The Institute for Public Policy Research (IPPR) has raised concerns about the UK’s economic growth hindered by persistently low investment levels. Highlighting critical data and expert opinions, this report outlines the key factors limiting investment and explores proposed strategies for improvement.
- The UK lags behind G7 nations in total investment, with a notably lower investment rate than the US.
- Both major political parties are planning to reduce government investment despite its importance for economic growth.
- The IPPR recommends a stable industrial strategy and policy consistency to boost private investments.
- Political parties have varied approaches to boosting investment, ranging from infrastructure funds to tax breaks and new strategies.
- Bureaucratic obstacles, particularly in planning, are major barriers to investment in crucial sectors like renewable energy.
The centre-left think tank, the Institute for Public Policy Research (IPPR), has revealed that the UK’s total investment is significantly behind that of its nearest G7 competitors. Despite recognising the importance of investment for economic growth, both the Conservative and Labour parties intend to reduce government investment in the next parliamentary term. The IPPR urges the incoming government to commit to a comprehensive industrial strategy and eliminate frequent policy changes to encourage private investments from companies. Dr George Dibb, associate director for economic policy at the IPPR, stressed the essential role of investment in driving productivity and economic output, describing investment as the ‘fuel’ for the economic engine.
According to an analysis by the IPPR, supported by data from the Organisation for Economic Co-operation and Development (OECD), the UK has experienced the lowest level of total investment among G7 nations for 24 out of the past 30 years. At present, the UK’s investment rate is 18.3% of national income, substantially lower than the next lowest performer, the US, at 21.2%. Dr Dibb attributed the UK’s poor productivity performance since the 2008 financial crisis to this investment shortfall, which in turn affects living standards. He remarked, ‘Without resources flowing into new investment, it’s hard to see how UK economic performance can improve.’
Business co-founder Paddy Fletcher emphasised the challenges businesses face in securing large-scale investments. Current government tax breaks attract small investors, but there is a ‘terrible gap’ for larger institutional funding. The IPPR has proposed several measures to enhance investment across the economy, including committing to a comprehensive industrial strategy to remove growth barriers and provide business certainty, ending frequent policy changes, and reviewing fiscal rules to allow for increased government investment.
Political parties have diverging methods to address the investment issue. Labour is hosting infrastructure meetings and proposing a £7.3bn National Wealth Fund to invest in sectors like steel, ports, and electric vehicles. The Conservative Party is offering tax breaks for company investments and reallocating £36bn from the altered HS2 high-speed rail line to local infrastructure. The Liberal Democrats promise a new industrial strategy for business predictability and confidence, while the Reform Party suggests abolishing business rates on non-domestic properties, funded by a tax on large online retailers, and scrapping net zero pledges to boost oil and gas investments. The Scottish National Party (SNP) has yet to publish its manifesto but promises a route back to prosperity in the European Union.
Industry experts such as Emma Pinchbeck, chief executive of Energy UK, and Zack Simons, a planning barrister, have highlighted the necessity for planning reform to unlock investments in renewable energy and other growth sectors. Current bureaucratic hurdles, particularly in greenbelt regions, obstruct the development of essential infrastructure like onshore wind farms, which are vital for sustainable energy production.
Addressing the UK’s investment shortfall requires a stable industrial strategy, policy consistency, and targeted reforms to attract both public and private investments, driving economic growth and improving living standards.
