UK continues to trail behind in business investment. Incoming government won’t solve that

A new report from the Institute for Public Policy Research (IPPR) says that the UK holds the lowest investment rates among G7 nations. The data indicates that for the third consecutive year, business investment in the UK has lagged behind its G7 counterparts. The nation also ranks 28th out of 31 OECD countries, trailing behind economies such as Slovenia, Latvia, and Hungary.

The analysis extends beyond private investment, encompassing public, household, and non-profit sectors, with the UK still positioned at the bottom of the G7 list. This trend of low investment is not new; over the past 30 years, the UK has been at the bottom for 24 years. Had it maintained an average G7 investment rate since 1990, an additional £1.9 trillion could have been injected into its economy.

Despite these findings, both major political parties—the Conservatives and Labour—intend to reduce public investment if elected. The Conservatives propose significant cuts post-election, while Labour’s ‘Green Prosperity Plan’ would still result in a decrease despite an additional £4.7 billion annual 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:

1. Committing to a long term green industrial strategy, to create business and regulatory certainty
2. Reviewing fiscal rules, to determine how to address volatility of and constraints on productive government investment
3. Establishing public investment benchmarks, to set out explicitly how much is needed to achieve government’s goals

Dr George Dibb of IPPR warns that without new investments, particularly public ones that encourage private sector participation, the UK’s economic performance and living standards are unlikely to improve. He advocates for a robust green industrial strategy and revised fiscal rules to ensure a stable environment conducive to business investments.