Low investment is blocking UK growth, says think tank

Investment levels in Britain are still among the worst among the world’s richest countries and unless this improves it is difficult to predict how the economy will grow, a think tank has said.

The Institute for Public Policy Research (IPPR) said that overall investment in Britain is “significantly” behind that of its nearest competitor in the G7 group of rich countries.

However, the centre-left think tank said that both the Conservatives and Labor plan to reduce public investment during the next parliamentary term.

It calls on the next government to commit to an industrial strategy and an end to chopping and changing policies to boost investment by private companies.

After years of sluggish growth, how to improve productivity in the UK economy is one of the key battlegrounds in the run-up to the general election.

“If the economy is an engine, then investment is its fuel,” said Dr George Dibb, deputy director of economic policy at the IPPR.

Business spending on things like new factories, equipment and new technologies 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, health care and new roads and railways.

However, the IPPR says that data from the Organization for Economic Coordination and Development (OECD) shows that when measuring total investment – ​​which covers both business and government – ​​the UK has had the lowest level of investment in the G7 for 24 of the past 30 years.

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

“Britain’s poor productivity performance since the Great Financial Crisis of 2008 is a large part of the reason for our abysmal living standards,” the IPPR said.

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

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

He told the BBC’s Today program that it had taken “ten years to find the money” to continue building the company.

He said the government’s current tax breaks are great for persuading individuals to invest relatively small amounts of money in businesses, but said there was a “terrible gap” when it came to attracting larger institutional investors and that the government needed to intervene .

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

The IPPR contains several measures to stimulate investment throughout the economy. These include:

• commit to a comprehensive industrial strategy to remove barriers to growth, increase business security and increase coordination across the economy
• ending the “copy and modify” policy. The IPPR says there have been eleven industrial strategies or growth plans since 2010
• revising fiscal rules to unleash public investment

Business groups have suggested that Brexit, political uncertainty and strict planning rules have all contributed to the low level of investment in Britain.

Dr. Dibb said more infrastructure investment by the public sector was needed to boost private sector investment.

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

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

• Labor’s Shadow Chancellor Rachel Reeves hosted a meeting of the British Infrastructure Council on Monday with some of the UK’s biggest and international investors. Labour’s plans also include a £7.3 billion National Wealth Fund to invest in steel, ports and electric cars.
• The Conservatives point to the fact that they have already given tax breaks to companies investing and putting £36 billion from the modified HS2 high-speed line into local roads, rail and buses. They also want to cut back on existing European Union regulations, which they say are slowing down infrastructure development.
• The Liberal Democrats have promised a new industrial strategy to give companies more predictability and confidence.
• Reform has said it would abolish business rates on non-domestic properties altogether, paid for by a tax on major online retailers. It has also proposed scrapping net-zero pledges to encourage more oil and gas investment in Britain.
• The Scottish National Partymeanwhile will publish its manifesto on Wednesday, but a spokesman said it would provide “a route back to prosperity in the European Union”.

The two main parties, Labor and the Conservatives, have promised reforms in a bid to stimulate the economy and boost investment.

Emma Pinchbeck, CEO of Energy UK, highlighted the problem of not being able to build onshore wind farms.

“[This is] our cheapest form of generation, and we need it to keep the lights on,” she said, adding that planning bureaucracy is delaying the construction of offshore wind turbines.

Zack Simons, planning lawyer at Landmark Chambers, said green belt laws, designed to halt ‘urban sprawl’ – the rapid expansion of towns and villages – were making it difficult to build in places where it was ‘makes sense to concentrate our growth’.