Innovate UK is the UK’s national innovation agency. We support business-led innovation in all sectors, technologies and UK regions. We are often asked about where exactly we spend our funds. Accurately determining the location of innovation is crucial for ensuring constructive discussions with local actors. This question, however, is more complicated than it sounds. While we have a good idea of the addresses where the money is sent, knowing where the actual innovation we are funding takes place is more complex.
One key issue is the ‘headquartering effect’, where innovation activity is attributed to a company’s registered office rather than the actual work location. Many companies have multiple addresses and registered addresses that differ from the location of their operations. Take Rolls-Royce PLC, for instance: its registered address is in the City of London, while most of the activity Innovate UK funds takes place in Derby. Similarly, BT is registered in London, but much of the activity funded by Innovate UK likely happens at its research headquarters in Martlesham, near Ipswich.
Understanding the true location of innovation is increasingly important because government policy focuses on geographical clusters and regional innovation systems, and identifying actors within these requires clear ideas of where innovation activity is happening. Incorrect data, due to headquartering can skew the perceived distribution of funding across regions.
Innovate UK has tried to correct this by asking applicants to give work addresses for projects as well as the registered address of their company, but these fields are not always completed. For reported data, work addresses are used where available and manual corrections are made for the largest grants as needed. These adjustments have a noticeable impact on the raw data, showing greater spending outside the Greater South-East and lower spending in London.
In the drive for continuous improvement, we have investigated our approach using the Office for National Statistics’s Secure Research Service, as detailed in our new accuracy of headquartering report. This investigation involved comparing our data with that in the Business Structure Database, which shows the address where the main activity takes place rather than the registered address.
This still has some issues, but comparing with the data from the UK Innovation Survey (which includes accurate locations for the companies it surveys) shows little difference in the spread between regions. This is true whether using just the main activity address or using all addresses and apportioning activity based on the number of people employed at each address.
Using these principles and matching Business Structure Database figures with Innovate UK project data for grants under £4 million (the largest grants are checked manually) shows that the headquartering effect is greater for these grants. However, it also shows that our current adjustments are moving in the right direction. This is perhaps unsurprising given that a majority of ‘local units’ of companies based in London were elsewhere in the country, but it nonetheless reveals a need to look at headquartering effects for all grants – not just the very largest ones.
What can we learn from this as Innovate UK tries to improve the quality of its data?
The accuracy of headquartering report demonstrates that our approach to mitigating headquartering in our data is effective but perhaps not sufficient, and that we should be looking more carefully at smaller grants. The results of the research do not pinpoint exactly which companies are mislocated and therefore cannot be used for granular data. However, the report does provide valuable backing for the fact that we are moving in the right direction.
By continuing to refine our approach to headquartering, we can ensure that Innovate UK’s investment reporting accurately reflects where economic activity is happening and where benefits are being felt.
The most important factor in improving reporting will remain encouraging applicants to provide the work address where innovation is actually going to happen. This simple step can significantly enhance the accuracy of our data and ensure that we have a clear understanding of the geographical distribution of innovation activities.
Learn more about headquartering and our efforts to gather more accurate location data by reading the full accuracy of headquartering report.
Top image: Credit: Chunyip Wong, E+ via Getty Images