Foreign Direct Investment to the UK

Lord Birt Excerpts

Tuesday 10th September 2024 Lords Chamber

[Lord Birt (CB)]

My Lords, investment is the lifeblood of an economy. What will attract investment into ours?

First and foremost, we need to recognise that the investor community, amassing funds of trillions, is truly global, has untrammelled freedom of choice, can invest anywhere, and will place its funds only where it is convinced that it will make good returns—and reliably—in a predictable and non-volatile political, fiscal and financial environment. In other words, a necessary if not sufficient condition for attracting investment is stability, as the noble Lords, Lord Harrington and Lord Petitgas, eloquently underlined.

Where we score highly on stability is our widely admired and trusted legal and regulatory systems, and in the City we possess a world-class financial centre, but, in the past 10 years or so we have failed badly to offer the political stability the investor community looks for. We have exposed investors to the chronic uncertainty of Brexit, religious wars in the ruling party, five Prime Ministers, and the Liz Truss moment of madness, with the Bank of England forced to ride to the rescue of the UK’s pension funds.

A new Government should strain every sinew to restore political calm, to foster a stable currency and to ensure internationally comparable interest rates. Beyond stability, we have to offer investors high returns, so a new Government must also work to remedy the enduring weaknesses that contribute to the UK’s low productivity: underinvested road and rail infrastructure, a planning system that moves at a snail’s pace, skills shortages at every level and too few people in productive work.

I neither have, nor have I ever had, a stake in a private equity fund, but I have chaired companies invested in by PE, and I have been much exposed to global investors. The UK has the greatest private equity firepower in Europe but a high proportion of those working in the sector are not UK citizens and they, and the funds they manage, are highly mobile. Personally, PE professionals can benefit handsomely if they produce high returns for their investors, but if they fail, which happens, they receive nothing, and the risk of that is recognised globally in establishing tax regimes for when they do succeed.

The UK is not an outlier but somewhere in the middle of the pack in the tax regimes applied to PE by the US and leading EU countries—less generous than some, more generous than others. But I hope the Government will be truly wary of the very real flight risk of both funds and professionals, and the consequent dangers for the economy, if our rates are materially increased, as the noble Lord, Lord Leigh, himself underlined.

It is vital that the new Government celebrate and incentivise the spirit of enterprise—a critical route to growth, to increasing individual prosperity, to expanding the tax take, and to beginning the process of re-investing in our mightily challenged, underfunded public sector.