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On 10 September 2024 the House of Lords is due to consider the following question for short debate:

Lord Harrington of Watford (Conservative) to ask His Majesty’s Government what measures they intend to implement to attract more foreign direct investment to the United Kingdom.

Lord Harrington led the Harrington review of foreign direct investment, which reported in November 2023 under Rishi Sunak’s government.

1. Foreign direct investment summary and statistics

Foreign direct investment (FDI) is a category of cross-border investment where an investor resident in one country has a lasting interest in and significant degree of control over an enterprise based in another economy.[1] Usually, owning 10% or more of a company would make an investment eligible for inclusion in FDI statistics.

This briefing focuses on investment coming into the UK. Outward FDI figures are available in Office for National Statistics (ONS) data releases.[2]

According to Department for Business and Trade (DBT) figures, 1,555 new FDI projects ‘landed’ in the UK in 2023/24. Government statistics use the term ‘landed’ to refer to new enterprises, additional investment and mergers and acquisitions.[3] This is a decrease from 1,654 in 2022/23, and from 2016/17’s peak of 2,265.

Figure 1. Number of FDI projects which landed in the UK, 2014/15 to 2023/24

Graph showing number of FDI projects which landed in the UK, 2014/15 to 2023/24
(Department for Business and Trade, ‘DBT inward investment results 2023 to 2024’, 24 July 2024)

DBT figures also demonstrated that in 2023/24, 71,478 jobs were created and 11,613 jobs were maintained in the UK through FDI.

The ONS also publishes data on FDI. The latest annual statistics are for 2021 and demonstrate the flow of investment.[4]

Figure 2. Net FDI flow into the UK (£mn) 2012 to 2021

Graph shows net FDI flow into the UK (£mn) 2012 to 2021
(Office for National Statistics, ‘Foreign direct investment involving UK companies: 2021’, 23 January 2023)

The value of inward flows was £-51.7bn, down from £34.8bn in 2020. A negative number means that outflows exceeded inflows, which could be for various reasons including disinvestment, company dividends exceeding recorded income or companies operating at a loss. Additionally, the ONS cautions that data collection methods changed in 2020, so data may not be directly comparable to earlier figures. Commentators note that factors affecting investment may have included post-Brexit uncertainty, the Covid-19 pandemic and other market stressors.[5]

The ONS also provides figures on FDI stocks: the total book value of FDI investments. In the latest available data, the value of the UK’s inward FDI increased by £83.1bn to £2,002.4bn from 2020 to 2021.

Figure 3. Value of FDI stock in the UK (£bn), 2012 to 2021

Graph shows value of FDI stock in the UK (£bn), 2012 to 2021
(Office for National Statistics, ‘Foreign direct investment involving UK companies: 2021’, 23 January 2023)

EY, formerly Ernst and Young, produces an annual survey of countries’ attractiveness to foreign investment.[6] July 2024’s edition ranked the UK as second in Europe for attracting FDI, after France. EY’s UK chair, Hywel Ball commented:

The UK achieved a strong performance for FDI last year, driven by a resurgence in tech investment and impressive annual growth in sectors such as business services. Significantly, this has also been strategically valuable investment, with UK FDI generating a greater number of jobs than elsewhere in Europe.

The UK remains a leading European investment destination, but there is no room for complacency. Overall project numbers have not yet returned to pre-pandemic levels and global competition for investment remains fierce. The UK enjoys distinct advantages, from its strong foundations across emerging industries such as life sciences, to London’s status as a financial powerhouse. Combining these strengths into a strategy that prioritises attracting capital into high-growth sectors, and shares the benefits of that investment across all regions, should help the UK drive greater opportunities and prosperity in the future.[7]

2. What did Lord Harrington’s review say about attracting more foreign direct investment?

In March 2023, the then government asked Lord Harrington to conduct a review into the UK’s approach to attracting FDI in the context of what the government described as “increasing competition for internationally mobile investment”.[8] The terms of reference set out that the review should look at how the Office for Investment (OFI) and Department for Business and Trade can attract investment in “key growth sectors”:[9]

  • green industries
  • advanced manufacturing
  • life sciences
  • digital technology
  • creative industries

The review presented six headline recommendations for the government to implement to “boost investor confidence in the UK as a destination that is ready to work with business to grow the UK economy”:[10]

  1. The government should set out a clear business investment strategy by spring 2024. This should build on existing sector visions and plans for the five key growth sectors to communicate government’s approach to investment over the medium term.
  2. Investment should be prioritised across central government with clear accountability distributed through the system. A new cross-government investment committee should be introduced to oversee delivery of the business investment strategy.
  3. The government should build on the success of metro mayors and best practice in the devolved administrations to expand its place-based offer to investors.
  4. The new investment committee should work across government to propose further improvements to the UK business environment, informed by the investor feedback provided to the review. Investors advocated for planning reforms; regulators taking investment priorities into account; consistency and simplicity in business taxes; and improved ease of access to finance and bank accounts for overseas investors.
  5. The government should build on the success of the OFI, and ensure it has access to the right tools from across government to compete internationally. To that end, it should have a more targeted and proactive approach to investors, a clearly communicated toolkit, and the flexibility to negotiate strategic partnerships to secure the most strategically important investments.
  6. Recognising the success of its existing funds such as the automotive transformation fund and the aerospace technology institute programme, the government should ensure that the OFI has access to a business investment facility that supports it to initiate proactive discussions with potential investors. The facility should clearly communicate the kind of investment propositions that will attract capital support.[11]

