How big is the North-South divide?

| Hannah Skingle

Initiated by a collection of 33 newspapers, the Power Up the North campaign is calling on parliament to prioritise and redress regional inequalities and the increasing North-South divide in the UK, putting full weight behind a bespoke Industrial Strategy for the North of England so that the area can flourish.

The campaign also addresses the UK Shared Prosperity Fund (UKSPF), pledged under Theresa May’s government to replace the €2.4b of structural funding currently received from the EU, which will cease once Britain has formally exited the union. The aim of the fund is to reduce inequalities between communities, but precise details about the size and objectives of the fund, as well as the involvement of local governments, are still to be decided. Along with others, including the Welsh government, The Power Up the North campaign is calling for this fund to be fully devolved in long-term tranches, rather than areas having to bid for smaller amounts, to enable effective strategic decisions.

Indeed, as the Conservative leadership battle comes to a head this major domestic issue cannot be ignored. In this week’s television debate, both remaining hopefuls, Jeremy Hunt and Boris Johnson, agreed that the North-South divide needed addressing urgently, with Hunt “wholeheartedly” in support of the increasingly costly High Speed 2 railway, in the hopes that it will help unite the country.  In this post, we’ll see how profound the North-South divide is in the high-growth space, in terms of distribution of companies and grant and equity funding, providing some insight into where further support is most needed.

High-growth companies by region

Map showing the percentage of UK high-growth companies in each region, percentages rounded to nearest integer.

*By high-growth we mean all companies that have met any one of our Beauhurst tracking triggers. You can find out more about these here.

Showing the distribution of high-growth companies in the UK, this map makes it immediately obvious that London dominates the scene, with more than a third (37%) residing in the capital. The steady flow of capital and interest from foreign investors outweighs the high cost of operating in the city, making it the most conducive place to start a new venture in the UK. With the second highest share of high-growth companies in the UK (15%), it’s clear that the South East benefits from the overflow of entrepreneurial activity from London.

This leaves a fairly thin spread of companies across the rest of England, with just 5% in the East Midlands and a low of 4% 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.

Map showing the percentage of UK high-growth companies in each area. London has been separated so as not to distort figures for the wider region of The South. All figures rounded to the nearest integer.

When the regions are collated, a rather stark North-South divide becomes more apparent – London and the South have a fairly similar share of high-growth companies, 37% and 32% respectively (a combined 69%), leaving the Midlands with just 13% and the North with 20%. If we are to compare these figures with the percentage share of the population in England, London is punching well above its weight; the capital is home to 16% of the English population (8.9m), compared to 37% in the South, 20% in the Midlands and 28% in the North (population stats according to Statista). 

Evidently there is a definitive divide in the distribution of companies across the country. As we now look at two of the main channels of financial support in place for these businesses, investment and grant funding, we’re presented with a chicken and egg problem; are there fewer high-growth companies in these areas because there’s not enough funding, or is there less funding because there aren’t the right type of companies there already? The answer is undoubtedly a mix of the two, but whatever the case, one might reasonably expect that distribution would be proportional to the number of high-growth businesses in each region. In the following maps we’ll look at funding levels in relation to the share of companies in each region and area in England.

Equity distribution by region

Map showing the gap between the proportion of high-growth companies and equity DEALS per region. A positive result indicates that the NUMBER OF EQUITY DEALS per high-growth company is greater than the national average. All figures rounded to the nearest integer.

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, it is again immediately clear that London is disproportionately advantaged. The capital is somewhat of a black hole for UK funding – taking 53% of equity deals since 2011, 16% points more than its 37% share of high-growth companies. However, despite London’s significant allocation of funding, there are no standout ‘losers’: the corresponding 16% shortfall is shared across the remaining 8 regions, resulting in a much less aggressive 1-3% deficit in each region. 

On a wider level, the funding gap between The North and The South sits at just 3%. It is only when we compare each area to the capital that the gap widens considerably (20, 21, and 23 percentage points between London and The South, The Midlands and The North respectively). When it comes to equity funding it seems the most pronounced divide in fact lies on the M25. 

Map showing the gap between the proportion of high-growth companies and equity DEALS per area. A positive result indicates that the NUMBER of equity DEALS per high-growth company is greater than the national average. All figures rounded to the nearest integer.

London is often the most attractive location for Venture Capital investors in particular because of the population of young, fast-growing tech companies there 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. Find a more in-depth look at where different investor types deploy their capital across the country here.

Grant distribution by region

Whilst all the UK regions suffer from a lack of equity deals at the hands of the capital, most disproportionately benefit when it comes to innovation grants. 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 disparities in the funding of innovative companies and that innovation is spread more evenly across the country, and indeed exist to support businesses which might otherwise not receive capital. 

Map showing the gap between the proportion of high-growth companies and INNOVATION grantS per region. A positive result indicates that the NUMBER OF INNOVATION GRANTS per high-growth company is greater than the national average. All figures rounded to the nearest integer.

At +5%, the East of England has secured the highest figure, likely due to the steady flow of pioneering technologies emerging from the University of Cambridge and other world-class universities in the region. In a stark departure from the trend seen thus far, London receives the lowest figure at -15%, and Yorkshire and The Humber is the only region outside of London to hit negative figures (-1%).

Map showing the gap between the proportion of high-growth companies and INNOVATION grantS per area. A positive result indicates that the NUMBER OF INNOVATION GRANTS per high-growth company is greater than the national average. All figures rounded to the nearest integer.

Again, combining the regions into their respective areas shows a North-South divide (8% points). Still, the North, Midlands and South are all securing more innovation grants than is proportional to the number of high-growth companies headquartered there.

Whilst the South hosts over two thirds of the high-growth companies in the UK, it’s London alone that 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 this type of grant funding by 17 times (£52.21b compared to £3.05b of funding deployed since 2011 respectively). It remains to be seen how much time, attention and money the future government will actually devote to rectifying the North-South divide, but until it is properly addressed we are unlikely to see much improvement, if not a decline.

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