Why is this National Indicator important?
New business formation is a good indicator of how conducive we are to entrepreneurship in the business environment. At the moment, however, we lag behind the UK. Small businesses are the lifeblood of local town centres and communities. That's why a fundamental aim of Government is to improve the business creation and growth of small businesses in Scotland.
Entrepreneurship can be viewed as part of a dynamic process known as 'creative destruction'. This concept of churn - the process by which new innovative firms replace older less productive enterprises - is recognised as a key component of successful wealth creation in modern economies. Academic studies have shown that 30% to 50% of productivity growth in the UK can be ascribed to business churn.
Entrepreneurship is a key element of the Scottish Government's Economic Strategy. The provision of good quality support and assistance will remain crucial to increasing new business formation and sustainable growth of enterprises. But, in the longer term, real improvements in our cultural approach to entrepreneurship and enterprise will provide the greatest and most long lasting benefits.
What will influence this National Indicator?
- Business formation is determined by a number of factors, including:
- General economic conditions: a stronger economy leads to a greater demand for products and services, providing opportunities for new enterprises to supply them. A strong and stable economy also increases optimism in the future and the chance of a new business succeeding.
- Effective regulation: valuable and targeted regulation creates a more conducive business environment, making the start-up process simpler and more attractive to potential entrepreneurs.
- Access to finance: new businesses require finance and investment to set up and commence trading. The relative availability of this finance will help determine the number of new starts.
- Entrepreneurial attitude: the attitude of the Scottish population towards entrepreneurialism influences new business formation. The greater the spirit of entrepreneurialism, the more businesses will be started.
What is the Government's role?
Enhancing the quality and focus of support for business and innovation will have a direct impact on our achievement of this indicator. Our plans for more streamlined, responsive and accessible business support services will support and stimulate business creation, competitiveness, innovation and growth across Scotland.
The recent reforms to Scottish Enterprise and Highlands and Islands Enterprise will allow these key organisations to focus their support on the areas where they can have the most economic impact - investment and innovation by companies and sectors which have growth potential and are of national or regional significance.
The management of the Business Gateway contracts in the Scottish Enterprise area has been assigned to Local Authorities and the service will be extended to the Highlands and Islands Enterprise area. Business Gateway provides a first stop access for all forms of business support including start-up training, business advice and details of financial support that may be available to support new businesses. The role given to local government will ensure a more responsive, accessible and joined-up business development service. Not only will this increase the number of people setting up in business, it will also make business support more accessible at a local level.
How are we performing?
The number of business start-ups in Scotland is relatively stable and has been for the last ten years. The latest figures show 28 registrations per 10,000 population in 2006, which was the same level as 2005.
Source: Department for Business, Enterprise & Regulatory Reform.
Methodology
This evaluation is based on: any difference in the rate within +/- 1 per 10,000 population of last year's figure suggests that the position is more likely to be maintaining than showing any change. An increase of 1 per 10,000 population or more suggests the position is improving; whereas a decrease of 1 per 10,000 population or more suggests the position is worsening.
For information on general methodological approach, please click here.
Further Information
2007 Spending Review Technical Note
Statistics Topic Page
Who are our supporting delivery partners?
Local Authorities (lead role)
Scottish Enterprise
Highlands and Islands Enterprise
Related Strategic Objectives
Wealthier and Fairer