3. How did the Sunak government respond to the Harrington review?

Rishi Sunak’s government broadly accepted the review’s recommendations.[12] It said that its strategic priorities were set out in the ‘Autumn statement 2023’:

The government agrees in principle with Lord Harrington’s headline recommendations and will establish a new ministerial investment group, review investment grant processes, and increase resourcing for the OFI, strengthening the UK’s world-class concierge service for investors.

 It was reported that the ministerial investment group was due to meet for the first time “in late spring” 2024, but the meeting is thought not to have occurred due to the election.[13]

 Also under the Sunak government, on 23 November 2023, a “new wave of investments” was announced at the global investment summit.[14] The government also announced that an independent expert panel had been convened on corporate re-domiciliation: the process of companies moving from another country to the UK.[15]

4. What has the new Labour government said about the Harrington review and foreign direct investment?

The January 2024 Labour policy paper ‘Financing growth: Labour’s plan for financial services’ said that the party “supports the goals and ambitions” of Lord Harrington’s review:

In line with the recommendations of that review, we will ask the OFI to act as a support unit for international financial services firms looking to set up operations in the UK. The OFI will liaise with devolved administrations, local authorities, universities, regional bodies, trade associations, and other stakeholders to advise companies on the best locations for them.

A 2024 independent review commissioned by Labour, ‘A new partnership: A long-term plan for government business relations to power our economy and society’, said that “tackling the UK’s foreign direct investment problem should be a priority in order to make the UK the best place to invest and start a business”.

The Labour manifesto highlighted the role of public and private investment in supporting growth. The manifesto included one explicit mention of FDI: “We will use our diplomatic network to attract foreign direct investment into the UK”.[16]

In her first speech as chancellor, on 8 July 2024, Rachel Reeves announced “a new approach to growth” based on “stability, investment and reform”.[17] Ms Reeves has established a cross-department ‘growth mission board’ to coordinate efforts.

Following the first meeting of the growth mission board, Lord Livermore, financial secretary to the Treasury, spoke to the Financial Times.[18] He said the government was working on breaking down “very big obstacles” to inward investment. Lord Livermore explained that the government is exploring a number of options to make investing easier and more attractive.

5. Read more

Cover image by usertrmk on Freepik.

References

  1. Organization for Economic Cooperation and Development, ‘Foreign direct investment’, accessed 16 August 2024. Return to text
  2. Office for National Statistics, ‘Foreign direct investment involving UK companies: 2021’, 23 January 2023. Return to text
  3. Department for Business and Trade, ‘DBT inward investment results 2023 to 2024’, 24 July 2024. Return to text
  4. Office for National Statistics, ‘Foreign direct investment involving UK companies: 2021’, 23 January 2023. Return to text
  5. FDI Intelligence, ‘Five FDI charts the incoming British government must heed’, 26 June 2024; City of London, ‘The UK bounces back from pandemic with record amount of foreign investment in financial services’, 4 April 2023. Return to text
  6. EY, ‘Foreign direct investment: UK’s project total grows as Europe’s falls’, 11 July 2024. Return to text
  7. As above. Return to text
  8. HM Treasury, ‘Harrington review of foreign direct investment’, 22 November 2023. Return to text
  9. HM Treasury, ‘Terms of reference for the review into the government’s approach to attracting foreign direct investment’, 30 March 2023. Return to text
  10. HM Treasury, ‘Harrington review of foreign direct investment’, 22 November 2023. Return to text
  11. As above. Return to text
  12. HM Treasury, ‘HM government response to Lord Harrington’s review into the government’s approach to attracting foreign direct investment’, 23 November 2023. Return to text
  13. Irwin Mitchell, ‘FOI request reveals government set to debut major strand of inward investment strategy’, 22 May 2024; and Irwin Mitchell, ‘FDI must be a priority following a general election result’, 28 May 2024. Return to text
  14. Prime Minister’s Office and Department for Business and Trade, ‘Prime minister unveils £29.5bn of investment at historic global investment summit’, 27 November 2023. Return to text
  15. Department for Business and Trade, ‘Independent expert panel on corporate re-domiciliation’, accessed 16 August 2024. Return to text
  16. Labour Party, ‘Labour Party manifesto 2024’, June 2024, p 121. Return to text
  17. HM Treasury, ‘Chancellor Rachel Reeves is taking immediate action to fix the foundations of our economy’, 8 July 2024. Return to text
  18. Financial Times (£), ‘UK inward investment being thwarted by bureaucracy, warns minister’, 24 July 2024. Return to text