No Change Yet to Regional Inequalities in Investment

Despite the best intentions of levelling up, a massive gap in investment levels between the UK’s regions remains, sparking concerns the country’s investment sector is not unlocking the true potential of different areas.

A recent report by Beauhurst has highlighted regional disparities in investment, with 52% of investments in H1 2022 going to companies based in London – the largest portion to date.

To put that into perspective, London is home to 19% of the UK’s small businesses and receives 62% of investment. This is in stark contrast to Yorkshire and the Humber, home to 7% of the UK’s small businesses, which received only 1.5% of investment.

Companies in Scotland, London and the South-East in particular, continued to outperform other regions by securing the biggest investments, with London, securing an outstanding 1 out of every 2 deals.

Interestingly, the research found that these regional inequalities had little to do with quality of research, or the effectiveness of creating spinouts or industrial sectors.

Rather, these disparities were due to a lack of access to an established finance ecosystem across these regions, hindering the chances of companies based outside London, to attract investors.

Also of note was that in a world which has embraced working remotely, now more than ever, distance matters.

The geographic location of equity investors who are predominantly based in the capital is having a massive impact on invested companies.

The British Business Bank has found that 82% of equity investment stakes in the UK were currently between investors and small businesses located within two hours of each other.

Rurality also matters. As a result of lenders being more inclined to invest into businesses that are closer to them, rural business owners were more likely to use personal funds to grow their businesses.

With the cost-of-living crisis impacting everyone, this could be a risky approach, as it may not allow a business owner to cover the required funds for the business, and could also put their personal assets at stake.

Catherine Lewis La Torre, CEO of the British Business Bank stated, “The lower flows of finance in certain regions and localities reflect a population of businesses operating with fewer choices.”

“These gaps in growth finance are undoubtedly holding back ambitious entrepreneurs leading to wasted economic potential.”

“This is something the British Business Bank is committed to changing”.

Thankfully, the British Business Bank is playing a considerable role in balancing out these inequalities, with many of their financial programs aimed at helping businesses outside London.

Currently, 86% of businesses that have received funding from the British Business Bank are based outside of London, with the Bank investing £943 million into these businesses in 2020 and 2021.

And this is possibly a big reason why the SouthWest, Yorkshire and the Humber, and the North East all announced record deals across the first half of 2022 – encouraging news for the future of the investment sector in the UK.

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