Regional innovation growth outpacing London but funding gap holding back national success

Despite at least 80% of venture capital flowing into the ‘Golden Triangle’ of London, Oxford and Cambridge, innovation is growing faster in cities like Bristol, Edinburgh and Manchester.

Based on innovation employment, those three cities have seen growth of 65%, 43% and 37% respectively since 2019, compared to only 1% in London when combining all the city’s boroughs together, according to the report by Sister, Manchester’ innovation district.

Similarly, Manchester (1,088), Birmingham (940), Leeds (868), and Bristol (843) all surpass Cambridge (828) and Oxford (558) for the number of innovative businesses, and Scotland has the highest level of internal capital recycling outside London, with 1,716 fundraising deals occurring within its own borders.

But despite these successes, the regions represent “missed opportunities” for growth of the UK economy as a whole due to the concentration of funding, infrastructure and policy being concentrated in the south.

The report described the UK as “at a critical moment in the evolution of its innovation economy”. While the ‘Golden Triangle’ remains vitally important, it said it “is no longer sufficient to sustain the UK’s long-term innovation and economic performance on its own”.

While it is now accepted that regional cities are essential to UK growth, the study said the question is “whether the UK is prepared to build the systems required to support it”.

Among the “significant barriers” holding back growth outside London highlighted by the report are “the continued concentration of venture capital, limited access to patient capital for deep technology sectors, fragmented regional coordination, and gaps in infrastructure, particularly in relation to specialist facilities, transport connectivity and housing required
to attract and retain talent”.

The report made recommendations including:

• move from a centrally controlled, uniform R&D tax credit system to a portion of the tax credits devolved to regional authorities.
• create innovation zones with local incentives.
• create regional funds to de-risk early-stage and scale-up investments outside London.
• invest in specialist infrastructure such as laboratories and advanced workspaces that allow high-growth sectors to grow locally. 
• use initiatives like the Local Innovation Partnerships Fund to finance collaborations between regional universities, businesses and local leaders.
• build innovation districts that enable “IP to stick”.