Foreign Direct Investment to the UK

Lord Londesborough Excerpts

Tuesday 10th September 2024 Lords Chamber

[Lord Londesborough (CB)]

My Lords, I will, first, thank the noble Lord, Lord Harrington of Watford, both for securing this debate and for producing such a thorough and insightful review on FDI—I read all 120 pages at pace. As the report quite rightly underlines, FDI is all the more critical to the UK because of our continuing low levels of investment in both private and public sectors, which is the major factor behind our lost growth and productivity. We start from a much lower investment base than other G7 countries, however well we are ranked in terms of FDI attractiveness.

I appreciate that the big-ticket foreign investments of £100 million or more grab the headlines and drive much of our promotion and policy, as these projects typically account for about 70% of FDI inflows. But I would like to see much more focus on FDI in the £1million to £5 million and £50 million to £100 million brackets, on which there is curiously little data. That is a comment I often hear from investors themselves, and where, incidentally, the UK underperforms. On this subject, I ask the Minister, first, what data we have on FDI in SMEs, and is it broken down by size of investment and sector? Secondly, how, and to whom, is this data distributed?

I ask because, from my anecdotal experience, the impact of FDI on, particularly, medium-sized businesses, is proportionately far greater than for many of the large projects in terms of growth rates, jobs created, innovation and, indeed, return on investment. Some 52% of our private sector output comes from SMEs; and, more importantly, scale-ups, defined as enterprises growing at 20% on average per year, account for over a fifth of that turnover—that is almost £500 billion per annum—despite representing just 1% of all SME businesses. In terms of generating GDP growth, these scale-ups play a vital role both locally and nationally.

I should perhaps declare an interest, in that I founded and ran one of these scale-ups for 20 years, before we landed what is called an accidental investment from a US investor group, which made an eight-figure commitment and took a strategic stake. With foreign backing and advice, we managed to innovate, expand our overseas markets and double the size of our workforce in four years, and we saw a huge impact on productivity and growth rates. The point of this anecdote is less about the economic impact and more about the accidental aspect: the investors found us via Google. I am now an investor and adviser to start-ups and scale-ups, and continue to see the sporadic, accidental aspect of foreign investment. We need to be far more systematic.

This brings me back to the issue of data. In the sub-£100 million investment market, and especially the sub-£25 million investment market, we need to ramp up our data and research, and make this more accessible to foreign investors, if we are serious about gaining a bigger share of FDI.

Finally, we should also take heed of the FDI-SME multiyear project, which is conducted by the OECD in collaboration with the EU. It focuses on how to develop linkages between FDI and local enterprises, and on how to create more opportunities of productivity and innovation spillovers for local economic development. It would be good to have a UK equivalent.