Rural_Enterprise_Evidence_Policy_Briefing

1
August 2015 (RPC PB 2015/11)
Scotland’s rural enterprises: What do we know and where are the information gaps?
Roger Turner1
and Jane Atterton2
Executive Summary
 There are more than 51,000 registered private sector enterprises in accessible and remote rural
Scotland. This represents three in every ten registered firms in Scotland as a whole. In comparison,
rural Scotland accounts for just under one fifth of the Scottish population and 98% of the Scottish
land mass.
 The Agriculture, forestry and fishing (or primary) sector accounts for one third of businesses in
remote rural Scotland and one quarter of businesses in accessible rural Scotland. Therefore, two
thirds of businesses in remote rural Scotland (13,665) and 74% of SMEs in accessible rural
Scotland (22,120) are operating outside the primary sector (a total of close to 36,000 businesses),
in activities such as construction, manufacturing and business and professional services.
 This briefing discusses the existing evidence base about these businesses operating outside the
primary sector (i.e. non-primary sector businesses) and provides a number of recommendations for
improving our knowledge about them. Evidence from outside Scotland has demonstrated that
these businesses make a vital contribution to national and regional economic growth. Given their
substantial number in Scotland, it is important to have up-to-date and accurate evidence about
their needs, challenges and opportunities in order to ensure rural development policies and
strategies are designed to provide appropriate support.
 The most important non-primary sectors vary across accessible and remote rural Scotland, and
depending on whether or not the data used relates to the number of businesses, the level of
employment or turnover. Understanding these variations is critical to ensuring that interventions
are appropriately focused on the desired aim (e.g. creating jobs or raising revenue). To fully
understand the importance of different sectors in different parts of rural Scotland, data needs to be
made available at lower spatial and sectoral disaggregation and for different time periods to
compare how situations change over time and in response to various local and structural factors.
 Data is often only collected on registered private sector enterprises in rural Scotland so we lack a
detailed understanding of the characteristics of public sector enterprises and of businesses that are
not registered for PAYE (Pay As You Earn) or VAT (Value Added Tax). Taking account of these
two categories may double the number of rural businesses to 100,000.
 We need to understand more about the structures of rural enterprises, such as the differences
between local business units (i.e. workplaces) and head offices, and the differences in how micro
1
Roger Turner is an independent rural economies consultant with previous experience of working in agencies including the
Countryside Agency/Commission for Rural Communities. E: turners20@btinternet.com
2
Dr Jane Atterton is Manager/Policy Researcher in the Rural Policy Centre at SRUC (Scotland’s Rural College), Edinburgh.
E: jane.atterton@sruc.ac.uk. Thanks also to Taylor Johnson (an intern from the University of Arkansas who worked in the
RPC in Summer 2015), for assisting with the production of this briefing.

2
and large businesses operate and integrate within their local community. Again understanding
these differences is critical to shaping appropriate interventions and support structures.
 Another area where we lack evidence is in relation to the rural labour market and vacancies,
particularly those defined as ‘hard-to-fill’. Better information about the nature and causes of such
vacancies across businesses of different sizes and sectors would help regional and national policy-
makers to plan and implement effective policy measures to boost employment.
 Finer grained analysis of productivity (i.e. Gross Value Added by head) by sector and area would
enable decision-makers at all levels to determine more appropriate interventions to boost growth
and better support businesses. Similarly, more detailed analysis of the dispersal and concentration
of industrial activity would help to inform the design of support programmes and interventions.
 In summary, the high level data and analysis
which is currently available about non-primary
sector businesses in Scotland provides a very
limited understanding of businesses operating
outside the agriculture, forestry and fishing sector.
One outcome of having a limited evidence base is
that these non-primary sector activities tend to be
overlooked in policy and support programmes,
with more emphasis placed on the agricultural
and food and drink sectors (which are
undoubtedly of importance in rural Scotland). With
changes to LEADER in the 2014-20 programming
period such that Local Action Groups will now be
providing support to small businesses in their areas, it is arguably particularly timely to explore
ways in which we can improve this evidence base and achieve a more accurate understanding of
the complete business base in rural Scotland.
1. Introduction
Rural Scotland accounts for 98% of the land mass of Scotland and 18% of the population3
. In March
2014, there were more than 166,000 registered businesses in Scotland, of which 164,230 were private
sector small and medium sized enterprises (SMEs) registered for VAT and/or PAYE4
. These included
20,680 in the country’s remote rural5
areas (12.1%), 29,735 in accessible rural areas (18.1%), and
114,870 in the rest of Scotland (69.9%). Together, accessible and remote rural areas therefore
account for three in every ten (30.7%, 50,415) of all the SMEs in Scotland, compared to just under one
fifth of the population6
.
The Agriculture, forestry and fishing sector (hereafter referred to as the primary sector) accounted for
35% (7,240) of SMEs in remote rural Scotland in March 2014, and at least 17% of this area’s
employment. This sector accounted for 26% of SMEs (7,625) and 13% of employment in accessible
rural areas, and 2,124 businesses (2%) and 0.5% of employment in the rest of Scotland7
.
3
Scottish Government (2015) Rural Scotland Key Facts 2015, Scottish Government: Edinburgh. Available online:
http://www.gov.scot/Publications/2015/03/5411
4
Value Added Tax and Pay As You Earn. This number therefore excludes businesses with no employees and a turnover
below the VAT threshold (£79,000 for tax year from 1
st
April 2013).
5
This is based on the Scottish Government’s sixfold Urban/Rural Classification, 2013-14. For more information, see:
http://www.gov.scot/Topics/Statistics/About/Methodology/UrbanRuralClassification
6
7

