Foreign Direct Investment to the UK

Lord Harrington of Watford Excerpts

Tuesday 10th September 2024 Lords Chamber

Asked by

[Lord Harrington of Watford]

To ask His Majesty’s Government what measures they intend to implement to attract more foreign direct investment to the United Kingdom.

[Lord Harrington of Watford (Non-Afl)]

My Lords, I requested this debate on a subject on which I spent most of last year and produced what is somewhat modestly called the Harrington Review of Foreign Direct Investment—it is probably the only volume that will ever bear my name, so it means a lot to me.

I was asked to do this review by the former Chancellor of the Exchequer, Jeremy Hunt, but it certainly became very much a cross-party matter. I made sure, as it was my job to do, that the then Opposition, now the Government, were plugged in to it during the course of the review, because I did not want it to become a political matter. I am pleased to say that in the Autumn Statement last year, the Chancellor accepted the recommendations. The then shadow Business Secretary, now the Business Secretary, at a separate event at PwC, also accepted it. I really did not want this debate to become a list of criticisms of the last Government for not implementing it, or criticisms of the current Government for the same, because I have had a lot of good will from both.

However, I feel that this House should really know a little about what the recommendations were, because we still have a fundamental problem with foreign direct investment. On the surface of it, the numbers are reasonably good. We do better in terms of volume than many other comparable countries. But when the numbers are analysed deeply, as I do in the report, the situation is not as rosy as it seems. This is shown when we strip out renewables—noble though they are, it is just that the taxpayer is subsidising foreign manufacturers to come in and supply energy, which, while all very good, is not investment in the other way—and if we strip out what I call share swaps, which are basically US private equity and others legitimately taking stakes in companies, which does not really mean new investment.

The cause célèbre that led to me being asked to do this was the AstraZeneca deal, when AstraZeneca took the decision, after 14 months, to move not to Macclesfield, Cheshire, but to Dublin, Ireland. It is easy for people with my personal political views to say it is because of Brexit, and it is easy for other noble Lords who maybe think a little differently on the political spectrum to say it is because of corporation tax. Actually, when we took evidence from about 200 companies, sovereign wealth funds, pension funds and others, the situation was far more complex than that.

AstraZeneca lent us its management team and we went through the whole process in great detail. We found that patterns emerged across the spectrum, which I will briefly outline. I have only 10 minutes so I cannot do it too deeply, although copies of the review are available if anyone would like to read it. It showed that signals we send to investors, particularly about consistent changes of policy, were a big one, and I quote several examples in the review. For example, the big ones are HS2 and the road to net zero. Originally it was 2050 for no further production of internal combustion engines, then it was changed to 2030, then to 2035. There are lots of such examples across the whole spectrum of government which investors look at and get worried, because they do not know where the next policy is going to come from.

The second was the availability of money. This is not just a question of the Government not having enough money to help investors. There is quite a bit of money, but it is in so many different pots, challenges, funds and departments that it is so complicated to access, and this puts a lot of companies off. That is before we get to the main hurdles to business investment: the clichéd—but true—planning and getting sites through planning permission; connection to the grid, which can take up to 20 years; skills provision; visas; and a whole list of obstacles to investment. I am sure all noble Lords will know of these.

We have to compare our performance with that of other countries, and other countries have changed and got very well-organised investment operations. For example, AstraZeneca—and many others—go to other countries and are given a written offer by those Governments, in the same way a bank would. The offers say, “Here’s the deal, here’s the money, here’s the site with planning permission, here’s how you get your visas, here are the skills that we are planning to provide”. It is then much easier to decide whether to make the investment, subject obviously to a lot of due diligence.

We really do mess such companies about. We have government departments with policy objectives which are often not compatible with other ones. This leads to people who do a very good job at their own job—which might be reducing the number of visas, because that is their policy—going directly against what another department wants, because it is trying to encourage investment.

Lots of recommendations came out to try to deal with this, some of which I will very briefly mention before I ask the Minister about them. He has been most helpful. We had a cup of tea yesterday to discuss this matter, and I hope he will be able to answer the questions that I gave him. I recommended that a government investment committee be set up to lay out a business strategy for prospective investors, like a bank or financial institution would. It would not say that we can do everything, because we do not have the money nor the resources, but it would identify which areas we are going to use to attract more people. These could be missions, to use the current Government’s statement, or the five areas identified by Jeremy Hunt in the Conservative Government equivalent.

I will give a brief example—I will just pick one out of the hat. In this country, we are very good at aircraft wing manufacturing. The question then is: how do we attract more aircraft wing manufacturers, and, above all, how do we make it possible for them to have their suppliers in the supply chain cluster around them? There is a government investment strategy—if you like, that is the equivalent of the board of a financial institution—which lays out the strategy. Beneath that, we have someone who—again, if it were a financial institution—is akin to a chief executive: a Cabinet-level Investment Minister. We had an extremely competent and capable Investment Minister in the previous Government, who, as it happens, is sitting on the Opposition Front Bench now. I felt that he definitely should have been promoted and made the Cabinet-level Investment Minister. I do not think that the current Government have filled the post, but I can think of someone who is very competent to do that.

The position itself is important. Why should that person attend Cabinet? First, if you look at all the big sovereign wealth funds and others, their bosses attend Cabinet, and have the regular ear of the Prime Minister, President or whomever it might be—that is very important. Secondly, in our own Government, that person has to have overriding powers over other departments. That is very important, because when a prospective investment is signed off, real clout is needed over other departments to get all these things done.

Beneath that, my recommendation was to use the existing Office for Investment and to make it significantly greater. It is very good, but it has 25 people, which, in Civil Service terms, is like a corner shop compared with a whole country. It needs to expand dramatically and to be proactive by hunting out the kinds of companies that the strategy from the board above has given it and finding out what it will take to entice them to this country. It is very important.

Finally—I say “finally”, but there are 150 pages of recommendations—beneath that there needs to be a one-stop shop for prospective investors. They get tired of trooping from department to department and being told the Civil Service vernacular that this policy is “owned” by this or that department. The sort of organisation that other countries have for a one-stop shop is very important.

In the little time I have left, I note that there was progress in the previous Government, inasmuch as the Civil Service seems very tuned into this report. I received a very kind message from our trade commissioner in Singapore, whom I met only once at the beginning of the review. I then went to Singapore, where he said, “You should know that lots of your recommendations are being implemented outside the country, in the posts”.

The ministerial top-level investment committee was due to meet, I think, on the day that the election was called, but it has still not met. I ask the Minister—who is a very accomplished businessman in his own right, so I hope he has some sympathy with what I am asking—what progress has there been in implementing the report? Will the government investment committee with all the Secretaries of State sit? Will a Cabinet-level Investment Minister be appointed? Does the Office for Investment have the additional resources that I asked for? What progress has there been for a one-stop shop for prospective investors?