With the UK economy stuck in a low growth cycle, ForrestBrown has launched the Investment Potential Index (IPI) to benchmark which parts of the UK can deliver the biggest returns for businesses and reinvigorate economic growth.
The IPI, created in conjunction with the Centre for Economics and Business Research (Cebr), looks at three pillars consisting of key economic indicators in each region:
• Worker capacity – the size and quality of the workforce
• Technological capacity – the uptake of technology, digital business employment, and online connectivity
• Innovative capacity – the number of new enterprises, universities, and innovation-active businesses
Each area is given an overall score on its investment potential (out of 100) based on its performance against the three indicators. The scores give a granular view of the investment landscape in the region, informing business decision-making and also throwing a spotlight on where public sector support may be required to encourage enterprise, nurture skills or develop new infrastructure.
Regional breakdowns
While London and the South East scored consistently across the board, Scotland, the South West and North West were amongst the stand out performers for at least one of the three pillars, proving the potential of these regions when it comes to driving economic returns for businesses choosing to invest there. However, figures show that there is still work to do to capitalise on this potential. In 2020, London received £3.4 billion in R&D investment, but this falls off steeply in the North, with only £0.4 billion spent on R&D in the North East.
Looking at innovation capacity, the South West (34.6), Yorkshire & the Humber (30.8) and the North West (30.4) all outperformed the South East (30.1). While worker capacity was dominated by London and the South East, primarily as a result of population size, Scotland topped the majority of English regions for this metric with a score of 50 compared to around 40 for most southern regions, undercutting perceptions about a North-South divide. Regions with a higher work capacity, like Scotland, should attract more investment as they have better output and productivity levels, but figures show that we still have improvements to make in ensuring equitable investment across the board.
Although Scotland has seen R&D spending almost double since 2007, its total of £1.1 billion in 2020 was still dwarfed by the £5.5 billion investment in South East. Similarly, 139 FDI projects were located in the North West in 2020 and 92 were based in Scotland, despite the North West having a much lower worker capacity of 39.6.
Similarly, northern regions also performed well in the technological capacity pillar. The South West was the strongest performer outside London, closely followed by Northern Ireland and the East Midlands, while the North West’s score of 45 is not far off the South West’s 49, showing the success of Tech City UK’s Tech North programme in narrowing this gap. However, there’s still room for businesses to capitalise on the strong digital capabilities of this attractive investment destination.
Although the IPI applies to investment of all kinds, business spend on R&D provides an instructive real-world comparison. While there are clear correlations between the IPI and R&D investment, the gaps between the two show untapped opportunities remain. However, increased spending on R&D in Scotland (which has nearly doubled since 2007) suggests that this potential is not going unnoticed.
Sara Brigden, Managing Director at ForrestBrown, comments: “It’s never easy for businesses to select where exactly they want to invest, but it can be especially stressful for C-suite decision-makers during times of economic uncertainty. Our hope is that the Investment Potential Index (IPI) will help these businesses dig deeper and discover regions with untapped potential that can also yield significant returns on investment.
“Across the IPI, it’s clear that perceptions of a North-South divide have left opportunities untapped. Almost a third of all foreign direct investment (FDI) is focused on London when our research suggests that there could be alternative hotspots for investors.
“The IPI is here to guide UK businesses planning their future growth. And, in an increasingly competitive global market, we also want to support overseas companies developing FDI strategies by signalling the hidden strengths of the UK.”
