Two-Thirds Of UK Tech Firms Are Outside London – Cost Crisis Or Regional Tech Boom?

For years, London has been seen as the undisputed centre of the UK’s tech industry. But, new data suggests that the balance is shifting, with two-thirds of UK tech firms now based outside the capital.

So, what’s really driving this change? Is London simply becoming too expensive for startups to operate, or is something bigger happening across the UK’s regional tech ecosystems?

The answer, it seems, is more complex than either narrative alone.

 

A Shift That’s Backed by Data

 

Recent insights from R&D tax credit specialists EmpowerRD highlight how innovation activity is evolving across the UK.

While London-based tech firms remain the biggest investors – spending an average of £1,609,731 annually on innovation, compared to £1,185,100 in the North West – regional firms are showing strong engagement in R&D.

In fact, 49.02% of tech firms in the North West made an R&D tax claim in the past year, significantly higher than the 33.94% of firms in Greater London.

At the same time, funding challenges remain a barrier across the board. Over a third (34.48%) of London firms cited limited funding as a key issue, rising to 45.45% in the North West, suggesting that while regional ecosystems are growing, access to capital is still uneven.

 

 

London Still Leads, But Its Grip Is Loosening

 

There’s no denying that London continues to dominate in many ways. According to EmpowerRD, 79.31% of London-based firms have increased their innovation budgets over the past three years, compared to just 58% in the North East. And looking ahead, 85% of firms in both regions expect their innovation budgets to rise, signalling continued growth across the UK.

But the key takeaway is this: innovation is no longer concentrated in one place, and that’s the big change we have our eyes on. As Richard Potter, GM, Supply Chain and Retail Solutions at UiPath, explains, “This is a much more interesting story than a simple capital city versus regions debate… What this data really reveals is that the UK itself is the tech hub worth talking about.”

 

Cost Pressures Are Real, But They’re Not the Whole Story

 

It would be easy to assume that rising costs in London are pushing startups elsewhere, and there’s some truth to that.

From office space to salaries, operating in the capital remains significantly more expensive than in other parts of the UK. But many industry leaders argue that this is only part of the picture.

According to Jenson Brook, Founder of Britain’s Got Startups, “While rising costs in London are definitely a factor for some businesses, the bigger story is that there’s real momentum in regional tech… Being outside London is no longer a compromise. For many startups, it’s a genuine advantage.”

And, that’s a very big change from previous years. This shift was almost certainly accelerated by the pandemic, which proved that teams can collaborate effectively from anywhere. As a result, proximity to London is no longer essential for success, and that’s a total gamechanger.

 

Regional Ecosystems Are Coming Into Their Own

 

What’s emerging instead is a network of strong regional tech hubs, each with its own specialisms and strengths. Cities like Manchester, Bristol, Edinburgh and Cardiff are building reputations in areas ranging from fintech and AI to deep tech and advanced engineering. These ecosystems are supported by local universities, talent pipelines and growing investor networks.

As Sarah Jones, CEO of Fintech Wales, puts it, “Two-thirds of UK tech firms now being based outside London shows just how much the sector has evolved. Technology is no longer tied to a single location, and we are seeing strong regional innovation happening right across the UK.”

This is reflected not just in company numbers, but also in the broader infrastructure supporting them.

 

Infrastructure, AI and the New Geography of Tech

 

At the same time, broader technology trends are also influencing where companies choose to operate. New research from Asanti shows that AI adoption, rising power costs and resilience concerns are reshaping infrastructure decisions across the UK.

The study found that 52% of IT leaders cite rising power costs as a major concern; 48% say AI will significantly influence infrastructure strategy in the next three years; and 51% are prioritising cybersecurity and resilience.

In deed, as AI workloads increase, so do power and cooling requirements. Average rack densities are expected to rise from 8kW to 11kW within 12 months, putting pressure on data centre infrastructure.

And this is already impacting location decisions. While some organisations are exploring overseas options due to high UK energy costs, others are doubling down on regional UK data centres to balance cost, compliance and performance.

As Stewart Laing, CEO of Asanti, explains, “AI has moved from pilot projects to production workloads and with it comes a step-change in rack density, power demand and cooling requirements.”

This shift is creating new opportunities for regional hubs to become critical infrastructure centres for the next generation of tech companies.

 

A More Distributed Future for UK Tech?

 

So, is this trend a cost-driven exodus from London, or a genuine regional boom?