3
This means that 65% of SMEs (13,440) registered for VAT and/or PAYE in remote rural Scotland and
83% of employment are in non-primary sector activities. In accessible rural Scotland, even higher
proportions - 74% of SMEs (22,110) and 87% of employment - are outside the primary sector. In total,
almost 36,000 SMEs in rural Scotland (70.5%) operate outside the primary sector, with a combined
workforce of more than 175,0008
.
Evidence from outside Scotland has demonstrated that businesses operating outside the primary
sector are an important driver of local rural economies, and in numerical terms, they are clearly
important in Scotland9
. However, policy-makers, researchers and practitioners lack critical information
about the composition, outputs, changes and challenges facing these businesses in Scotland, but this
information is vital in order to assess this contribution. This is because data from statistical releases
and surveys is not always collected and analysed using the rural-urban classification, and it is not
always available at a level below broad industrial categories. There has also been no dedicated
systematic survey work gathering evidence about Scotland’s non-primary sector rural businesses.
This briefing explores existing evidence about non-primary sector rural businesses in Scotland, and
highlights several key information gaps. It makes a substantial contribution to the discussion amongst
policy-makers, business leaders, support providers and researchers about how to improve the nature
and use of rural economic evidence10
. This is important in the context of recent changes to LEADER,
with the programme now responsible for delivering business support in rural Scotland. More broadly,
the availability of more and better evidence will lead to an improved understanding of Scotland’s rural
economies and the breadth of activities within them, and, importantly, their contribution to the
Government’s overall purpose of increasing Scotland’s sustainable economic growth11
.
The briefing starts by outlining some of the broad trends in Scotland’s rural economies in recent years
(Section 2). It then focuses on what we know and do not know about rural businesses (Section 3), in
terms of their sectoral distribution and importance, size, levels of output and productivity, and
geographical dispersal and specialisation. Throughout the briefing are recommendations (mainly for
those working with enterprise statistics and research) for how the evidence base about non-primary
sector activities in Scotland’s rural areas can be improved. This will assist policy-makers and others in
formulating appropriate policies to increase the contribution of rural economies to the Scottish
Government’s overall purpose of ‘…increasing sustainable economic growth’.
2. Broad trends across rural economies in Scotland – the emergence of a ‘new rural
economy’
In line with most OECD countries, Scotland’s rural areas have witnessed substantial social and
economic changes in recent years. This has been described as a move towards the ‘new rural
economy’12
. The dominance of land and sea-based employment and businesses in rural areas has
reduced as service sector activities have become more important. Rural areas have become more
diversified and better connected as information technology improves. In- and out-migration movements
have altered the demographic profiles of many rural communities and brought new business activities.
EU policies, including the Common Agricultural Policy and Structural Funds regimes, have influenced
rural economic and environmental practices, for example, by placing more attention on farming’s
8
Figures drawn from Scottish Government (2014) Businesses in Scotland 2014, Appendix 5: Urban and Rural Classification
Table 10 for 2014.
9
See for example, Commission for Rural Communities (2008) England’s rural areas: steps to release their economic potential,
Advice from the Rural Advocate to the Prime Minister, Commission for Rural Communities: Cheltenham. Available online:
http://webarchive.nationalarchives.gov.uk/20081105144808/ruralcommunities.gov.uk/events/welcomingtheukcompetitivenessi
ndex2008
10
The RPC is planning to do further work on this theme over the coming months, including an analysis of the policy and
institutional context for rural enterprises.
11
For more information, see Scottish Government (2015) Scotland’s Economic Strategy, Scottish Government: Edinburgh.
12
See for example Copus, A. and de Lima, P. (2015) (Eds.) Territorial Cohesion in Rural Europe, Routledge: London and
New York.

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impacts beyond food production, and supporting business and employment diversification in rural
communities.
The process of rural economic diversification was acknowledged by the OECD in its 2008 review of
Scotland’s rural policies: “Scotland's rural economy is experiencing a ‘second wave’ of diversification
differing from the ‘first wave’ in that it is no longer linked only to farm households but to a significant
housing boom and stronger entrepreneurial activity. This is evidenced by the creation of firms in
construction (+ 610 firms) and real estate services (+1525 firms) in predominantly rural areas from
2000 to 2006.” 13
This: “stable and relatively diversified economy, with good employment and
entrepreneurship indicators” was described by the OECD as one of rural Scotland’s strengths14
.
Nevertheless, economic weaknesses and influences were also found by the OECD team, especially in
remote rural areas, such as the small size of enterprises, low levels of labour productivity and the
overuse of sectoral policies. Some of the OECD’s recommendations have been adopted, for example,
in the design and use of Rural Development programmes including LEADER, and business services
and innovation, including access to technology. However, the prolonged recession that started as the
OECD’s report was being published challenged private businesses and the capacity of the public
sector to strengthen Scotland’s rural economies. While public sector jobs and actions may have
dampened some of the recessionary impacts on rural areas, as growth has returned, political and
business leaders have sought greater contributions from Scotland’s private sector, broadly through the
(recently refreshed) Government Economic Strategy15
and, more specifically, through support such as
Regional Selective Assistance16
.
As Scotland’s economy returns to pre-2008 recession levels, its rural enterprises and employees will
face new opportunities and challenges17
. Some of these will be driven by changing national political
and economic priorities, such as the shift to greater investment in renewable energy production and
the need for Scottish firms to increase exports (including from the food and drink sector) to new global
markets in the face of continued sluggish recovery in Eurozone economy. Others will be driven by
different factors, including changes in EU-funded rural, structural and investment programmes in the
2014-20 programming period.
Given these new opportunities and challenges it is
arguably more important than ever that stakeholders
have a full understanding of the characteristics and
contributions of all of Scotland’s rural enterprises in
order to formulate appropriate support, including
‘traditional’ primary sector activities, expanding sectors
such as renewables, and newly emerging sectors such
as professional services. Reflecting this growing
recognition of the importance and breadth of Scotland’s
rural economies, in a survey administered prior to the
inaugural meeting of the Scottish Rural Parliament in
November 2014, ‘Rural businesses and employment’
was the theme most often highlighted by respondents (almost 60%) as being one that should be
considered by the Parliament18
.
13
OECD (2008) Rural Policy Review: Scotland. OECD Publications: Paris.
14
OECD (2008) Rural Policy Review: Scotland. OECD Publications: Paris.
15
For more information, see: http://www.gov.scot/Topics/Economy/EconomicStrategy
16
Scottish Government (2014) Regional Selective Assistance (RSA). For more information see:
http://business.scotland.gov.uk/view/funding/regional-selective-assistance-rsa
17
Scottish Government (2014) State of the Economy, Office of the Chief Economic Adviser, December. For more information
see: http://www.gov.scot/Resource/0046/00464822.pdf
18
Steiner, A., Brodie, E. and Skerratt, S. (2014) Analysis of online survey themes and Twitter ‘Rural Hours’, for Scottish Rural
Action. Report prepared by Scotland’s Rural College’s (SRUC’s) Rural Policy Centre for Scottish Rural Action (October).

