Task Force on Small and Medium Sized Enterprise Data (SMED) UK presentation on: Reporting the adjusted number of SMEs as per SME definition Consistency between SBS and business demography

Reporting the adjusted number of SMEs as per SME definition

Definition of SMEs There are three broad parameters which define SMEs: Micro enterprises have up to 10 employees Small enterprises have up to 50 employees Medium-sized enterprises have up to 250 employees The European definition of SME follows: "The category of micro, small and medium-sized enterprises (SMEs) is made up of enterprises which employ fewer than 250 persons and which have an annual turnover not exceeding 50 million euro, and/or an annual balance sheet total not exceeding 43 million euro."

Reporting the adjusted number of SMEs as per SME definition Current position - SBS For large number of industries provide: Count, Turnover, Employment (plus other variables) by following size bands: 0-1, 2-9, 10-19, 20-49, 50-249, 250+ Combinations of size band, NUTS, NACE As per the SBS regulation For section G, breakdown in variables by turnover: 0-1, 1-2, 2-5, 5-10, 10-20, 20-50, 50-200, 200+ NOT split by employment also Size band breakdown based on Employment (in line with FRIBS)

Reporting the adjusted number of SMEs as per SME definition Current position – Business Demography Data for Active, Births, Deaths and Survivals For data by Legal Status breakdown Count, Employment and Employees Split by Sole Proprietor, Limited Liability, Partnership For NACE Rev 2 breakdown as per SBS Annex IX regulation For data by Employee size class Split by 0, 1 - 4, 5 - 9, 10 or more, Total

What potentially could be done Size band breakdown could be expanded to cover all industries currently covered as part of SBS Subject to quality & disclosure issues Breakdown could be provided by size band (employment) and turnover (T/O) Need to consider industrial level Need to ensure no ‘missing’ coverage i.e. Micro businesses (employment less 10) AND T/O greater than £50m

Issues that would need to be considered Balance sheet information Defined as part of the current definition – this information is currently not available Adds to the complexity of the definition Potential impact on quality & disclosure as more disaggregated How SMEs should be handled as part of a larger multi national company (enterprise group) Not easily identifiable if an enterprise is a true SME or part of larger enterprise group

Consistency between SBS and business demography

Consistency between SBS and business demography Analysis that identified the issue (Eurostat): Number of Enterprises Number of Persons Employed SBS (2011) 1,689,849 17,691,578 BD (2011) 1,993,320 17,815,666 Difference 303,471 124,088 Percentage 15.2 0.7 Number of Enterprises Number of Persons Employed SBS (2012) 1,696,386 17,749,549 BD (2012) 2,018,720 18,174,724 Difference 322,334 425,175 Percentage 16.0 2.3

Consistency between SBS & BD Emp/count ratio for the difference between SBS & BD Ref. Period 2011 – 0.4 Ref. Period 2012 – 3.1 Whilst ratio suggest small businesses reasons not necessarily related

Why are there differences if the regulation requests the same criteria? The regulation does not specify the criteria to be applied as such, instead it specifies that the scope is "... all market activities in sections B to N and P to S of ... NACE Rev 2". Individual annexes to the SBS regulation then further clarify the coverage as B to N (required) and P to S (optional) for most domains. The criteria that is applied to the data both for SBS and Demography is then our (ONSs) attempt to create a representative universe from the register data.

Reasons for differences between SBS & BD Coverage (though analysis on ‘same’ basis) BD coverage: B - N compulsory; B - S voluntary exclude K but include 64.2 SBS coverage: B - N compulsory but exclude K P, Q, R and S but provide division 95 in section S ‘Dead’ businesses (approx 220,000) SBS take the selection at a point in time (live universe) BD include units that were birthed, active and died during the start to end of the time frame BD provides units excluded from survey universe due to risk of duplication (approx 140,000) Unmatched PAYE (tax on employment) that have not been proven – 100,000 ‘Dummy’ units that are not matched or proven – 40,000 Takeovers (approx 9,000) Included in SBS but absent on BD

Improvements to provide better consistency Introduction of unmatched PAYE (tax on employment) to survey universe (for SBS data) From the 2016 survey period these will be included – 100,000 Will cause a discontinuity in SBS data; not possible to incorporate into the ‘back data’

Issues remaining for consistency The major difference is ‘point in time’ v ‘active during the period’ (businesses that cease trading) The SBS regulation suggests should be compiling data for all units that had activity during the reference period This is not practical from survey/sampling perspective - how do we send a form and receive data back from a business that has ceased to trade?

How to handle businesses that have ceased trading during the year Should they be included or excluded from both? Could/should an adjustment be made? Any adjustment primarily would be needed to the counts (and may be T/O), not the employment figures. If you compare the demography employment with annual employment they are much closer aligned (percentage wise). For many of the businesses that close it is anticipated that the employment will move into another active business and therefore be captured. Any attempt to try and add the employment of ‘dead’ units is likely to create duplication within the data. In theory the SBS universe (including all businesses active during the reference period) could be represented but would bring with both methodological and practical issues that would require considerable work to ensure that the current quality of data is not harmed. How do other countries (specifically those that are consistent between SBS & BD) handle this issue?