How Big is the North-South Divide?

How Big is the North-South Divide?

Farzana Haque, 01 June 2023

In 2019, 33 newspapers and websites joined forces to launch the Power Up the North campaign. It called on parliament to prioritise and redress regional inequalities and the increasing North-South divide in the UK. The campaign put full weight behind strategies and initiatives to enable sectors to flourish, increase investment, improve housing and move decision-making outside of London. And it hasn’t stopped there. In the past four years, there have been numerous campaigns such as Levelling Up—a £4.80b fund to support community projects. 

This got us asking ourselves the question: how much have things changed since 2019? 

To answer this question, we’re looking into whether the North-South divide in the high-growth space is as profound as it was in 2019. We’ll look at the UK-wide distribution of companies, equity funding and innovation grants to provide some insight into how far we have (or have not) come. To find out… read on! 

High-growth companies by region 

Back in 2019, London dominated the scene. It was the headquarters for more than a third (37%) of all high-growth companies. And today, that figure has barely changed—it’s now at 35%. The steady flow of capital and interest from foreign investors still outweighs the high cost of operating in the city, making it the most conducive place to start a new venture in the UK

Unchanged from 2019, the South East continues to benefit from the overflow of entrepreneurial activity in London. With 16% of high-growth companies calling it home, it retains the second-highest number of high-growth companies in England. 

This leaves a fairly thin spread of high-growth companies across the rest of England, with just 5% in the East Midlands and a low of 3% in the North East. The hive of high-growth activity around Manchester helps drive the share of companies in the North West to 9%, the highest level outside of the South. All of this has remained vastly unchanged in the past four years. 

When the regions are collated, the stark North-South divide becomes more apparent—London and the South have a fairly similar share of high-growth companies, 35% and 33% respectively (a combined 68%), leaving the Midlands with just 12% and the North with 19%.  

Evidently, the definitive divide in the distribution of high-growth companies across the country persists. As we now look at two of the main channels of financial support in place for these businesses, equity investment and grant funding, we will ask, has much changed at all? 

Equity distribution by region 

Looking at the difference between the proportion of high-growth companies in the regions and the share of equity deals that they have received since 2011, we see that there has been no significant change in the past four years. Once again, London is disproportionately advantaged. The capital is somewhat of a sinkhole for UK funding—taking 50% of equity deals since 2011, 15% points more than its 35% share of high-growth companies. 

However, despite London’s significant funding allocation, there are no standout ‘losers’. The corresponding 15% shortfall is shared across the remaining 8 regions, resulting in a much less aggressive 1-3% deficit in each region. On a broader level, the funding gap between The North and The South sits at just 2%, down from 3% in 2019.  

We see that London is often the most attractive location for Venture Capital (VC) investors due to the number of young, fast-growing technology companies that have the potential to provide substantial returns in a short amount of time. Other regions in the UK, especially in the North, have a higher proportion of more established, industrial businesses that are less attractive to VCs. 

Grant distribution by region 

Things start to even out a little when it comes to innovation grant distribution. Of course, this is in part due to the nature of grant funding. Innovation grants are awarded to businesses with technologies that are very high-risk and/or extremely beneficial to society. Those companies that manage to secure grants are therefore highly innovative and IP-heavy and are often linked with universities, the vast majority of which are outside of London. In addition, granting bodies like Innovate UK are aware of the regional funding disparities for innovative companies and work to support businesses that may not otherwise receive capital. 

This is also the area that has most changed since 2019. All the regions have seen an insignificant shift of 1-3% in their grant funding to the number of high-growth companies proportion, but there are two notable differences. Firstly, four years ago, East of England was the clear ‘winner’, receiving +5% in grant funding. However, the highest figure (+3%) now belongs to the South East. Secondly, the biggest growth was seen by London which in 2019 received -15% in grant funding. Currently, this figure is -6%. 

Looking to the future

We found that whilst the South hosts over two-thirds of the high-growth companies in the UK, London alone dominates the investment scene. Innovation grants are spread more in favour of the regions, but this represents an incredibly small step when equity funding outstrips grant funding. Ultimately, it’s evident that not much has changed in the last four years, despite new initiatives. Perhaps, more time is needed for a noticeable shift. Either way, we’ll be back in due time for an update.

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