5
3. The characteristics of rural businesses in Scotland – what we know and evidence gaps
This section of this briefing is divided into a series of sub-sections, each of which explains what we
already know about an important feature of non-primary sector rural businesses and what the evidence
gaps are. Recommendations are made for how the evidence base could be improved.
3.1 What are the most important non-primary sectors in rural Scotland?
Table 1: The top five non-primary Broad Industry Sections by number of rural private sector
enterprises, numbers in private sector employment and £ turnover (2013)
Area Sections
Top 5 non-primary industry sections by number of private sector enterprises
Remote
Rural
Wholesale,
retail & repairs
Construction
Accommodation
& food services
Professional,
scientific &
technical
activities
Arts,
entertainment &
recreation: other
Service activities
Accessible
Rural
Professional,
scientific &
technical
activities
Construction
Wholesale,
retail and
repairs
Administrative
& support
service
activity
Transportation
and storage;
Information &
communication
Top 5 non-primary industry sections by numbers in private sector employment
Remote
Rural
Accommodation
and food
services
Wholesale,
retail &
repairs
Manufacturing
Education,
Human
Health &
social work
activities
Arts,
entertainment &
recreation: other
Service activities
Accessible
Rural
Manufacturing
Wholesale,
retail &
repairs
Education,
Human Health
& social work
activities
Construction
Accommodation
& food services
Top 5 non-primary industry sections by £ turnover
Remote
Rural
Wholesale,
retail & repairs
Mining,
quarrying &
utilities
Manufacturing Construction
Transportation
and storage;
Information &
communication
Accessible
Rural
Manufacturing
Wholesale,
retail &
repairs
Mining,
quarrying &
utilities
Construction
Administrative &
support service
activity
Source: Drawn from Scottish Government: Office for National Statistics (ONS) analysis of the Inter Departmental Business
Register (2013)

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Statistics for registered enterprises in remote and accessible rural areas are regularly published by the
Scottish Government for 18 of the 21 Broad Industry Sections (BISs). This is the highest level of
aggregation in the UK’s Standard Industrial Classification (SIC)19
. Agriculture, forestry and fishing is
one such Section (referred to as the primary sector in this briefing), and this supports the largest
number of enterprises in remote and accessible rural areas 7,240 and 7,625 SMEs respectively in
2014).
Looking outside primary sector activities,
however, Table 1 ranks the top five Sections in
remote and accessible rural areas according to
their stock of registered private sector
enterprises, employment and turnover. Several
industries make a leading contribution to
Scotland’s rural stock of registered enterprises,
levels of employment or business revenue (Table
1). In remote rural areas, the Wholesale, retail
and repairs Section is ranked highest in terms of
the number of enterprises and turnover. In
contrast, Accommodation and Food service
providers (often regarded as a proxy for tourism)
make the leading contribution to employment in
these areas. Manufacturing is the ‘top’ non-primary industry in accessible rural areas in terms of
employment and turnover, while the Professional, scientific and technical activities Section makes the
leading contribution in terms of numbers of private enterprises.
Table 2 shows movement (or stability) within the leading ranks of industry between 2010 and 2013. In
remote rural areas, the Wholesale, retail and repair and Construction industry Sections rank
consistently highly (1st
and 2nd
respectively) for their stock of enterprises, whereas Accommodation and
food services consistently ranks highly in terms of employment. The Professional, scientific and
technical Section appears as 3rd
most important in remote rural areas in terms of the number of
enterprises in 2013 and exploring more recent data will reveal whether this is a trend which is set to
continue.
The pattern is somewhat different for accessible rural areas. Manufacturing ranks 1st
throughout the
period in terms of employment, but it is the Professional, scientific and technical Section which ranks
consistently 1st
in terms of the number of enterprises. Construction also performs consistently strongly
in terms of the number of enterprises.
19
For more information, see: http://www.ons.gov.uk/ons/guide-method/classifications/current-standard-
classifications/standard-industrial-classification/index.html
Recommendation 1: Data at Broad Industry Section (BIS) level should be presented in
different ways, such as changes in the number of enterprises, employment and turnover.
This will enable interventions to be focused on the correct target depending on the desired
aim (e.g. increasing revenue or creating more jobs).

7
Table 2: All non-primary Broad Industry Sections occupying a top three position for any of these
measures (2010-13)
Remote rural areas
Section 2010 2011 2012 2013
Mining,
quarrying &
utilities
1st
for £ turnover 1st
for £ turnover 2nd
for £ turnover 2nd
for £ turnover
Manufacturing 3rd
for £ turnover 3rd
for employment
3rd
for £ turnover
3rd
for
employment
3rd
for £ turnover
3rd
for
employment 3rd
for £ turnover
Construction 2nd
for enterprises
3rd
for employment
2nd
for enterprises 2nd
for
enterprises
2nd
for enterprises
Wholesale,
retail and
repairs
1st
for enterprises
2nd
for employment
2nd
for £ turnover
1st
for enterprises;
2nd
for employment
2nd
for £ turnover
1st
for enterprises
2nd
for
employment
1st
for £ turnover
1st
for enterprises
2nd
for
employment
1st
for £ turnover
Accommodation
& food services
1st
for employment
3rd
for enterprises
1st
for employment
3rd
for enterprises
1st
for
employment 3rd
for enterprises
1st
for
employment
Professional,
scientific &
technical
activities
3rd
for enterprises
Accessible rural areas
Section 2010 2011 2012 2013
Mining,
quarrying &
utilities
3rd
for £ turnover 3rd
for £ turnover 3rd
for £ turnover 3rd
for £
turnover
Manufacturing 1st
for employment
1st
for £ turnover
1st
for employment
1st
for £ turnover
1st
for employment
1st
for £ turnover
1st
for
employment
1st
for £ turnover
Construction 2nd
for enterprises
3rd
for employment
2nd
for enterprises
3rd
for employment
2nd
for enterprises 2nd
for
enterprises
Wholesale,
retail and
repairs
3rd
for enterprises
2nd
for employment
2nd
for £ turnover
3rd
for enterprises
2nd
for employment
2nd
for £ turnover
3rd
for enterprises
2nd
for employment
2nd
for £ turnover
3rd for
enterprises
2nd
for
employment
2nd
for £
turnover
Professional,
scientific &
technical
activities
1st
for enterprises 1st
for enterprises 1st
for enterprises 1st
for
enterprises
The data reported in these Tables shows the changing importance – or stability - of non-primary sector
activities to rural Scotland, but compared to primary sector activities we know relatively little about
these activities. The Table also demonstrates how different measures (i.e. turnover, number of
enterprises and employment) can produce different profiles of rural economies. This is important when
thinking about appropriate policy formulation as using different types of evidence may suggest different
outcomes and policy priorities.

