Nations and Regions Tracker 2023 – British Business Bank

Our Nations and Regions Tracker 2023 Report provides analysis that illuminates the geographic patterns seen in UK small business finance. This is the Bank’s third annual Nations and Regions Tracker, designed to complement our flagship Small Business Finance Markets report with additional regional analysis.

There are three main chapters to this year’s report. The first chapter is an overview of finance markets in the Nations and regions of the UK, utilising industry data and our own management information to give as complete a picture as possible. The overview explains which forms of finance are most used across the UK and delves into some of the geographic imbalances and recent trends in usage we see.

The following two chapters provide in-depth analysis on two important topics facing the UK and for which the Bank has a role to play. The second chapter explores innovation-led clusters in the UK Nations and regions, focusing in particular on the contribution of academic spinout companies to these clusters’ equity investment ecosystem. The third chapter looks at the challenges faced by smaller businesses in accessing finance in coastal towns throughout the UK, and what may be driving the different outcomes.

The Devolved Nations briefing notes and the English regions factsheets cover some of the key datapoints for each Nation and region in the UK needed to understand finance markets in those locations.

Key findings

• In Q4 2022, 34% of small businesses were utilising external finance – a decline of 7 seven percentage points from Q4 2021 and 10 percentage points from the same period in 2020.The largest declines in the use of finance in 2022 was seen in grants (6 percentage points) and bank loans (5 percentage points).
• Throughout 2022, 36% of smaller businesses sought external financial support, with the East of England recording the highest use of external finance (41%) and London, the South East and East Midlands the lowest (34%).
• The first half of 2023 has however seen some encouraging signs of recovery, with levels of external finance returning to 2021 levels in the UK as a whole.
• In 2022, Nations and regions outside of London recorded their first year-on-year decline in the number of deals since Beauhurst’s data collection began in 2011 (-10%), with the total investment value in these areas also falling (-11%). Only the South West, Yorkshire and The Humber, and Wales saw an increase in deal numbers compared to 2021. However, the data for the first half of 2023 suggests that this decline in equity activity is beginning to ease. London continues to dominate the equity ecosystem, accounting for the same share of deals as all other UK nations and regions combined.
• Academic spinouts play a crucial role in supporting emerging innovation-led clusters throughout the UK, with our analysis identifying 33 such clusters spanning all Nations and regions. Academic spinouts make up 23% of Technology/IP-related deals across these clusters, but their share of deal activity is even greater in a variety of innovative sectors such as materials technology and nanotechnology. While their large contribution to the success of the Golden Triangle (encompassing Cambridge, London and Oxford) is well known, it is as substantial in clusters located in the rest of the UK, such as Greater Glasgow, Swansea, Belfast and Coventry & Warwickshire. At the same time, academic spinouts located in clusters outside of the Golden Triangle do face a more challenging equity environment, as suggested by their generally smaller deal sizes, the longer time required to secure their first investment, and greater dependence on government investors.
• Whether they built their fortunes as seaside tourist resorts or thriving industrial hubs/ports, coastal towns across the UK contend with multidimensional challenges that indirectly impact smaller businesses’ access to finance. Our analysis shows that appetite for external finance among coastal town-based smaller businesses is generally lower than elsewhere in the UK, with a smaller share (26%) reporting that they are happy to borrow in order to grow in 2022 (compared to 31%), mainly reflecting a lower propensity by these businesses to pursue ambitious growth and investment plans. Coastal towns are also underrepresented in UK equity investment compared to their share of the UK’s population, but have a high concentration of deals in opportunity sectors such as those related to net zero innovation.
• The British Business Bank is improving access-to-finance conditions for businesses throughout the UK, covering the majority of the innovation-led clusters we identify in our analysis and a wide range of coastal towns. The British Business Bank’s regional funds have invested £1.6bn since launch and its six new Nations and Regions Investment Funds will further enhance the Bank’s contribution to tackling regional imbalances in access to finance.