Foreign Direct Investment (FDI) occurs where an investor acquires a stake of at least 10% in an overseas company. Various underlying advantages make the UK a leading global destination for inward FDI. As well as directly enhancing business-turnover, job-creation and exports, inward investment brings indirect “spill-over” benefits in employment, skills, technology and managerial practices.
The Department for International Trade (DIT) publishes statistics regarding numbers of FDI “projects” that have successfully “landed” in the UK during each financial year and associated jobs. The Office for National Statistics (ONS) publishes figures on UK FDI flows, accumulated FDI (stock) and associated profits. Our predecessor Committee noted several deficiencies in this data. DIT and ONS have been addressing these issues, but the rate of progress is slow. There must be greater transparency about progress, quick implementation of changes and broader engagement of users.
DIT is responsible for: marketing the UK as a host country for inward investment; and measures to make it easier for overseas investors to invest in the UK. The Department has an Investment Strategy but does not publicise all aspects of it, so as not to reveal too much information to countries with which the UK is competing for inward investment. DIT says the Strategy is aligned to the Government’s long-term objectives and is being developed to ensure it meets investors’ needs.
The Department operates a “multi-channel strategy” for communicating with investors, including digital marketing campaigns and use of existing investors as “Investment Champions”. The High Potential Opportunities programme promotes major investment opportunities, in various parts of the UK, to potential investors. DIT’s services to inward investors include specialised packages targeted at specific investor types, such as the Capital Investment and Global Entrepreneur programmes. It also works closely with other Government departments “to ensure the investor perspective feeds into regulation policy”. Lord Grimstone, the Minister for Investment, has a particular role in liaising with existing inward investors. The Department works collaboratively with sub-national bodies, including the devolved administrations’ investment organisations.
The stated purpose of the Office for Investment (OfI), which was created in 2020, is to “support the landing of high value investment opportunities into the UK which align with key government priorities”. The Office is based in DIT and led by Lord Grimstone, “in close partnership” with the Prime Minister’s office. The OfI’s role is to “corral an approach” across Government to resolve the “practical, security and policy complexities” that often accompany the most significant investments and act as barriers to inward investors. The Office is intended to be a very small, strategic, elite “crack team of specialists”. The Government should be mindful that the roles of the OfI and the Minister for Investment function as integral parts of a coherent overall investment strategy. There also needs to be further clarity on how the Office relates to 10 Downing Street, DIT and other departments. In addition, we ask the Government to keep us updated on the staffing, developing role and performance of the OfI—and to develop criteria for measuring its success.
The Government’s Plan for Growth identifies inward investment as part of its strategy to recover from the Covid-19 pandemic and pursue the vision of a “Global Britain”. In October 2021, the UK will be hosting a Global Investment Summit to “galvanise foreign investment in the UK’s green industries of the future”. DIT has created an Investment Council, consisting of senior international private sector figures, to advise the Government on how to “enhance the UK’s business environment for foreign investors.” DIT has also announced the creation of four “Trade and Investment Hubs” in Edinburgh, Cardiff, Belfast and Darlington, each with an OfI presence. The Government needs to show how all these initiatives fit effectively into its overall investment strategy, rather than just being ad hoc. We ask the Government to explain why it is creating a Hub for each of the devolved nations yet only one in the English regions.
DIT has made progress in developing a “Gross Value Added” measure of the economic impact of inward investment, which opens the possibility of a more sophisticated performance metric and better targeting. We ask the Department to keep us updated on progress in this regard.
The Government sees inward investment playing an important role in achieving the goal of “levelling up” opportunities across all parts of the UK. However, data show that FDI is unevenly distributed around the UK in a way that strongly correlates with the very geographical disparities which levelling up is intended to address, with London and South-East England capturing the lion’s share. These variations both reflect and help to perpetuate sub-national differences in levels of economic development. Maximising the benefits of FDI for all parts of the UK entails addressing issues including infrastructure, skills, involvement of the Higher Education sector, integration with Global Value Chains and the role of sub-national agencies (including in relation to possible further devolution of powers in the English regions). We recommend that the Government set out in its forthcoming levelling-up White Paper how it expects investment promotion to support and align with wider levelling-up goals. We also recommend the Government consider how to create a coherent sub-national geography that works for investment promotion. Consideration should be given to the lessons that the experience of the devolved nations might hold for the English regions as regards investment promotion. The Government should also bear in mind that the UK’s investment promotion “architecture” needs to be straightforward, transparent and easy for investors to navigate.
Government-owned investment funds—known as Sovereign Wealth Funds—and other Sovereign Investors (such as public-sector pension funds) are likely to play an increasingly important role in UK inward investment as sources of “patient capital” in areas such as infrastructure, technology and life sciences. We welcome the Government exploring ways to encourage this potential source of major investment and recommend the development of an appropriate strategy for better engaging with this type of investor.
Under the National Security and Investment Act 2021, the Government is planning new arrangements for reviewing, and potentially intervening in, inward investment transactions that raise national-security concerns. We welcome the new legislation and support the Government’s intention to screen on an “actor-agnostic” basis (without targeting any particular nationality or type of investor).
While the underlying principles of the legislation have been widely welcomed, significant concerns have been raised among business stakeholders and legal analysts about aspects of the new regime, with fears that it will cast the net too wide. We recommend the Government use its discretionary call-in powers sparingly and in a carefully targeted way, while setting out the criteria it will use. The Government should communicate clearly and transparently to investors the principles underlying the regime, along with its processes and timeframes. It should also set out the roles of DIT, the OfI and other Government bodies in implementing the new regime. We recommend the Government monitor closely the functioning of the new regime, undertake a review of the first 12 months of operation and publish the findings.