UK business investment lowest in G7 countries for 24 of past 30 years

The UK’s dire productivity performance is the single biggest driver of our dire living standards, the Institute for Public Policy Research says

UK, London, looking east with view of the financial district and Canary Wharf

The UK has had the lowest level of investment in the G7 for 24 of the past 30 years, according to research by the Institute for Public Policy Research.

The analysis, which used the latest data sets provided by the Organisation for Economic Co-operation and Development (OECD), showed that the flow of new investment into the UK has also been the lowest of any of the world’s most advanced economies for three years running.

Business investment by private companies was also lower in the UK than any other G7 country in 2022.

The G7 is a group of seven major economies, also incorporating the US, Canada, France, Germany, Italy and Japan.

The analysis also shows that the UK ranked a lowly 28th for business investment out of 31 OECD countries in 2022.

The last time the UK was 'average' in the G7 for total investment was in 1990.

If the UK had maintained an average position over the past three decades, there would have been an additional £1.9 trillion ($2.4tn) worth of investment into the country (in real terms).

It suggests that the country is not attracting as much business investment, as a percentage of gross domestic product (GDP), as its international peers.

Furthermore, total investment across the whole economy – including from the government, corporations and households – has remained lacklustre, according to the IPPR.

“If the economy is an engine, then investment is its fuel," Dr George Dibb, associate director for economic policy at IPPR, said.

“The UK’s dire productivity performance is the single biggest driver of our dire living standards.

“Without resources flowing into new investment, it’s hard to see how UK economic performance can improve.”

Nevertheless, incomplete data for 2023 suggests that the UK has edged its way out of the bottom spot, with the level of private investment overtaking Canada during the year.

Furthermore, the UK is heading towards a general election and leading political parties have beefed up promises to grow the economy in a bid to win over voters.

The Labour Party says its “first mission” for government is to kick-start economic growth, with plans including a strategic partnership with businesses and reforming the planning system to build new homes.

The Conservative Party, in their manifesto, say economic growth will come from measures such as cutting taxes, rather than increasing borrowing or reducing spending on public services.

The IPPR said the UK can encourage greater business investment by developing a “green industrial strategy” which “seeks to remove barriers to growth, creates business and regulatory certainty, and solves co-ordination problems across the economy”.

Dr Dibb said it is down to the government to take the lead and “show businesses that the UK is the secure, sensible and stable place to invest”.