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The data is presented here for remote and accessible
rural areas and suggests fairly limited change in recent
years in the dominant industries. However, this level of
aggregation (BIS) masks marked variation in the scale of
change for enterprises and employment within broad
industries. Below the SIC BIS level are 88 Divisions and
272 Groups. For example, the Manufacturing Section
contains 24 Divisions, several of which are important in
rural Scotland, including the manufacture of wood and
wood products, paper and paper products, textiles,
wearing apparel, and food products and beverages.
However, disaggregated reporting of industry Divisions
in rural areas is hard to find.
While some Divisions or Groups will have too few rural enterprises or employees to enable robust
analysis and presentation of data (particularly if remote and accessible rural are reported separately), it
would be useful to further explore what is possible. A good example of the use of such data was the
Scottish Enterprise (SE) study into the role and limitations of rural business premises in affecting
business growth20
. This study included statistical profiles of employment and businesses for SE’s 13
priority sectors for 1998-2006 which informed an assessment of the impact of such changes on
demand for business premises. However, this analysis has not been updated and there is little
evidence of other agencies researching or acknowledging rural areas’ contributions. For example,
Skills Development Scotland’s sector Skills Investment Plans 2012-2015 make almost no
acknowledgement of the rural contribution to employment in these sectors, or to specific rural
challenges. Only those Investment Plans for Tourism and Food and Drink acknowledge the different
contributions of, or challenges for rural economies 21.
It is also worth noting that there are differences in the employment performance of different BIS in
recent years. Between March 2010 and 2013, for example, accessible rural areas supported the
largest rate of increase in the numbers of enterprises (4.3%) and of employment (0.5%), partly due to
growth in the workforce in the primary sector. The highest level of employment growth in non-primary
BISs over this period came from the Administration and support service activities, with an additional
workforce of 1,780 people or 9.8% since 201022
. Other BIS also saw employment growth, including
Accommodation and food services, Manufacturing and Wholesale, retail and repair (although the
number of enterprises in the latter BIS actually fell, again demonstrating the importance of reviewing
different kinds of evidence to get a full picture of change within a sector). The Construction BIS, a
leading industry in rural Scotland by the number of registered enterprises (see Table 2) lost 345 firms
and shed 2,529 from its workforce over the March 2010-March 2013 period. By March 2013, 24,870
20
Ekos Ltd. (2008) Rural business premises and economic development. Report to Scottish Enterprise Rural Group (March).
Available online: http://www.scottish-enterprise.com/knowledge-hub/articles/publication/rural-business-premises-and-
economic-development-report.
21
Skills Development Scotland (2012 & 2013) Skills Investment Plan for Scotland’s food and Drink Sector and Skills
Investment Plan for Scotland’s Tourism Sector. Available online:
http://www.skillsdevelopmentscotland.co.uk/media/309948/skills_investment_plan_for_scotland_s_food_and_drink_sector_ju
ne_2012.pdf and http://www.skillsdevelopmentscotland.co.uk/media/595056/tourism_sip_document.pdf
22
Data presented results from authors’ analysis of: Scottish Government (2014) Businesses in Scotland 2014, Tables 10 and
11 2010-13, Appendix 5 Urban and rural classification tables.
Recommendation 2: To improve decision makers’ understanding of the extent and
importance of different industrial activities in rural Scotland, it would be useful to develop
rural-urban profiles for the 88 SIC Divisions, making them available to economic and rural
researchers, policy makers, politicians and trade bodies at regular intervals. Three yearly
intervals may be appropriate and spatial disaggregation – at least separating accessible and
remote rural areas – is vital.

