Yahoo Finance Investment in UK has trailed other G7 countries since mid-1990s, IPPR says
Investment in the UK has trailed other G7 countries including the US and Germany since the mid-1990s, according to a report that urges Labour and the Conservatives to reverse planned cuts to investment or risk long-term damage to economic growth.
The Institute for Public Policy Research (IPPR) thinktank found the UK was bottom of the G7 league for investment in 24 out of the last 30 years, using figures from the Organisation for Economic Co-operation and Development (OECD).
A lack of spending by UK companies on technology and innovation over the last three decades was mostly to blame for the underperformance, the OECD figures show, while public sector investment has also ranked below the G7 average.
The IPPR said latest comparable data for 2022 showed investment by private companies was lower in the UK than any other G7 country for the third year in a row. The analysis also showed the UK ranked 28th for business investment out of 31 OECD countries with Slovenia, Latvia and Hungary attracting higher levels in relation to the size of their economies.
Private investment includes spending in factories, plant and equipment, and technology. The G7 comprises the UK, US, France, Germany, Italy, Japan and Canada, while the OECD has 38 member countries.
A lack of investment is widely blamed for the UK’s poor productivity record and low levels of economic growth.
A report last year by the National Infrastructure Commission said investments of about £30bn a year from UK taxpayers, and £40bn to £50bn a year from the private sector, would result in savings to the average household of at least £1,000 a year, higher economic productivity, and a better quality of life in the future.
The IPPR report said: “The different trajectories of France, with the second-highest level of private investment in the G7, and the UK show that the UK’s poor performance was far from inevitable.
“In 2005, the two countries had the same level of business investment – about 11.35% of GDP. In the most recent data (2022), France increased its level by 3.4 percentage points, while the UK’s now stands almost 1 percentage point lower.”
Among OECD countries, only Greece, Luxembourg and Poland were ranked lower for business investment than the UK over the last three years.
The thinktank said it was concerned cuts to public investment were forecast whichever of the two main parties wins the general election, though Labour plans to reduce budgets by less than the Conservatives.
“Current Conservative policies imply significant cuts to public investment after the election. Even though Labour promises to invest £4.7bn more per year than the current government through its green prosperity plan, this still implies an overall fall in investment.”
The figures show the turning point was the period after the early 1990s recession, which was followed by a severe property crash and Black Wednesday, when Britain was forced to hurriedly exit from the EU’s exchange rate mechanism. Ever since, growth in private sector investment has tracked below all the G7 countries except in three of the 24 years.
The IPPR said the next UK government should “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”.
It added: “Likewise public sector investments in education, infrastructure and healthcare are needed to create the right conditions for growth.”