Foreword
The old adage “location, location, location” is not just good advice when buying a house; it can be critical for businesses too. But, just as in the residential housing market, areas with the most commercial kerb appeal do not always generate the best returns on investment.
That’s why ForrestBrown has partnered with the Centre for Economics and Business Research (Cebr) to create the Investment Potential Index (IPI). The IPI provides valuable insights for innovative companies considering new investment in the UK, helping decision-makers see beyond the status quo to reveal a place’s hidden potential.
With unprecedented global challenges making the immediate economic future uncertain, the IPI can help to inform better decisions for businesses looking to invest in innovation – benefiting UK plc by generating jobs and growth across the country. At the same time, it highlights where there are weak spots and identifies areas of opportunity. From technological infrastructure to digital literacy, these are challenges that local and central government, in partnership with the private sector, can address together.
In an ever more competitive global market, the IPI offers a more granular view of the UK economy for overseas companies considering foreign direct investment.
Through our work with innovative organisations, from research and development (R&D)-intensive SMEs to multi-national corporations, we understand the importance of a supportive innovation ecosystem if businesses are to thrive. Access to funding and incentives is an essential part of this.
We haven’t set out to pick winners. Instead, the IPI attempts to highlight untapped investment potential across the UK.
Despite the challenges ahead, the IPI demonstrates that there are opportunities for businesses prepared to look beneath the surface. I look forward to seeing this potential realised in the coming years, with the IPI playing a part in making it happen.
Foreword
The old adage “location, location, location” is not just good advice when buying a house; it can be critical for businesses too. But, just as in the residential housing market, areas with the most commercial kerb appeal do not always generate the best returns on investment.
That’s why ForrestBrown has partnered with the Centre for Economics and Business Research (Cebr) to create the Investment Potential Index (IPI). The IPI provides valuable insights for innovative companies considering new investment in the UK, helping decision-makers see beyond the status quo to reveal a place’s hidden potential.
With unprecedented global challenges making the immediate economic future uncertain, the IPI can help to inform better decisions for businesses looking to invest in innovation – benefiting UK plc by generating jobs and growth across the country. At the same time, it highlights where there are weak spots and identifies areas of opportunity. From technological infrastructure to digital literacy, these are challenges that local and central government, in partnership with the private sector, can address together.
In an ever more competitive global market, the IPI offers a more granular view of the UK economy for overseas companies considering foreign direct investment.
Through our work with innovative organisations, from research and development (R&D)-intensive SMEs to multi-national corporations, we understand the importance of a supportive innovation ecosystem if businesses are to thrive. Access to funding and incentives is an essential part of this.
We haven’t set out to pick winners. Instead, the IPI attempts to highlight untapped investment potential across the UK.
Despite the challenges ahead, the IPI demonstrates that there are opportunities for businesses prepared to look beneath the surface. I look forward to seeing this potential realised in the coming years, with the IPI playing a part in making it happen.
Introduction
Britain’s economy has been stuck in a low growth cycle since the financial crisis of 2008. With the exception of the COVID-19 years of 2020 and 2021, UK annual economic growth has barely reached 2% over the past decade. Government efforts to tackle this, from the Industrial Strategy to Levelling Up, have yet to change the story.
And they need to know where to put that investment for the greatest returns. Too often, the UK’s North-South divide means businesses leave opportunities untapped. To take just one striking example, one-third of all foreign direct investment (FDI) in the UK is focused on London.
Our Investment Potential Index (IPI), in conjunction with Cebr, suggests there are opportunities for investors to diversify their portfolios, invest in other regions and still see significant return on investment.
Introduction
Britain’s economy has been stuck in a low growth cycle since the financial crisis of 2008. With the exception of the COVID-19 years of 2020 and 2021, UK annual economic growth has barely reached 2% over the past decade. Government efforts to tackle this, from the Industrial Strategy to Levelling Up, have yet to change the story.
And they need to know where to put that investment for the greatest returns. Too often, the UK’s North-South divide means businesses leave opportunities untapped. To take just one striking example, one-third of all foreign direct investment (FDI) in the UK is focused on London.
Our Investment Potential Index (IPI), in conjunction with Cebr, suggests there are opportunities for investors to diversify their portfolios, invest in other regions and still see significant return on investment.
The three pillars of the Investment Potential Index
Each pillar consists of indicators sourced from a range of metrics. The results for each local authority are then compared and awarded a score from 0 to 100. Consequently, the IPI can score each of the UK’s regions and local authorities on their investment potential, and it shows that many areas have hidden investment opportunities.
The IPI looks at innovation capacity, worker capacity, and technological capacity, each itself determined by a range of economic indicators. The overall index score (out of 100) represents the region’s highest possible investment potential.
Not only can this analysis help to inform business decision-making, but it also throws a spotlight on where public sector support may be required to encourage enterprise, nurture skills or develop new infrastructure.