9
people were employed in Construction activities. Part of the decline in this sector may be cyclical but
the data suggests that the sector requires some attention, given its importance in rural areas. Studies
elsewhere in the UK have found that the sector in rural areas has some distinct features when
compared to the sector in urban areas, including the dominance of building repair and maintenance
rather than new build activity, its close alignment with farm and farm employee diversification, and the
fact that it serves as an important repository of skills and knowhow for the conservation of heritage and
listed buildings.23
Some sectors also experienced decline in remote
rural areas but this was offset by growth in
accessible rural areas (for example,
Transportation and storage, Information and
communications), while for others the opposite
pattern was observed. The causes of such
differences are many, including short term
responses to economic challenges or long term
cyclical changes. Understanding the causes is
critical to informing the design and delivery of
public policies and public and private sector
interventions but cannot be meaningfully
examined at aggregated industry or spatial levels
(see Recommendation 2).
3.2 Unregistered and public sector enterprises in rural Scotland
In 2014, Scotland’s rural areas had 51,140 enterprises registered for VAT/PAYE, which collectively
employed 294,190 people and had a turnover of £35,181million. This represented around 31% of the
nation’s private sector enterprises, 16% of Scottish employment but only 13% of its private sector
revenue24
. However, these statistics only present a partial picture of Scotland’s rural businesses, as
they only include: 1) non-governmental/private sector enterprises, therefore excluding an unknown
number of public sector firms; and 2) private sector firms that are registered for VAT or PAYE –
therefore excluding firms where the turnover does not reach the VAT threshold and that do not have
employees.
At the level of Scotland as a whole, the public sector was made up of 215 enterprises and 549,370
jobs in 201425
, with the largest employer being in human health and social work activities. The public
sector is also often presented as a large (and sometimes the largest) employer in rural Scotland,
providing up to 20% of all jobs. Yet evidence about these central or local government enterprises and
their employment and turnover in rural Scotland is rarely available in the main sources of business and
rural statistics.
Private sector firms which are not registered for VAT and/or PAYE - classified as Unregistered
enterprises - are also excluded from the 51,140 total of rural enterprises. Across Scotland as a whole
in March 2014, unregistered enterprises made up 50.3% of all private sector enterprises in Scotland,
with 168,490 unregistered and 166,525 registered firms respectively26
. If this national picture is
replicated in rural areas, then this would double the number of rural businesses to more than 100,000.
23
The Countryside Agency (2004) The construction sector in rural England. Research Notes CRN 81, The Countryside
Agency, Cheltenham (August).
24
This data from the Inter Departmental Business Register (IDBR) is analysed using the Scottish Government Rural-Urban
threefold classification and is taken from: Scottish Government (2014) Businesses in Scotland 2014, Business and Enterprise
Statistics, Office of the Chief Economic Adviser, Scottish Government: Edinburgh. There may be slight differences between
this data and that reported in the Rural Scotland Key Facts publications.
25
Scottish Government (2014) Businesses in Scotland 2014 (Appendix 3 Table 4) Scottish Government, Edinburgh.
26
Scottish Government (2014) Businesses in Scotland 2014 (Appendix 2, Table A) Scottish Government, Edinburgh.

10
Often these unregistered enterprises are newly-formed businesses which have not yet reached the
VAT threshold. In rural areas, many may be home-based. Home-based businesses make up half of
businesses across Scotland according to a recent Federation of Small Businesses (FSB) report, and
an even higher proportion in rural areas (approximately 59%)27
. Homeworkers, including those running
businesses, have been increasing as a share of all employment, especially in remote rural areas, from
20% in 200728
to 22% in 201329
. However, this data is rarely disaggregated by business sector or
activity, therefore it is not possible to confirm how many of these businesses are farms or other land-
based activities, for example. An exception is the recent FSB report which attributed only 6.2% of rural
HBBs to agriculture.
The economic profiles of rural Scotland will be very different depending on the inclusion or exclusion of
unregistered and public sector enterprises. They will also be different if the source data only records
enterprises (i.e. the business address registered for financial and other records) or also includes local
business units (LBUs, i.e. workplaces). This distinction is important as it can reveal different
characteristics (for example, in the networks or linkages between a head office and its local economy
or a branch office or workshop and its local economy) on which to build interventions.
3.3 Employment change in rural Scotland: residence- and workplace-based statistics
In 2013, more than 475,000 residents of rural Scotland were in employment (139,900 in remote rural
areas and 336,010 in accessible rural areas)30
. However, in the same year, private sector enterprises
in rural Scotland employed less than 300,000 people (100,690 in remote rural areas, and 187,540 in
accessible rural areas)31
. This demonstrates how residence-based employment numbers in rural areas
are significantly higher than employment numbers reported by enterprises located in rural areas.
This is because surveys and official statistics record the employment characteristics of residents, or
provide information about the workforce of registered rural businesses, which effectively excludes the
working behaviour of large numbers of rural people who are not employed by these enterprises (i.e.
those working in the public sector or those working in unregistered enterprises). But others are also
excluded from these statistics, including people working in rural business units which have urban head
offices and people who commute from rural homes to work in urban-based businesses and
27
Mason, C. and Reuschke, D. (2015) Home Truths: The true value of home-based businesses, Report prepared for the
Federation of Small Businesses (February). Available online: http://www.fsb.org.uk/news.aspx?rec=8889
28
Skerratt, S., Atterton, J., Hall, C., McCracken, D., Renwick, A., Revoredo-Giha, C., Steinerowski, A., Thomson, S., Woolvin,
M., Farrington, J, and Heesen, F. (2012) Rural Scotland in Focus 2012, Edinburgh: Rural Policy Centre, Scottish Agricultural
College.
29
30
Annual Population Survey 2013 as reported in Scottish Government (2015) Rural Scotland Key Facts 2015, Scottish
Government: Edinburgh. Available online: http://www.gov.scot/Publications/2015/03/5411
31
Scottish Government (2013) Businesses in Scotland 2012, Business and Enterprise Statistics, Office of the Chief Economic
Adviser, Scottish Government, Edinburgh (Table 10 for March 2011 data).
Recommendation 3: It would be useful to collect and make available detailed information on
the numbers and activities of unregistered and public sector enterprises in rural (and
urban) areas of Scotland. This will help to inform appropriate policy responses to support
these enterprises, and enable more accurate estimations of the total number of enterprises.
Recommendation 4: Those working with the evidence, where possible, should seek to use all
sources and characteristics of rural enterprise and employment, as linked analysis can
reveal important differences on which to build different interventions, such as between head
offices and branches (or business units) of enterprises.