Well, it seems as though the reality is somewhere in between. London remains a global tech powerhouse, particularly when it comes to investment and visibility. But the rest of the UK is no longer playing catch-up. Instead, it’s building diverse, competitive ecosystems that offer real advantages to founders.

From stronger talent pipelines to lower operating costs and evolving infrastructure, regional hubs are becoming increasingly attractive places to build and scale tech businesses.

What was once a London-centric industry is now becoming a truly national tech ecosystem, and that could be one of the UK’s biggest strengths going forward.

 

Our Experts: 

 

• Jenson Brook: Founder of Britain’s Got Start Ups
• Sarah Jones: CEO of Fintech Wales
• Richard Potter: GM, Supply Chain and Retail Solutions at UiPath
• Ray Law: Founder of moneyappi
• Dr. Alice Iles: Head of Tech Acceleration at Future Worlds
• Julaine Speight: Co-Owner and Marketing Director at First Internet
• Dan Alvarez: Group Revenue Officer at Vertical
• Natalie Carey: Founder at Now Prototype It
• Rob Harper: CEO and Founder of Rowden
• Carl Wong: Co-Founder and CEO of Baltic Ventures
• Rich Jones: Head of Exchange
• Liina Vahtras: Managing Director at e-Residency
• Claire Gamble: Managing Director of Unhooked
• Emma Lauchlan: Director, Growth at Asanti
• Sarah Poynder: VP, Technology at The PHA Group

 

Jenson Brook, Founder of Britain’s Got Start Ups

 

 

“This is a great statistic, but it won’t surprise anyone paying close attention to how the UK startup market is evolving. While rising costs in London are definitely a factor for some businesses, the bigger story is that there’s real momentum in regional tech.

“At Britain’s Got Startups, we’re seeing more ambitious, high-growth businesses being built outside the capital. That’s not just because it’s cheaper to operate, it’s because founders can access incredible talent, strong university networks, and build companies in places where the economics make more sense from day one.

“Being outside London is no longer a compromise. For many startups, it’s a genuine advantage. The strength of the UK tech sector is increasingly coming from across the whole country, and that’s something worth recognising.”

 

Sarah Jones, the CEO of Fintech Wales

 

 

“Two-thirds of UK tech firms now being based outside London shows just how much the sector has evolved. Technology is no longer tied to a single location, and we are seeing strong regional innovation happening right across the UK.

“Wales is a great example of this shift. The country offers an exciting place for fintech and technology organisations to launch and scale, supported by a highly collaborative business environment, strong universities and talent.

“Alongside successful homegrown startups, major fintechs including Starling Bank, Monzo, Tandem Bank and ANNA Money have chosen to establish operations in South Wales, attracted by the region’s strong talent pipeline and quality of life.

“Cardiff is now the UK’s second-largest insurance cluster after London, and we are seeing innovation across Wales in areas including prop tech, green tech, mobility tech, fintech for good, health tech, cybersecurity and of course AI. With two planned AI Growth Zones in North and South Wales, the country continues to invest in innovation and long-term growth, cementing its position as one of the UK’s most exciting technology ecosystems.”

 

Richard Potter, Co-Founder and CEO of Peak

 

 

“This is a much more interesting story than a simple capital city versus regions debate. London’s dominance reflects its outsized share of population, VC investment, and global visibility, particularly in fintech, where names like Revolut and Wise have put the city on the world map. However, this is far from the whole picture.

“What this data really reveals is that the UK itself is the tech hub worth talking about. Manchester’s digital economy, Bristol’s deep tech cluster, Edinburgh’s data science scene, these aren’t consolation prizes. They represent genuine ecosystems built on world class universities, strong local talent pipelines, and lower operating costs that actually make scaling easier.

“So, is it a cost crisis pushing firms out of London, or a regional boom pulling them elsewhere? It’s neither, the UK is the vibrant global tech hub.”

 

Ray Law, Founder of moneyappi

 

 

“I think this shift is less about costs and more a sign of a genuine regional tech boom. The UK’s fintech ecosystem is maturing, with innovation, talent, and investment increasingly spreading beyond London.

“The North West, and Manchester in particular, illustrates this perfectly. The city is home to more than 5,700 tech companies – the largest cluster outside London – with thousands more across the wider region. Within this, the region’s fintech sector is thriving, with over 400 firms contributing around £5 billion a year to the local economy. Initiatives like FinTech North also help connect founders, investors, and talent across the North, further supporting this growth.

