Small Firms Policy and the 'North-South' Divide in the United Kingdom: The Case of the Business Expansion Scheme

Abstract

Recent studies of industrial policy in the UK have suggested that there may be a conflict between the operation of regional policy on the one hand and the differential regional impact of nationally developed and applied policies on the other. Previous research has shown that take-up rates for various small business support schemes are not uniform between regions, with the southern part of the country containing more recipients than expected on the basis of their share of the actual stock of small businesses. This paper examines the regional distribution of companies receiving investment under the Business Expansion Scheme (BES), which was introduced in 1983 in an attempt to increase the availability of risk capital to small firms in the UK. Our analysis shows that there is a significant and increasing over-concentration of investments under the BES in the South East and East Anglia. In attempting to account for this regional inequality the paper reviews a number of factors which influence both the supply of, and demand for, BES finance. The paper also highlights a north-south drift in equity investment finance raised under the BES. Amending the Scheme in order both to encourage the establishment of more local BES Funds in peripheral regions and to facilitate direct investment by individuals in eligible businesses provides the best hope for reducing the regional inequalities in its operation and impact.