11
organisations. Often it is not possible to know
where these individuals work and for whom, which
industries, occupations, size/type of business etc.
they work in, what their qualifications are, and how
all of these things are changing over time. All we
know is that this group will include people in a
variety of different employment situations, all of
which are unquantified.
Understanding the differences between residence
and workplace-based statistics is crucial for policy-
makers in understanding how to build effective
interventions to achieve the desired outcome. This
is because the characteristics of those living and
working in rural areas may be substantially different to the characteristics of those living in rural
Scotland but working in urban locations. For example, if the desire is to boost the residence-based
employment rate, then measures that boost labour markets to which rural residents commute may be
more effective. If the desire is to boost local employment within rural firms, then information, incentives
and interventions will need to be different.
3.4 Employment change in non-primary sector activities – the contribution of large, medium
and small firms
Most people working in rural Scotland are employed in very small firms. Enterprise size is most often
presented in bands of employee numbers, thus micro-businesses have 1-9 employees, contrasting
with large firms which have 250+ employees. In 2014, only 2.5% of registered enterprises in remote
rural areas and 3.5% in accessible rural areas employed more than 50 people (i.e. were medium and
large firms). The comparable figure for the rest of Scotland was 4.7%32
. In contrast, in the same year,
sole traders, partnerships, microbusinesses and small firms (10-49 employees) provided over two
thirds (68.7%) of employment in remote rural areas and 54.6% of employment in accessible rural
areas; but less than a third (32.2%) in the rest of Scotland33
.
Between 2010 and 2013 across Scotland as a whole, micro and small firms (1-49 employees) have
made the most marked contribution to employment growth, with an additional 13,530 employees,
owners and partners. The largest proportionate growth rate was delivered by micro and small firms in
accessible rural areas. In remote rural areas, medium sized enterprises (50-249 employees) recorded
the largest percentage fall in employment. The overwhelming majority of employment decline in this
four year period came from large private enterprises in the rest of Scotland, which ended the period
with 23,210 fewer people in employment.34
32
Scottish Government (2014) Businesses in Scotland 2014, Business and Enterprise Statistics, Office of the Chief
Economic Adviser, Scottish Government, Edinburgh Rural and Urban tables (Table 9 for March 2014 data).
33
Calculations based on Scottish Government (2014) Businesses in Scotland 2014 (Appendix 5 Table 9).
34
Calculations based on authors’ analysis of 2010-13 data in Scottish Government (2014) Businesses in Scotland 2014
(Appendix 5 Table 10)
Recommendation 5: Those planning interventions to boost employment should examine
differences between two distinct sets of published employment data. Using residence- and
workplace-based evidence together may help to define different interventions for workers
resident in rural areas who may commute to distant labour markets, from those who work
locally in rural firms. Such linked analysis would particularly help, for example, in
programme planning for Scotland’s city regions, towns and their rural hinterlands.

12
Thus, small and micro firms in rural areas make a larger contribution to employment than similar firms
in non-rural locations. Therefore it follows that any difficulties faced by micro- and small firms in
recruiting and retaining staff will have a disproportionate impact on Scotland’s rural economies.
Conversely, any interventions that help very small firms to attract and retain a skilled workforce are
likely to have a more beneficial impact on employment growth in rural Scotland. At the same time,
while the evidence justifies the focus of rural stakeholders on supporting micro and small firms, those
who deliver support should not forget the significant impact of a few large enterprises in rural Scotland
(725 firms each employing 250+ workers in 2014). These provided work for 1 in 5 of those working in
remote rural areas, and 3 in 10 jobs in accessible rural areas.35
Further research on these large rural
firms would be worthwhile to better understand their business activities and how they are distributed,
the geography of their linkages and networks, and their growth trends and drivers.
3.5 Employment change in non-primary sector activities – what potential for growth?
Surveys of rural SMEs elsewhere in the UK36
report moderate growth aspirations amongst micro-
business owners. They also report the reluctance of many such firms to take on employees, preferring
instead to grow by increasing turnover and profitability. Some influences on rural firms’ recruitment and
retention are within the capacity of their owners and managers, such as pay levels, in-house training
and promotion. Others are not, and are affected by structural factors, such as public transport,
education and affordable housing.
The impacts of these wider influences on rural employment are evident in an analysis of the UK’s
largest Employer Recruitment, Skills and Training Survey37
. The survey demonstrated rural-urban
differences in the causes of, and responses to, hard-to-fill vacancies38
, for example. Vacancies across
the UK amounted to less than 3% of employment levels in rural and urban areas, although firms in the
Highlands and Islands had much higher vacancy rates (15.9%). UK-wide vacancies classed as hard-
to-fill were also a small share (0.4% of total employment in urban areas, compared to 0.6% in rural
areas) with higher proportions in skilled trades, and associate professionals (1.3%), hotels and
restaurant firms (1.2%) and in firms with fewer than five employees in rural areas (1.4%).
Analysis of the causes of such hard-to-fill vacancies revealed some important rural and urban
differences. Rather than reasons relating to poor or inappropriate skill levels, rural businesses were
more likely to attribute them to: a low number of applicants generally; insufficient people interested in
35
Calculations based on Scottish Government (2014) Businesses in Scotland (Appendix 5 Table 9).
36
See for example, Raley, M. and Moxey, A. (2000) Rural microbusinesses in the North East of England: Final Survey
Results, Centre for Rural Economy Research Report (July); Atterton, J, and Affleck, A. (2010) Rural Businesses in the North
East of England: Final Survey Results (2009), Centre for Rural Economy Research Report (June). Both available online:
http://www.ncl.ac.uk/cre/publish/researchreports/index.htm.
37
UKCES (2013) Secondary Analysis of Employer Surveys: Urban and Rural Differences in Jobs, Training, and Skills.
Evidence Report 75 (October).
38
Hard to fill vacancies are those which employers’ experience difficulty in recruiting, which may be due to reasons other than
skill shortages amongst employees and those seeking work.
Recommendation 6: The contribution of large enterprises to rural economic sustainability
should be better recognised and harnessed by rural economic development and enterprise
organisations. This may come, for example, by: embedding these firms in local rural
development strategies and encouraging them to work more closely with rural
communities, through sponsorship of local events, for example; working with them to
localise supply chains or to engage in local public sector procurement; exploring the
potential for these firms to extend their internal employee training or export programmes to
firms within their supply chains; and by working closely with their expansion, marketing
and restructuring plans.

