The UK has the lowest rates of investment of any G7 economy, according to new analysis by IPPR.
The latest comparable data for the year of 2022 shows business investment, by private companies, is lower in the UK than any other G7 country, for the third year in a row. The analysis also shows that the UK ranks a lowly 28th for business investment out of 31 OECD countries.
Countries like Slovenia, Latvia and Hungary all attract higher levels of private sector investment than the UK as a per cent of GDP. Only Greece, Luxembourg, and Poland see lower business investment than the UK. This includes investment in things like factories, equipment and innovation.
Looking beyond just private capital to total investment (including public, private, household and non-for-profit investments) the UK is still at the bottom of the G7. In fact, the UK has had the lowest level of investment in the G7 for 24 of the last 30 years.
The last time the UK was 'average' in the G7 for total investment was in 1990. If the UK had maintained an average position over the last three decades, there would have been an additional £1.9 trillion worth of investment into the country (in real terms).
Despite the UK’s position at the bottom of the G7 investment league table, both the Conservative and Labour parties plan to further reduce public investment over the next parliamentary term.
Current Conservative policies imply significant cuts to public investment after the election. Even though Labour promises to invest £4.7 billion more per year than the current government through its ‘Green Prosperity Plan’, this still implies an overall fall in investment.
IPPR is calling on the next government to lead from the front by designing and delivering high quality public investments to crowd in private sector funds, especially into industries of the future like electric vehicles and renewable energy. Likewise public sector investments in education, infrastructure and healthcare are needed to create the right conditions for growth. As such, IPPR recommends:
- Committing to a long term green industrial strategy, to create business and regulatory certainty
- Reviewing fiscal rules, to determine how to address volatility of and constraints on productive government investment
- Establishing public investment benchmarks, to set out explicitly how much is needed to achieve government’s goals
Dr George Dibb, associate director for economic policy at IPPR, said: “If the economy is an engine, then investment is its fuel. The UK’s dire productivity performance is the single biggest driver of our dire living standards. Without resources flowing into new investment, it’s hard to see how UK economic performance can improve.
“Public investment crowds in private investment, the government need to take the lead by developing a green industrial strategy and show businesses that the UK is the secure, sensible and stable place to invest.”
