Image source, Getty Images
- author, Nick Edser
- role, BBC News Business Reporter
Britain’s investment levels remain the lowest among the world’s richest countries and it is difficult to see how the economy will grow unless they improve, a think tank has said.
The Institute for Public Policy Research (IPPR) said total investment in the UK was “significantly” lagging behind its nearest competitors in the Group of Seven advanced economies.
But a centre-left think tank said both the Conservative and Labour parties plan to cut government investment during the next parliamentary term.
The government is committed to an industrial strategy and is calling for an end to policy spat to encourage private investment.
The UK economy has been experiencing slow growth for many years, and the issue of how to improve productivity is one of the key issues in the run-up to the general election.
“If the economy is the engine, then investment is its fuel,” said Dr George Dibb, IPPR’s deputy director for economic policy.
When businesses invest in new factories, equipment, and new technology, they help increase productivity and economic output, which in turn leads to higher wages and living standards.
Governments also make investments when they spend money on new schools, health services, new roads and railways, etc.
But the IPPR said data from the Organisation for Economic Co-operation and Development (OECD) showed that when measuring total investment, including both business and government, the UK’s investment had been the lowest among G7 countries for 24 of the past 30 years.
It added that not only is the UK currently bottom of the G7 investment rankings (investing 11.3% of national income), but it also lags “significantly” behind the next worst performer, the US (21.2%).
“The UK’s dismal productivity performance since the great financial crisis of 2008 is the single biggest driver of our dismal standards of living,” the IPPR said.
“Without money flowing into new investment, it’s unclear whether the UK’s economic performance can improve,” Dr Dibb added.
The IPPR sets out a number of measures to encourage investment across the economy, including:
- Commitment to the Industrial Strategy. The Government needs to implement a comprehensive strategy to remove barriers to growth, increase business certainty and strengthen coordination across the economy.
- End the “copy and change” of policy. According to the IPPR, there have been 11 industrial strategies or plans for growth since 2010. “This shifting of policies and objectives confuses businesses and undermines the credibility and stability of the UK economy.”
- Review fiscal rules: Voluntary spending rules were the main constraint on government investment, the report said.
Business groups point to a number of reasons for the long-term stagnation of investment into the UK.
They suggest that factors such as Britain’s departure from the EU, domestic political uncertainty and strict urban planning regulations may be contributing factors.
Dr Dib noted that while the causes are not fully understood, some in particular “appear to be significant”.
He said public sector investment in all kinds of infrastructure projects has been sluggish for many years, which could lead to private sector investment.
Another reason, he said, could be the UK economy’s “overreliance” on the service sector, which includes everything from hospitality to beauty and tends to have lower rates of investment.
He suggested that to raise investment levels again “we need to revive manufacturing and encourage UK businesses to produce more of the products we need to get to net zero”.
But ahead of the general election, major political parties have been emphasizing promises of economic growth to win voter support.
Shadow Chancellor Rachel Reeves hosted a “UK Infrastructure Conference” meeting on Monday, bringing together some of the UK’s largest investors and international investors.
Labour’s plans also include a £7.3 billion sovereign wealth fund to invest in steel, ports and electric vehicles.
The Conservatives point to the fact that they have already given tax breaks to businesses that invest and are putting £36 billion from the upgraded HS2 high-speed rail into local roads, rail and buses.
They also want to cut back on outdated European Union regulations that they say slow infrastructure development.
The Liberal Democrats have promised a new industrial strategy to give businesses more “predictability” and confidence.
The Department of Homeland Security plans to completely abolish business taxes on non-residential property and cover the costs by levying taxes on large online retailers.
It also proposes scrapping the net-zero pledge in order to encourage more oil and gas investment in the UK.
Meanwhile, the Scottish National Party is due to publish its manifesto on Wednesday, which a spokesman said would set out a “pathway to a prosperous European union”.