13
doing this type of job; poor recruitment channels; the ‘benefits trap’; and a remote location and poor
public transport. These recruitment difficulties clearly caused operational and financial challenges for
businesses. Some rural firms responded by strengthening in-house training, redistributing workload
and increasing the flexibility of their workforce, but for more rural than urban firms, the response to
hard-to-fill vacancies was to ‘do nothing’. Scottish firms are included in this survey’s large sample, but
rural-urban analysis of vacancies cannot be found for Scotland, nor does this report distinguish
vacancies and recruitment responses between primary and non-primary industries, meaning that it is
of limited usefulness in understanding the characteristics of the labour market in rural Scotland.
3.6 The output and productivity of rural Scotland’s non primary sector businesses
The profiles presented thus far outline the scale of, and change in, rural Scotland’s stock of non-
primary sector enterprises, their employment and their revenue. Some surveys and statistical releases
also include information on output (GVA), productivity (GVA per head39
), labour costs and other
determinants of industrial performance. However, while such information is often available for Scotland
or its administrative units (such as local authorities40
), or for industries or SIC Divisions, it is rarely
analysed using the official rural-urban classification. While this is sometimes because data becomes
less robust when applied to small areas, the absence of rural-urban profiles means that agencies
cannot determine if interventions in rural areas, for example to boost productivity, should be different to
those in urban areas41
.
Some information is available, for example:
 Aberdeenshire made the second highest contribution in Scotland (after the City of Glasgow) to
the construction industry’s total output (GVA);
 Moray delivered manufacturing industry’s highest productivity in Scotland, with levels close to
twice that of all Scotland (£133,000 and £70,000 GVA per employee respectively), particularly
helped by firms operating in the manufacture of food, beverages and tobacco, where
productivity exceeded £181,000;
 The productivity of those employed in sustainable tourism in Eilean Siar (Western Isles)
(£18,845) was marginally higher than that of Edinburgh’s workers in these Divisions (£17,945),
yet gross wages and salaries for this key sector in Eilean Siar were only 2.3% that of
Scotland’s capital.
This kind of data and analysis enables decision-makers to identify rural locations and industries that
make particularly strong contributions to wider economies. These strengths can then be reinforced with
targeted support. It is also worth noting that sectors that are traditionally strong in rural areas, such as
39
Gross Value Added (GVA) is a standard indicator of total economic output, at its simplest measuring the value of goods
and services produced by a business, industry, area or economy. GVA per worker, or GVA per hour, measures the
productivity of employees and allows comparison between firms, industries or areas, or even between outputs of the same
firm over time.
40
Scottish Government (2013) Scottish Annual Business Statistics 2011.
41
It is also important to note that productivity is often lower in local areas with high levels of commuting, and is higher in cities
and many urban areas where commuters contribute to the creation of wealth. For more information, see Commission for
Rural Communities (2008) England’s rural areas: steps to release their economic potential, Commission for Rural
Communities: Cheltenham.
Recommendation 7: Better evidence of the nature, causes and responses to vacancies in
Scottish labour markets, presented by business size, sector, and occupation, and by rural
and urban categories, would help those at national and sub-national level to plan and
implement effective policy measures to boost employment.

14
primary activities and tourism, tend to have lower productivity than sectors that are strong in urban
areas42
.
3.7 Dispersal and specialisation of activities in rural economies
Primary sector activities are predominantly found in rural Scotland, with only 0.7% of employment in
urban Scotland in this sector, and they are widely dispersed across rural areas. Therefore it can be
assumed that rural development programmes are effective vehicles to support these industries
throughout rural Scotland. It is also the case that some key non-primary sector activities, such as
Construction and Retail activities (especially when presented at BIS level, i.e. the highest level of
industry aggregation incorporating a variety of business activities) are also widely dispersed in rural
Scotland. These activities are active in both rural and urban locations but the opportunities, challenges
and needs may be similar or different in different locations. These firms are more likely to rely on
business and employment schemes that are not rural specific, meaning that this support must be
sensitive to the specific challenges and opportunities of rural locations. This sensitivity should be
ensured through the process of mainstreaming, which is therefore critical to the sustainable growth of
non-primary industries in rural Scotland.
In contrast, some business activities important to rural economies, when represented at the lower SIC
Division level, are amongst the most concentrated in the country, for example, the processing and
preservation of fruit and vegetables, logging, and the production of beverages. Understanding the
dispersal or concentration of rural enterprises helps to plan and shape geographically-targeted and
sector-targeted policy interventions and support measures. Such targeting is illustrated by the Scottish
Textile Strategy43
or Forest Products Industry Strategy, for example44
. These enable economic and
rural agencies to optimise rural areas’ competitiveness by focusing on distinctiveness. It also helps
agencies to address business challenges that can result from over-concentration, as well as provide
opportunities to target investment to specific locations to boost supply chains, service provision,
introduce new occupations and diversify economies.
Whilst such responses are evident for land-dependent industries, such as dairies and sawmills, there
appears fewer initiatives like this in the Construction, Retailing or Professional and scientific services
sectors for example, despite the fact that most rural settlements or towns have clusters of such
activities. While LEADER Local Development Strategies, for example, might be aware of and
supportive of farm-related and tourism enterprises, it is more questionable as to whether local
economic agencies would be aware of their rural areas’ national specialisations in activities such as
42
Defra (2015) Towards a one nation economy: A ten point plan for boosting productivity in rural areas, Defra, London
(August). Available online: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/454866/10-point-
plan-rural-productivity-pb14335.pdf.
43
Textiles Scotland (2011) A Strategy for the Textiles Industry in Scotland 2011–2015, Scottish Textiles Industry Association.
44
Scottish Enterprise and Scottish Forest and Timber Technologies Advisory Group (2011) Roots for Future Growth, A
Strategy for Scotland’s Forest and Timber Sector.
Recommendation 8: Finer level data analysis of productivity by sector and area would
enable decision-makers at all levels to better determine the inputs and interventions required
to generate sustainable growth for national and local economies. Rural-urban analyses of
this information would help plan appropriate support for non-primary rural enterprises and
employment from publicly-backed programmes and agencies.
Recommendation 9: A better understanding of industrial dispersal would help policy-makers
to design rural into general business and employment support schemes which have wide
geographic focus (i.e. to ensure rural mainstreaming happens). In contrast, understanding
spatial concentrations in rural industries will inform the planning of geographically and
sectorally targeted policy and support interventions, and help agencies to tackle challenges
of over-concentration.

