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Neglected north: 66 per cent of innovation funding has gone to southern firms

A new report analyses more than £5bn of Innovate UK spend over the past 18 years.

By Harry Clarke-Ezzidio

Despite the Conservatives’ pledge to level up neglected regions across the country, 66 pence in every pound spent by Innovate UK, the government’s innovation agency, goes to the four southern regions, analysis from consultancy firm SourceAdvisors has found. If the West Midlands is included alongside the south-east, south-west, London and the east of England that increases to 72 pence per pound.

This investment pattern leaves just 28 per cent of funding to be spent across the UK’s seven other regions, which includes the four areas in the north of England (the East Midlands, the north-east, north-west, and Yorkshire and the Humber) plus Scotland, Wales and Northern Ireland.

Despite receiving such a small proportion of that overall funding, northern businesses in receipt of Innovate UK funds were more likely to see success following investment – in the form of, for example, increased employee count, net worth and low employee turnover – compared to those in southern regions, according to the research, which was based on the agency’s spend over the past 18 years.

Redressing the balance in government investment – which has historically favoured London and the south-east – is a major aim of the levelling-up agenda, a flagship Conservative policy. But Innovate UK’s investments – totalling £5.9bn since 2004 – reflect the existing bias towards the south. London companies have claimed nearly a quarter of that funding (24 per cent), while the south-east (18 per cent) and south-west (11 per cent) were the regions with the second- and third-highest levels of investment.

Since the publication of the Levelling Up white paper in February, the government has been criticised for not committing enough funding to level up the country, a Conservative manifesto pledge from 2019. According to the Resolution Foundation think tank, truly levelling up towns and cities across the UK would require investment that goes “far beyond anything currently being contemplated” by the government. 

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“A huge amount of investment is required if we want to close income and productivity gaps,” Charlie McCurdy, an economist and one of the authors behind a recent Resolution Foundation report looking into income disparities across the UK, told Spotlight.

“If we look over the last 22 years, we can see that there hasn’t been very much change in income gaps between different parts of the country,” McCurdy said. “But there’s also this story of real persistence over time. 

“That basically means that those places that were poor in terms of average income, back in 1997, have stayed poor or stayed on low incomes. And the places that were rich… have stayed rich,” he added.

According to exclusive New Statesman analysis earlier this year, levelling-up funds have been largely hoovered up by constituencies with Conservative MPs. The process caught the attention of the public accounts committee, with the committee’s MPs making it clear that they were “not convinced by the rationales for selecting some towns and not others”.

Despite the importance of the flagship policy, neither candidate for the Conservative leadership has managed to communicate real commitment to the task. Earlier this month, a leaked video showed the former chancellor, Rishi Sunak, telling Conservative members in Tunbridge Wells that he had “managed to start changing the funding formulas” while he was in the Treasury so that places like the affluent Tory seat would get more public money – undoing the previous Labour Party model that “shoved all the funding into deprived urban areas”.

Also in early August, Liz Truss came under fire for her now scrapped plans to slash public sector pay outside of London by introducing regional pay boards, which would link pay to local living costs. Truss quickly U-turned on the policy due to its unpopularity (blaming the media along the way), but it did not go unnoticed among advocates of the levelling-up agenda. Sunak-backing Mayor of Tees Valley, Ben Houchen, tweeted he was left “speechless” by Truss’s proposals.

Helping millions across the UK deal with soaring energy bills and the increasing cost of living will be the main focus for either Sunak or Truss once they move into Downing Street. But the future prime minister will do well to remember that regional inequalities have a direct impact on the way in which millions across the country are able to deal with the current crisis.

[See also: Labour is still scared of Scottish voters]

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