Oliver Wyman reveals 35% SME funding gap between UK regions
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Report outlines targeted policy interventions to boost SME productivity and finance across UK
London, March 1, 2024 – A new report commissioned by the Levelling Up Advisory Council (LUAC) and conducted by Oliver Wyman, a global management consulting firm and a business of Marsh McLennan (NYSE: MMC), reveals that the UK regions most deprived of investment – the Midlands, the North West, Yorkshire and the Humber, and Scotland and Wales – captured only around 15% of equity deal flow from 2019 to 2022. This equates to a 35% funding gap between these regions and the rest of the country, despite contributing to close to over 45% of the UK’s Gross Value Added (GVA) and hosting 50% of Small and Medium-sized Enterprises (SMEs).
The study, titled ‘Closing the gap: How to address regional imbalances in SME financing', analyses regional imbalances in financing offered to UK businesses and outlines policy interventions that could help address them. It finds that there is a positive correlation between regional SME productivity and lending, highlighting the importance of targeted policies to enhance access to finance.
The report attributes regional disparities to three main factors: concentration, clusters, and wealth. Firstly, regions with a higher density of businesses tend to benefit from a “concentration effect” from the number and proximity of businesses. Secondly, clusters tend to attract a disproportionate number of investments in their areas of specialization. Lastly, regions with wealthier households have greater access to equity financing, likely explained by angel investors predominantly investing in local high-growth businesses.
It proposes several policy levers to support business finance across the UK:
- Strengthen local governance and place-based initiatives, in particular by increasing regional pooling of capabilities and resources from across the local public sector, and exploring ways to involve private sector expertise in local government.
- Mobilize private and public sector capital, by coordinating efforts between financing and innovation agencies to allocate funds at the local level, including place-based criteria in investment incentive schemes, and exploring the establishment of a place-based investment fund to attract institutional investors.
- Deploy targeted central government policies to improve data on local finance and to explore place-based development finance products and services.
Anthony Charrie, Partner and Head of Government and Public Institutions, UK & Ireland, Oliver Wyman, said, "The findings of our report underline the vital role SMEs play in the UK economy and the need for targeted interventions to address regional imbalances in their financing. While it is concerning that certain regions are underrepresented in terms of equity deal flow, it is crucial to note that this is not a reflection of the ambition or potential of businesses in these areas. We have seen incredible innovation and growth from SMEs across the country, regardless of location. The challenge now is to ensure these businesses have the financial support they need to continue driving our economy forward."
Andy Haldane, Chair, Levelling Up Advisory Council, added, “Addressing regional imbalances in SME financing is no small task. However, with targeted policy interventions and a commitment to levelling up all regions of the UK, we can ensure that SMEs – the backbone of our economy – have the financial support they need to thrive.”
About Oliver Wyman
Oliver Wyman is a global leader in management consulting. With offices in more than 70 cities across 30 countries, Oliver Wyman combines deep industry knowledge with specialized expertise in strategy, operations, risk management, and organization transformation. The firm has 7,000 professionals around the world who work with clients to optimize their business, improve their operations and risk profile, and accelerate their organizational performance to seize the most attractive opportunities. Oliver Wyman is a business of Marsh McLennan [NYSE: MMC].
For more information, visit www.oliverwyman.com. Follow Oliver Wyman on X @OliverWyman.