the UK as a whole, there were 2,718,435 enterprises registered prior to the pandemic (2019) and despite the adverse circumstances created by lockdowns, the number of enterprises recorded actually increased annually between 2019 and 2022. There was a slight fall in number in 2023 (-1.5%) but the number of enterprises currently still exceeds the figures reported prior to the pandemic.

By contrast, the number of enterprises in Cumbria has declined slightly between 2019 and 2023, from 23,670 in 2019 to 22,705 in 2023. While this decline in the number of enterprises needs to be scrutinised, it is still the case that there has not been a catastrophic fall in the number of enterprises as supports provided during the pandemic have been removed. This suggests that there has been a degree of resilience in the face of shocks to the economy and adaptability to changing circumstances.

This conclusion is supported by examining the rate of new firm formation in Cumbria. In 2019, there were 1,720 new registrations for PAYE or VAT, suggesting a “birth rate” of 58 new businesses per 10,000 working age population. Despite the lockdowns, this rate remained unchanged in 2020 (1,715 new starts) and actually increased in 2021 (1,815). However, de-registrations have generally outnumbered registrations. The number of de-registrations declined from 1,845 in 2019 to 1,645 in 2020 though rose again in 2021 (2,055).

Lastly, this data produces survival rates for established businesses. 62.4% of businesses operating in the county in 2018 were still operating in 2021, exceeding the UK average of 57.6%. This confirms the overall conclusion that even in the most challenging circumstances most businesses in Cumbria have displayed considerable resilience.

At national level, there are some interesting differences between business birth rates by sector. The highest business birth rates have been associated with transport & storage. In 2021 alone, the birth rate for this sector was a striking 25.9% (National Statistics: Business Demography, UK: 2021). It is suggested that this reflects growth in numbers of small or single-person courier services to meet the demand for home deliveries during 2020 which continued into 2021. One should also take into account that transport and storage had an above average business cessation rate in 2021 (21.8%) which indicates considerable volatility and high competition within a growth sector. The second largest birth rate in 2021 was recorded for Accommodation & Food (15.8%) which appears to reflect the increase in demand for such services post-Covid.

This evidence can be used to support the conclusion that business support mechanisms have been effective through the pandemic, and it is certainly plausible to argue that many businesses may not have survived without such interventions at national and local levels. However, such support is only effective in so much as businesses demonstrate a capacity to innovate even in the most difficult circumstances.

In this regard, a very timely business survey was conducted in October-December 2020 (Cumbria Business Survey 2020, Report prepared for Cumbria County Council by BMG Research Ltd. February 2021). This survey generated data to show that uncertainty regarding forward planning related to the Coronavirus pandemic was by far the most widespread barrier to growth and survival in late 2020 (stated by 72% of respondents).

But even in this most uncertain period, a high proportion of business owners had plans to innovate in the following three years (68%). Some of this involved plans to introduce new or improved products and services (53%) often accompanied by significant new processes or business practices (60%). All this evidence suggests that most business-owners in Cumbria recognise the need to make plans to differentiate themselves from competitors, lower cost or increase efficiency especially in an economic environment that is complex and uncertain."