The IPI reveals the areas of the country where investment has the highest potential to deliver returns and drive economic growth. Its analysis is based on three pillars:
The three pillars of the Investment Potential Index
Each pillar consists of indicators sourced from a range of metrics. The results for each local authority are then compared and awarded a score from 0 to 100. Consequently, the IPI can score each of the UK’s regions and local authorities on their investment potential, and it shows that many areas have hidden investment opportunities.
The IPI looks at innovation capacity, worker capacity, and technological capacity, each itself determined by a range of economic indicators. The overall index score (out of 100) represents the region’s highest possible investment potential.
Not only can this analysis help to inform business decision-making, but it also throws a spotlight on where public sector support may be required to encourage enterprise, nurture skills or develop new infrastructure.
1. Innovation Capacity
Directing investment to areas with few existing signs of innovation could seem counterintuitive. But our research shows some surprising results that could help better inform investment decisions.
While half of the top 10 performing local authorities were in London, which traditionally receives the lion’s share of investment, a regional breakdown shows other regions have greater potential. The capital’s score of 32.9 was beaten by the South West (34.6), for instance. Equally surprisingly, the South East (30.1), trailed the North West (30.4) and Yorkshire and the Humber (30.8).
At the local authority level, some of the top results were not surprising – the City of London and Westminster lead the table, while favourites like Oxford also feature in the top ten. But so do Manchester and Cheshire West & Chester, while the South West’s Bath & North East Somerset comes in third. Scottish islands and North Lanarkshire, meanwhile, occupy the bottom spots in the tables.
1. Innovation Capacity
Directing investment to areas with few existing signs of innovation could seem counterintuitive. But our research shows some surprising results that could help better inform investment decisions.
While half of the top 10 performing local authorities were in London, which traditionally receives the lion’s share of investment, a regional breakdown shows other regions have greater potential. The capital’s score of 32.9 was beaten by the South West (34.6), for instance. Equally surprisingly, the South East (30.1), trailed the North West (30.4) and Yorkshire and the Humber (30.8).
At the local authority level, some of the top results were not surprising – the City of London and Westminster lead the table, while favourites like Oxford also feature in the top ten. But so do Manchester and Cheshire West & Chester, while the South West’s Bath & North East Somerset comes in third. Scottish islands and North Lanarkshire, meanwhile, occupy the bottom spots in the tables.
2. Worker Capacity
While local authority areas and regions may offer opportunities for innovation, business growth can be inhibited by local skills gaps or shortages. Put simply, people are a critical factor in a location’s investment potential.
To an extent, it explains some of the patterns we see in investment. Again, there is a clear North-South divide. The South East, and particularly London, dominate this pillar of the IPI due to larger populations and the capital being home to one of the world’s leading financial centres.
The West Midlands (47.3) scores higher on this pillar than the South West (46.1), showing that regions outside the South can compete when it comes to workforce skills. Despite its rural and coastal populations, Scotland’s score of 50 is in line with some higher-ranking regions in the South of England and above the South West. And, unlike on the innovation pillar, Scottish councils don’t feature in the bottom ten at all.
2. Worker Capacity
While local authority areas and regions may offer opportunities for innovation, business growth can be inhibited by local skills gaps or shortages. Put simply, people are a critical factor in a location’s investment potential.
To an extent, it explains some of the patterns we see in investment. Again, there is a clear North-South divide. The South East, and particularly London, dominate this pillar of the IPI due to larger populations and the capital being home to one of the world’s leading financial centres.
The West Midlands (47.3) scores higher on this pillar than the South West (46.1), showing that regions outside the South can compete when it comes to workforce skills. Despite its rural and coastal populations, Scotland’s score of 50 is in line with some higher-ranking regions in the South of England and above the South West. And, unlike on the innovation pillar, Scottish councils don’t feature in the bottom ten at all.
This could be a result of Scotland’s robust spending on R&D, which according to the country’s Business Enterprise Research and Development, hit £1.43 billion in 2020. That’s almost a doubling in real terms (a 99.5% increase) since 2007 – and growth more than three times the UK’s 29.4% increase over the same period. More than half of Scotland’s R&D spend came from foreign-owned businesses. All of this points towards the fact that Scotland, among other regions outside of the South, is certainly not inhibited by its worker capacity. Rather, this is one of the factors that demonstrates the potential of regions beyond the capital for businesses looking to invest.
For areas at the bottom of the table, meanwhile, low economic activity rates are the most common cause.
3. Technological Capacity
The Technological Capacity pillar looks at three key indicators: internet-user prevalence, online connectivity and digital business employment. The uptake of technology and the quality of the digital sector in an area is a critical part of its attractiveness as an investment destination and is intrinsically linked to R&D levels and innovation potential.