“This momentum is being driven by strong universities, incubators, and collaborative communities, showing that regional hubs are far more than a cost-driven alternative to London. Instead, they are vibrant, innovation-led ecosystems powering the UK’s next wave of fintech growth.”

 

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Dr. Alice Iles, Head of Tech Acceleration at Future Worlds

 

 

“The best deeptech startups in the UK are emerging from universities across the country, and not just from the golden triangle.

“Academics at universities like Southampton can make superb startup founders. Not only are they surrounded by some of the country’s best academic minds, but they are trained to be suspicious of their own assertions and to test hypotheses daily – which is, of course, great preparation for validating a market for their startup. If they seek out the right mentors and networks to think big and break out of the academic bubble, nothing will stop them from raising millions, if not billions in funding.”

 

Julaine Speight, Co-Owner and Marketing Director at First Internet

 

 

“Manchester’s tech and digital sector has grown rapidly in recent years and the idea that London is the main contender when it comes to innovation is now outdated. Cost may have played a role, but the shift towards regional tech hubs is really about where talent, infrastructure and opportunity now exist and the benefits that brings to clients.

“Regional teams, like ours at First Internet, offer the same level of expertise and strategic thinking as London firms, but with lower overheads, which ultimately means better value for clients. Talent is no longer concentrated in one city; skilled developers, strategists and marketers are spread across the UK.

“The pandemic accelerated this. Once businesses became comfortable collaborating remotely, London’s advantage as a physical meeting point largely disappeared.

“What we’re seeing now isn’t a temporary reaction to rising costs in the capital. It’s a more balanced, accessible and competitive UK tech ecosystem.”

 

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Dan Alvarez, Group Revenue Officer at Vertical 

 

 

“I think it’s a mix of both, we have seen a massive increase in regional talent from universities such as Birmingham, Manchester, Bristol and Edinburgh. If you mix this with some amazing entrepreneurs with access to talent that want lower living costs, shorter commutes and a better standard of living it’s a perfect recipe for the UK’s tech startups.

“I also think there are more funds and VC’s willing to invest outside of London now and this can only be a good thing for the whole UK.”

 

Natalie Carey, Founder at Now Prototype It

 

 

“I used to work exclusively in London, then life took a turn and I moved to the south coast. I realised that the world didn’t necessarily revolve around London and decided to found my B2B startup in Portsmouth. My clients are spread out all over the UK and never once has our location been mentioned as an issue.”

“When we need to meet a client in person, they are always welcome to visit us in Portsmouth – many relish the chance to come to the coast, especially over the summer! Equally, we are always happy to travel to wherever they are – there no barriers to location now. Although the cost of business has risen sharply, and more so in London than elsewhere, it’s not cost that has driven regional tech. It’s much more to do with greater access to tech talent and a pandemic-initiated exodus from London. There just isn’t the same need to be in London anymore.”

 

Rob Harper, CEO and Founder of Rowden

 

 

“People talk a lot about the UK needing to ‘reindustrialise’, but if you look closely, parts of that future are already here in the Southwest. Within an hour of Bristol you’ve got a Venn diagram of world‑class aerospace, motorsport and automotive, advanced manufacturing, companies that build complex mission systems, and a huge amount of latent talent that has come through places like Dyson, Rolls‑Royce, Airbus and the wider supply chain.

“The density of serious engineering capability in this region is completely out of proportion to its size.

“Up until now, what’s been missing is a clear narrative that joins those dots together and says: this isn’t just a scattering of good companies, it’s a critical national asset. That’s what we’re building here. If you’re a top‑flight engineer or computer scientist thinking about what to do after your degree, the default has been ‘go to London for AI, or to the Bay Area in the US for big tech’. But that’s changing.

“We’re seeing more people who want to work on defence systems, aerospace, or critical infrastructure technology looking at the Southwest instead. This is one of the few places where you can actually design, build, and deploy operational systems, from hardware through to the software running at the edge. We see that shift in the applications we get for our applied graduate programme.

“If we keep on this path, the Southwest isn’t just a good regional story. It has the potential to become one of Europe’s leading clusters for defence and advanced engineering.”

 

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Carl Wong, Co-Founder and CEO of Baltic Ventures 

 

 

“It’s definitely more than a cost story. Yes, London has become increasingly expensive, which will naturally push some to look elsewhere. But what’s really changed in recent years is the strength of regional tech ecosystems.

