Build new ‘Regional Investment Bank’ to boost growth outside London, says leading think tank

Establishing a Regional Investment Bank could support regional economic hubs outside of London and the South East, by giving them better access to public and private investment and closing the “equity finance gap”, a leading think  tank has claimed. 

The proposal from the Social Market Foundation (SMF) expands on a suggestion originally made in Gordon Brown’s Commission on the future of the UK. The author of the SMF paper, Aveek Bhattacharya, was an adviser to the commission. 

At present, over two-thirds of British equity investment – the kind most useful to fast-growing businesses – is concentrated in London and the South East. That means that the capital and investor expertise needed by many businesses in the North and Midlands remains largely out of reach of SMEs around the UK, and gives rise to an ‘equity finance gap’, the SMF say. 

The British Business Bank, a government-owned institution launched in 2012 to help small business access finance after the financial crisis, has made concerted efforts to boost equity investment in recent years. 

According to SMF, the success of its initiatives demonstrate the effectiveness of public equity investment – as of last year, the British Business Bank had supported 19 of 33 British unicorns – start-ups that have grown to be worth over $1 billion. However, even the British Business Bank’s equity investments are dominated by London-based firms, who benefit from half the Bank’s equity deals. 

The SMF paper recommends that the mandate of the British Business Bank be changed and the institution be rebranded and relaunched as the British Regional Investment Bank, with clear new mandate to boost growth outside London and the South East. 

The British Regional Investment Bank would also be directed to support local economic strategies, by directing both public and private money towards emerging regional ‘hubs’ – key sectors in specific locations that have the potential to spawn world-class businesses. (See notes for details). Governments across the world, most notably France (but also Canada), have set up such large-scale equity investment arrangements to address the ‘equity finance gap’ issue.  

The paper comes ahead of the Labour Party’s draft policies for their 2024 manifesto, which include plans to reform the British Business Bank by widening its remit to increase access to start-up and scale-up finance. 

Aveek Bhattacharya, Research Director at the Social Market Foundation, said: “Equity investment is inherently about finding firms with the potential to grow and helping them to realise that promise. The British Business Bank has already done a lot to draw that ‘smart money’ to UK firms. At the moment, though, too much of it remains in London and the South East. 

No part of the country has a monopoly on good ideas and entrepreneurialism, but many parts of the country are stuck in a ‘catch 22’, with investors reluctant to take the risk of setting up in an unproven area, and firms not seeking out equity investment because they can’t see the benefits around them. 

"Policymakers need to show imagination to develop economic clusters of excellence across the UK, helping to build a pipeline of firms and supporting them to grow with finance from a rebranded British Regional Investment Bank that has regional equity at its core.”