15
printing and publishing or electro/thermo/chemical instrumentation, for example. Opportunities to
maximise the potential and indeed grow these clusters may therefore be being missed.
Evidence of spatial dispersal or concentrations of
activities and tools for identifying them are available for
all local authorities, countries and regions in Great
Britain and for all SIC Divisions and Groups. One of the
most widely used and easily understood sources
calculates Location Quotients (LQs) to enable
comparisons between the number of employee jobs in
one industrial sector within any country, region or local
authority area, with the share of such employee jobs in
that same sector at national or UK level45
. Thus if a
business sector employs 10% of the total number of
employees in Great Britain, any local authority area in
which 10% of its total number of employees are employed in the same sector would have a LQ = 1.0.
If the local authority had a smaller share employed in an industrial sector than the sector’s share of
employment for Great Britain, the district’s LQ would be <1.0, but if that industry provided employment
to more than the GB share, then its LQ would be >1.0. Thus, industries with large LQs show a marked
specialisation in the relevant district, but a small LQ would show it to be weakly represented.
For example, in 2011, Scotland’s LQ for the Fishing and Aquaculture sector was 7.4, and for Forestry
and Logging was 2.9, reflecting the stronger concentration of these primary industries in Scotland than
in Great Britain as a whole. These industries’ LQs in Dumfries & Galloway, for example, were 8.21 and
17.37 respectively, demonstrating both the important contribution they made to employment in rural
south west Scotland, and the importance of this region to Scotland’s primary sector economies. On the
other hand, financial services are traditionally seen as an indicator of city and major urban economies,
with heartlands in the UK’s capital cities. This is demonstrated by LQs in Insurance, reinsurance and
pension funding business activities, for example. In Dumfries & Galloway this industry’s LQ was 0.15,
whereas its strong concentration in and contribution to the City of Edinburgh is demonstrated by the
LQ of 7.88.46
This kind of evidence can confirm (or otherwise) perceptions of industries traditionally
regarded as indicators of rural (or urban) economies. LQs can also be used to differentiate the local
strength of business activities that are aggregated to form BISs. The South of Scotland
Competitiveness Strategy 2007-201347
, for example, suggests that this kind of analysis has been
undertaken for the economies of Dumfries and Galloway and the Scottish Borders, but it has not been
widely used.
45
Other methods and data sources used to identify spatial and sectoral concentrations can be viewed at:
Office for National Statistics (2014) The Geographical Concentration of Industries. Cecilia Campos, in Regional Economic
Analysis; The Spatial Distribution of Industries Cecilia Campos and Richard Prothero, in Regional Economic Analysis; and
Industry specialisation toolkit for Country, regions and local authorities and SIC 1, 2 and 3 industry levels. ONS 2014. Data on
employment is drawn from annual Business Register and Employment Surveys.
46
Office of National Statistics (ONS) (2012) Industrial Specialisation in Local Areas. In Regional Economic Analysis. Available
online: http://www.ons.gov.uk/ons/rel/regional-trends/regional-economic-analysis/industrial-specialisation-in-local-areas/rft-
table-4---lq-full.xls
47
South of Scotland Alliance (2008) South of Scotland Competitiveness Strategy 2007-13.
Recommendation 10: Greater use of tools such as LQs and dissemination of the results
would help those working to support sustainable growth in non-primary sector activities to
optimise measures to strengthen area and industry competitiveness and distinctiveness, or
to plan economic diversification.

16
Conclusion
Rural Scotland is geographically and industrially diverse,
and its enterprises and employees make important
contributions to regional, national and international markets
and societies. However, its diversity, contribution and
potential are not as visible in business and economic
surveys, analysis and other evidence as they could be, and
this is particularly the case for non-primary sector
enterprises and jobs. This lack of visibility is the result of a
variety of factors, including the high level of industry
aggregation (e.g. BIS) often used when economic profiles
for rural Scotland are presented, or the amalgamation of
geographical areas, such as remote and accessible rural,
or of business characteristics (such as business size, age, stage and function). The Scottish
Government’s rural-urban classification is not widely enough used in terms of gathering and presenting
the evidence, at both national and sub-national or local authority level. Moreover, some analytical tools
and indicators of business distribution and performance in regular use by economic stakeholders,
appear not to have been employed in profiling Scotland’s rural economies.
While some local level studies of rural businesses exist, their focus varies, such that amalgamating or
comparing data (between localities or between the local and national) is difficult. Where such local
level studies are undertaken, they would benefit from closer collaboration (in terms of preparation,
collation and/or presentation), between local and national partners. Additional longitudinal analysis of
key economic indicators would also help in improving our understanding of rural Scotland’s businesses.
In particular, it would help to demonstrate the impacts of different short- and long-term interventions
and the role of structural or cyclical drivers in affecting rural business performance. The causes and
impacts of these different processes will vary, thereby justifying different policy or support responses48
.
The evidence base about the characteristics and contribution of rural businesses is better developed in
England and Wales than it is in Scotland. In the case of England, this is at least partly due to the
evidence collection work of the Countryside Agency and its successor organisation, the Commission
for Rural Communities, while in Wales the Welsh Rural Observatory has undertaken rural business
survey work. This evidence base has been used in policy formulation in England, for example, in
setting up Defra’s Rural Growth Networks49
.
Building up a similar body of work in Scotland would enable researchers, policy-makers and
practitioners to better understand the characteristics and contributions – and potential additional
contributions - of rural businesses, and particularly those operating outside the primary sector where
the evidence base is currently lacking. A better evidence base will contribute to an improved
understanding of rural economies and their contribution to Scotland’s overall sustainable economic
growth.
48
A recent example of such analysis was conducted for rural England, see Defra (2014) Drivers of rural enterprise: Change,
stability and decline. Frontier Economics report to DEFRA.
49
For more information, see: https://www.gov.uk/government/publications/2010-to-2015-government-policy-economic-growth-
in-rural-areas/2010-to-2015-government-policy-economic-growth-in-rural-areas.
For more information on the work of SRUC’s Rural Policy Centre, please contact the team on:
T: 0131 535 4387; E: rpc@sruc.ac.uk; W: www.sruc.ac.uk/ruralpolicycentre

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