The British Business Bank’s third annual Nations and Regions Tracker, published today (Oct 12), finds the use of external finance among smaller businesses in the south west is showing signs of recovery after a decline in most UK nations and regions in 2022.
Throughout 2022, 37% of south west smaller businesses were using external finance, which was in line with the national average of 36% and a drop of nine percentage points on the previous year (46%). The share of smaller businesses that would be willing to use finance to grow also declined from 35% in 2021 to 27% in 2022, falling below the UK average of 31% last year.
But national data from the first half of 2023 suggests signs of recovery with levels of external finance use returning to 2021 levels in the UK as a whole (43%), and 42% of smaller businesses in the region anticipating in late 2022 that they would need finance in the following 12 months.
The Nations and Regions Tracker 2023 also found that in 2022, the combined nations and regions outside of London recorded their first year-on-year decline in the number of equity deals since Beauhurst’s data collection began in 2011 (-10%), with the total investment value in these areas also falling (-11%). Meanwhile, asset finance remained well spread across the UK nations and regions in 2022, based on British Business Bank programme data.
Only the south west, Yorkshire and the Humber, and Wales saw an increase in deal numbers compared to 2021. In the south west there were 155 deals in 2022, up 4%, but actual deal value was down 32%, at £0.54 billion. Despite this, there were early signs in 2023 indicating the decline in equity finance deals is beginning to ease.
The Nations and Regions Tracker identified 33 innovation-led clusters covering 196 local authority districts, with each cluster marking a key driver of growth and technological progress for the UK. These clusters represent 93% of technology/IP related equity deals and 96% of total equity investment value from 2011 to Q2 2023.
The UK’s top innovation clusters (ordered by number of deals) outside the golden triangle of London, Oxford and Cambridge are:
- Edinburgh-Fife-Mid and West Lothian (475 deals, investment value: £0.7bn)
- Greater Manchester (342 deals, investment value: £1.1bn)
- Greater Glasgow (257 deals, investment value: £0.4bn)
- Bristol and Bath (219 deals, investment value: £0.9bn)
- Newcastle upon Tyne -Gateshead-Sunderland-Tyneside (179 deals, investment value: £0.3bn)
The analysis also identified two further clusters in the region, one encompassing Devon and the other spanning across the south west and south east borders (Dorset-Hampshire-Solent).
University spinouts play a crucial role in supporting emerging innovation-led clusters, and this is true in the Bristol and Bath cluster, which is a key spinout hub. Here academic spinouts made up 31% of local Technology/IP -related deals and 49% of investment value from 2011 to Q2 2023, the 11th highest share across all clusters.
The sub-sectoral composition of Bristol and Bath’s Technology/IP-related spinout deals over this period was relatively balanced, with software (22%), life sciences (21%), other Technology/IP-based businesses, and medical technology (18%) capturing around one fifth of deals each. Around 2%-3% of deals also related to other innovative sectors such as materials technology, nanotechnology and clean technology.
Of the 84 Technology/IP-related spinout deals completed in the Bristol and Bath area between 2011 and Q2 2023, 65 were led by the University of Bristol (including two in collaboration with University College London). A further 16 were backed by institutions with a diverse geographical spread, showing the cluster’s interconnectedness with other UK spinout hubs.
The south west comprises several of the UK’s most prominent coastal towns, such as Bournemouth, Poole and Torquay. When compared to the UK average, smaller businesses in coastal towns say they are less likely to be happy using external finance to grow (26%) compared to their counterparts based elsewhere in the UK (31%), with a higher share (82%) self-describing as ‘happy non-seekers of finance’ (v.77%). This is linked to a lower propensity by these businesses to pursue ambitious investment and innovation plans.
This lower appetite for growth-oriented finance is also reflected in coastal towns’ share of equity: despite accounting for around 12% of the UK population, they made up only around 4% (889) of UK equity deals and 2% of the investment value (£2.2 billion) between 2011 and Q2 2023.
In contrast, coastal towns have a higher proportion of equity deals that relate to net zero sectors (14%), reaching double the share seen in the UK as a whole (7%) between 2011 and Q2 2023. The importance of net zero-related sectors in coastal towns’ equity investment ecosystem is a sign that many local smaller businesses are already trying to capitalise on opportunities from high-potential sectors such as green innovation.
Commenting on the Nations and Regions report, British Business Bank CEO, Louis Taylor, said: “We are seeing promising signs that the use of external finance among smaller businesses is recovering after a decline in 2022. Unsurprisingly, our world-class universities continue to play a crucial role in this, supporting emerging innovation-led clusters across the UK.
“This year’s Nations and Regions Tracker shows that smaller businesses in coastal towns face several challenges that impact their success, including low productivity and a reduced appetite for external finance.
“However, coastal towns experience greater than average specialisation in net-zero sectors, evidence that improved access to external finance will enable smaller businesses in coastal towns to expand and further develop innovative climate solutions. We need to ensure that more is done to support these areas, which will in turn help reinvigorate smaller businesses’ resilience and growth ambitions.”