We’ve built a flagship Accelerator and angel investment platform in the Liverpool City Region, investing in and supporting UK-wide founders. Teams are choosing to build outside London, not just because it’s cheaper, but because there’s real talent, strong founder communities and growing support networks in areas like ours.

We believe great founders can come from anywhere, and our portfolio from the last three years reflects that. There’s still a gap in venture capital flowing into the regions, but there are incredibly positive signs that the tech ecosystem is becoming more geographically diverse. We’re growing our syndicate this year, and the interest we’re receiving from angels not just in our region but beyond reflects that shift.”

 

Rich Jones, Head of Exchange

 

 

“Cost pressure has made founders think harder about where they scale up, but from what we’re seeing at Exchange, this is bigger than a search for a cheaper postcode. The strongest regional tech ecosystems now offer what ambitious businesses need to scale, including talent, networks, practical support, and a community around them.

“In Manchester, we’ve seen applications to Exchange rise from around 20-25 per cohort before Department at Campfield to 58-70 after the move, which tells you founders are responding to ecosystem strength, not just cost. London still matters, particularly for capital and visibility, but it is no longer the automatic choice.

“More tech businesses are building in regional cities because they can attract people, stay connected and grow with fewer compromises. That feels less like a cost crisis story and more like a genuine shift in where UK tech ambition now lives.”

 

Liina Vahtras, Managing Director at e-Residency

 

 

“The fact that two-thirds of UK tech firms are outside London points to a genuine regional boom, but one that’s still being shaped by uneven access to support. London is no longer the only place where ambitious digital businesses are built, with cities like Manchester, Leeds, Bristol and Edinburgh continuing to strengthen their tech ecosystems through talent, university links and founder networks.

“At the same time, our research at e-Residency shows the digital advantage is still concentrated in the capital. For example, 67% of London SMEs say digital support programmes such as mentoring or accelerator initiatives have helped them run their business, compared with far lower participation across the regions, where 74% report no involvement at all. We also found 78% of London SMEs describe their business as established or growing, versus 62% outside London.

“Cost is only part of the story. The real opportunity is a more geographically distributed UK tech sector, provided regional founders get the same visibility, support and digital access as their peers in London.”

 

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Claire Gamble, Managing Director of Unhooked

 

 

‘”There’s a strong, connected ecosystem and investment across the region, which is reflected in the types of businesses it attracts. There are leading hubs like Alderley Park, Manchester Science Park and The Landing at MediaCity, as well as Oxford Innovation centres, including The Wellsprings in Bolton and Merseyway Innovation Centre in Stockport, meaning there’s space for both start-ups and global businesses to grow.

“My experience of developing our own tech product has been really positive. There’s so much support available, and people are generous with their time and expertise. The region actively wants businesses to succeed. There’s already a strong talent pool, and I’ve met growing tech and AI companies that have intentionally chosen Manchester as their base to scale.”

 

Emma Lauchlan, Director, Growth at Asanti

 

“In our 2026 trends study of UK IT leaders, 97% told us the UK’s future tech progress depends on having adequate data centre capacity – and they’re actively looking to place that capacity closer to regional hubs. A third already use only UK‑based data centres, and another third plan to bring more workloads into on‑prem or regional colocation over the next 12 months, driven by latency, sovereignty and the simple need for engineers to reach sites within an hour.

“Yes, high power costs are a headache – 52% cite energy pricing as their top concern – but they’re not just offshoring to cut bills. Instead, boards are selectively moving the most critical, AI‑heavy workloads into resilient regional sites, where they can balance cost with performance, compliance and uptime. As the IT decision makers we surveyed anticipate rack densities climbing from around 8kW today to 11kW in the next year, a clear opportunity is highlighted for powered‑up regional facilities to become the natural home of the UK’s next wave of high‑growth tech firms.”

 

Sarah Poynder, VP, Technology at The PHA Group

 

 

“Having worked with British tech businesses of all sizes for the past decade, I’ve seen first-hand that some of the most innovative companies are based well beyond the London Orbital. This is particularly true of thriving hubs like Edinburgh and Manchester.

“It’s the diversity of ideas, people and experiences across those many hubs that makes British tech so dynamic. While cost pressures inevitably play a part in where businesses choose to grow, there is definitely more nuance to the success of the wider tech landscape.

“Regional ecosystems depend on a delicate balance of strong education opportunities, supportive accelerator networks, active investment communities, and sustained government backing. All of these ebb and flow over time. That constant evolution is exactly what keeps the UK’s tech landscape one of the most vibrant and resilient in the world.”

 

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