Investment levels in the UK remain among the lowest of the world’s richest nations, posing a significant challenge to economic growth, according to the Institute for Public Policy Research (IPPR).
The centre-left think tank highlighted that the UK’s total investment is “significantly” behind the nearest competitor in the G7 group of wealthy nations.
Despite the importance of investment for economic growth, both the Conservative and Labour parties plan to reduce government investment in the next parliamentary term. The IPPR urges the next government to commit to a comprehensive industrial strategy and end the frequent changes in policy to encourage private company investments.
Dr George Dibb, associate director for economic policy at the IPPR, emphasised the crucial role of investment in driving productivity and economic output. “If the economy is an engine, then investment is its fuel,” he said.
Investment Challenges and Solutions
The IPPR’s analysis, supported by data from the Organisation for Economic Co-operation and Development (OECD), shows the UK has had the lowest level of total investment in the G7 for 24 of the past 30 years. Currently, the UK’s investment stands at 18.3% of national income, significantly lower than the next worst performer, the US, at 21.2%.
Dr Dibb pointed out that the UK’s poor productivity performance since the 2008 financial crisis is a major factor behind low living standards. “Without resources flowing into new investment, it’s hard to see how UK economic performance can improve,” he added.
Paddy Fletcher, co-founder of the Port of Leith distillery, highlighted the difficulties faced by businesses in securing large-scale investments. While current government tax breaks help attract small investors, there is a “terrible gap” when it comes to attracting larger institutional funding.
The IPPR proposes several measures to increase investment across the economy, including:
– Committing to a comprehensive industrial strategy to remove growth barriers and provide business certainty.
– Ending frequent policy changes, noting that since 2010, there have been 11 industrial strategies or plans for growth.
– Reviewing fiscal rules to enable increased government investment.
Political Responses and Proposals
Political parties have different approaches to addressing the investment issue:
Labour: Hosting infrastructure meetings and proposing a £7.3bn National Wealth Fund for investments in steel, ports, and electric cars.
Conservatives: Offering tax breaks for company investments and reallocating £36bn from the altered HS2 high-speed rail line to local infrastructure.
Liberal Democrats: Promising a new industrial strategy for business predictability and confidence.
Reform: Proposing the abolition of business rates on non-domestic properties, funded by a tax on large online retailers, and scrapping net zero pledges to boost oil and gas investment.
Scottish National Party (SNP): Yet to publish its manifesto but promises a route back to prosperity in the European Union.
Emma Pinchbeck, chief executive of Energy UK, and Zack Simons, a planning barrister, emphasised the need for planning reform to unlock investment in renewable energy and other growth sectors. Current bureaucratic hurdles, especially in greenbelt areas, impede the development of essential infrastructure such as onshore wind farms, which are crucial for sustainable energy production.
In summary, addressing the UK’s investment shortfall requires a stable industrial strategy, policy consistency, and targeted reforms to attract both public and private investments, ultimately driving economic growth and improving living standards.
Read more:
Low Investment Blocking UK Growth, Says Think Tank