Here, perhaps more than in any pillar, it can be seen that building infrastructure can create opportunities and drive economic growth. Consequently, while a North-South divide remains, it is arguably less acute due to initiatives such as Tech City UK’s Tech North programme, aimed at encouraging the development of the technology ecosystem. The North West’s score of 45.0 is not far off the South West’s (49.0).
3. Technological Capacity
The Technological Capacity pillar looks at three key indicators: internet-user prevalence, online connectivity and digital business employment. The uptake of technology and the quality of the digital sector in an area is a critical part of its attractiveness as an investment destination and is intrinsically linked to R&D levels and innovation potential.
Here, perhaps more than in any pillar, it can be seen that building infrastructure can create opportunities and drive economic growth. Consequently, while a North-South divide remains, it is arguably less acute due to initiatives such as Tech City UK’s Tech North programme, aimed at encouraging the development of the technology ecosystem. The North West’s score of 45.0 is not far off the South West’s (49.0).
Despite this, when it comes to local authorities, the capital still dominates, with London boroughs accounting for the majority of the top ten as a consequence of its strength as a digital hub. Scottish local authorities, meanwhile, are some of the poorest performers. This is mainly a result of much smaller digital sector workforces, while Dumfries & Galloway (the only area to post a single-digit score) suffers due to its low internet-user prevalence.
Despite this, when it comes to local authorities, the capital still dominates, with London boroughs accounting for the majority of the top ten as a consequence of its strength as a digital hub. Scottish local authorities, meanwhile, are some of the poorest performers. This is mainly a result of much smaller digital sector workforces, while Dumfries & Galloway (the only area to post a single-digit score) suffers due to its low internet-user prevalence.
Real world impacts:
Unleashing the value of innovation
At ForrestBrown, we work with innovative companies from Cornwall to the Orkney Islands. There are clear parallels between the picture of the UK painted by the IPI and the real-world experiences of our clients across the country. The IPI closely tracks business investment in research and development (R&D), suggesting a strong correlation between the two.
Real world impacts:
Unleashing the value of innovation
At ForrestBrown, we work with innovative companies from Cornwall to the Orkney Islands. There are clear parallels between the picture of the UK painted by the IPI and the real-world experiences of our clients across the country. The IPI closely tracks business investment in research and development (R&D), suggesting a strong correlation between the two.
Conclusion
Much of today’s investment by businesses – at home and abroad – still goes to the usual suspects in London and the South of England. Other areas are often neglected.
Whether it’s Scotland’s skilled workforce (reflected in its high Worker Capacity score), strong Innovation Capacity in the South West and North West, or the Technological Capacity in the East, there are locations ripe for investment across the UK.
Continued public sector investment addressing our three pillars should further boost the investment potential of places across the UK. For example, the North West’s £486.2 million share of the Towns Fund represents the largest regional share. Yorkshire & Humber is not far behind with a £422.4 million slice of this funding stream.
Such support can be transformative, igniting growth and productivity through increased investment in the technological, innovation and workforce capacities identified in the IPI.
For businesses considering where to invest, the IPI can contribute to better informed investment decisions. Those who recognise the hidden potential the IPI reveals stand to reap the benefit in the future. We look forward to seeing the results.
Conclusion
Much of today’s investment by businesses – at home and abroad – still goes to the usual suspects in London and the South of England. Other areas are often neglected.
Whether it’s Scotland’s skilled workforce (reflected in its high Worker Capacity score), strong Innovation Capacity in the South West and North West, or the Technological Capacity in the East, there are locations ripe for investment across the UK.
Continued public sector investment addressing our three pillars should further boost the investment potential of places across the UK. For example, the North West’s £486.2 million share of the Towns Fund represents the largest regional share. Yorkshire & Humber is not far behind with a £422.4 million slice of this funding stream.
Such support can be transformative, igniting growth and productivity through increased investment in the technological, innovation and workforce capacities identified in the IPI.
For businesses considering where to invest, the IPI can contribute to better informed investment decisions. Those who recognise the hidden potential the IPI reveals stand to reap the benefit in the future. We look forward to seeing the results.
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Methodology
Data in this report was gathered as part of ForrestBrown’s Investment Potential Index research. The research collected a list of indicators which are important measures of innovation capacity, worker capacity and technological capacity. Upon collecting the data on the indicators using a range of metrics, we scored each local/unitary authority based on its performance as measured by the particular indicator. For each indicator, the same steps were followed, allowing us to assign a value between 0 and 100 to each local/unitary authority:
- In order to account for outliers, each data point is checked to determine if it falls outside of the mean +/- 2 standard deviations (s.d) range. If it does, the region is assigned a value equal to either mean + 2s.d or mean – 2s.d.
- The min-max approach is used to assign an index value to each local/unitary authority. Specifically, the formula used is (data point – series min) / (series max – series min).
- Once scores between 0 and 100 were assigned to each local/unitary authority within each indicator based on the previous steps, the indicators were weighted equally to calculate the overall pillar score, which then in turn were aggregated into the overall Index score.
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