Levelling Up? Startups data shows scale of funding inequality between London and UK regions

The UK government has announced the winners of the second round of its levelling up fund. £2.1bn will be awarded to over 100 projects across England, Wales, and Scotland.

Levelling up has been billed as a policy to address regional inequality in the UK by allocating more funding to communities that are left-behind, particularly in the north of England.

Critics are already lodging complaints that richer areas, such as the South East of England and London, have been favoured in the allocation of funds. Now, exclusive figures from Startups show the huge regional funding gap that businesses outside of the capital need to bridge in order to compete.

According to data gathered from the Startups 100 Index, our annual ranking of the most disruptive new businesses, London startups receive an average of £15m in early-stage investment – around eight times more than the average for companies across the UK.

Below, we explore this disparity in more detail, including a region-by-region breakdown of the best and worst areas to raise finance, and what it means for UK SMEs as they struggle to stay afloat in the current bad economy.

What is the levelling up fund?

It was Boris Johnson’s government that first announced the levelling up strategy way back in 2019. The strategy outlines an eight-year plan that aims to improve regional services such as education, broadband and transport until 2030.

Today, the second round of funding has been announced. Successful bids include Eden Project North in Morecambe, a new AI campus in Blackpool, regeneration in Gateshead, and rail improvements in Cornwall.

According to the government, the move will benefit millions of people across England, Scotland, Wales and Northern Ireland and create jobs and help to boost economic growth.

Small businesses are struggling more than ever due to the current record-high rate of inflation, which has sent energy and supply chain costs skyrocketing. Analysis of official government data by the property adviser Altus Group found that more than 32 pubs closed each month in 2022 as a result of the price squeezes.

External finance has become hugely important for today’s firms in the face of an impending recession – particularly for those based in poorer parts of the country.

Last year, research from the Centre for Progressive Policy predicted that the economic inequalities between the North and South of England will widen as a result of the cost of living crisis.

The analysis ranked all 310 local authorities of the UK. Of the 31 areas across the country most vulnerable to soaring fuel, food and energy prices, 19 are in the north and another eight are in the Midlands.

What do our figures show?

We analysed funding information from the 280 small businesses that applied to this year’s Startups 100 Index to find the areas of the UK where new firms are likely to gain the largest level of investment.

On average, we found that organisations in London receive a huge £14,556,795 in funding. That’s over eight times higher than the rest of the UK which gets £1,687,768 per business.

Interestingly, when London is excluded from England’s data, Scottish businesses pull ahead in terms of funding. On average, tartan startups receive almost double the funding of England businesses.

Welsh startups, in comparison, receive the lowest level of funding per business at £610,714.

The data also shows a regional breakdown of the level of funding received per business, in England. On average, startups in the North West get the most financial backing outside London, raising £3,585,000 per company.

Our results suggest Yorkshire and the Humber is the area with the lowest level of funding (£355,540 per business) – though we know from our index that there are still plenty of innovative ideas coming from the area.

For example, SlothMove and Power Sheds are two Yorkshire-based businesses from the Startups 100 that were nominated for our Kitchen Table award, as examples of firms that have found huge success despite raising little to no finance.

What do regional business owners think of the levelling up fund?

Based on our results, the North East of England comes second-bottom for finance. We spoke to Jack Griffiths, founder of Teesside-based Snuggy, which came 63rd in this year’s index, to get his thoughts on what the Levelling Up fund might mean for the region.

Griffiths is optimistic about today’s announcement, telling Startups the fund has “potential to be huge for Teesside. This area is full of inspired entrepreneurs wanting to break into a new life for themselves and their families. It’s a big punt for anyone starting a business, so the backing and funding from your own government could give someone the confidence to create something special.”

Griffiths started Snuggy in 2019 from humble beginnings, with just £40,000 in personal savings. He tells Startups that bootstrapping the business made more sense from the options available.

There’s something about starting a business in your local town, creating jobs in your area and giving back to your community that we just love.

How can regional startups scale without finance?

If you’ve started a business in a region outside London – don’t panic! Aside from funding, there are plenty of alternative, guerilla methods to scale-up in the face of an impending recession.

Business awards can be one of the easiest ways to get noticed. The Startups 100 Index is not only the longest-running new business index of its kind. It’s also the most accessible.

Designed to give early-stage businesses a platform to attract customer, investor, or partner attention, it is entirely free-to-enter and judges firms not just on finance raised, but other subjective factors including USP and market opportunity.

If you’re interested in being included in the next Startups 100, then keep your eyes peeled because we’ll be revealing the date for entries to the 2024 Startups 100 later this year.