Low investment is blocking UK growth, says think tank

The level of investment in the UK remains among the worst of the world’s richest countries and unless it improves, it is hard to predict how the economy will grow, the think tank said.

The Institute for Public Policy Research (IPPR) said overall investment in the UK “significantly” lags behind its nearest competitor in the G7 group of wealthy nations.

But the centre-left think tank said both the Conservatives and Labor planned to cut government investment in the next term.

It calls for the next government to commit to an industrial strategy and end cuts and policy changes to encourage investment by private companies.

After years of slow growth, the question of how to improve the productivity of Britain’s economy is one of the key battlegrounds ahead of the general election.

“If the economy is the engine, then investment is its fuel,” said Dr. George Dibb, Deputy Director for Economic Policy at the IPPR.

Business spending on things like new factories, equipment, and new technology can help increase productivity and economic output, which in turn can help raise wages and living standards.

Governments also invest when they spend money on things like new schools, healthcare and new roads and railways.

But the IPPR said data from the Organization for Economic Co-ordination and Development (OECD) showed that when measuring total investment – which covers both business and government – the UK had the lowest level of investment in the G7 of 24 countries. the last 30 years.

He added that the UK is currently not only at the bottom of the G7 investment table, with investment at 11.3% of national income, but “significantly” behind the next worst performer – the US at 21.2%.

“The UK’s appalling productivity performance since the Great Financial Crisis of 2008 is pretty much the single biggest driver of our disastrous living standards,” the IPPR said.

“Without resources flowing into new investment, it is hard to see how the UK’s economic performance can improve,” added Dr Dibb.

Paddy Fletcher is the co-founder of Port of Leith, a start-up whiskey distillery in Edinburgh city centre.

He told the BBC’s Today program that it took “10 years to find the money” to keep building the business.

He said the government’s current tax breaks were great for persuading individuals to invest relatively small sums in companies, but said there was a “terrible gap” in attracting larger institutional investors and the government needed to step in.

“When you’re looking for one, two, three million pounds to continue to develop your business and grow to the next stage, you need to take institutional funding,” he said.

The IPPR sets out several measures that seek to increase investment across the economy. These include:

• commit to a comprehensive industrial strategy to remove barriers to growth, increase certainty for business and increase coordination across the economy
• termination of the “copy-and-change” policy. The IPPR says there are 11 industry strategies or growth plans as of 2010
• revising fiscal rules to free up government investment

Business groups suggest that Brexit, political uncertainty and tight planning regulations have contributed to low levels of investment in the UK.

Dr. Dibb said more public sector investment in infrastructure was needed to spur private sector investment.

Previous analysis by the Institute for Fiscal Studies suggests that current government spending plans would involve large cuts in public investment for the rest of the decade.

Dr. Dibb also said there was an “over-reliance” in the UK economy on the service sector, which includes everything from hospitality to hairdressing and tends to invest at a lower rate.

• Working Shadow Chancellor Rachel Reeves hosted a ‘British Infrastructure Council’ meeting with some of the UK’s biggest and international investors on Monday. Labour’s plans also include a £7.3bn National Wealth Fund to invest in steel, ports and electric cars.
• Conservatives they point to the fact that they have already given tax breaks to companies investing in and transferring £36 billion from the repurposed HS2 high-speed rail line to local roads, rail and buses. They also want to reduce old European Union regulations that they say are slowing down infrastructure development.
• Liberal Democrats promised a new industrial strategy to give businesses greater predictability and confidence.
• Reform said it would completely abolish business rates payable on non-domestic properties, tax paid by large online retailers. It also proposed scrapping net zero pledges to encourage more oil and gas investment in the UK.
• Scottish National Partymeanwhile, he is due to publish his manifesto on Wednesday, but a spokesman said he would offer “a path back to prosperity in the European Union”.

The two main parties, Labor and the Conservatives, have promised to plan reforms that will try to boost the economy and free up investment.

Emma Pinchbeck, chief executive of Energy UK, pointed to the problem of not being able to build wind farms on land.

“[This is] our cheapest form of generation and we need it to keep the lights on,” she said, noting that planning red tape is slowing down the construction of offshore wind turbines.

Zack Simons, a planning barrister at Landmark Chambers, said green belt planning laws designed to stop “urban sprawl” – the rapid expansion of cities and towns – made it harder to build in places where “it makes sense to focus our growth”.