Sarah Hall reflects on Sunak’s Global Investment Summit, suggesting that more clarity around UK industrial policy is needed to maximise the economic impact of the investments announced at the summit.
Last month saw Rishi Sunak host the UK’s second Global Investment Summit at Hampton Court against the backdrop of weak growth forecasts for the UK economy. In a bullish assessment, Sunak announced that the UK had attracted £29.5bn of new investment that would lead to the creation of ‘thousands of jobs’ across the UK in ‘innovative sectors, including tech, life sciences, renewables, housing and infrastructure’.
The announcement is a clear indication of Sunak’s intention to be more pro-business than his predecessors However, it fails to address concerns that the UK needs a clear industrial policy in order to successfully address longstanding productivity concerns that continue to weigh heavily on economic growth.
There are three key issues that highlight the limitations of the Summit within the UK’s wider economic growth plan.
First, the figure of £29.5bn comprises a range of different types of (potential) investments and is spread over a number of years. Given the size of the UK economy, this means that caution needs to be exercised regarding the scale of its likely impacts. For example, Partners Group of Switzerland have committed £500m for offshore wind infrastructure but over the next five years. Other investment sums come more in the form of pledges and memoranda of understanding and hence are not guaranteed. The German company BioNTech, for instance, which partnered with Pfizer on the Covid vaccine, announced its intention to expand its R&D activity through a new laboratory in Cambridge and a new AI centre in London.
The impact of the UK’s first Global Investment Summit – hosted by Boris Johnson in 2021 – highlights the challenge of converting pledges into actual investment. At that event, £0.7bn of investment was pledged, most of which is ‘still in progress’.
The second challenge is that UK business investment is currently the lowest in the G7. The 2007-8 financial crisis triggered a sharp decline in business investment across G7 countries. However, rates of investment increased markedly within the UK after the crash until the Brexit vote. An important component of this was the courting of Chinese investment under the Cameron-Osborne administration.
Following the referendum, rates of investment flatlined before suffering another significant fall during the height of the Covid-19 pandemic. While all G7 countries experienced a similar fall post-Covid, their experiences since have been much more mixed. Italy and France have seen business investment grow strongly whilst the UK’s rate has grown less quickly.
The post-Covid period is also marked by significant changes in the geopolitics of overseas investment. In an effort to attract overseas investment the UK is now increasingly focused on the Middle East (including at Sunak’s Summit), particularly as sovereign wealth funds from these countries are increasingly keen to diversify their investment portfolios away from energy towards infrastructure.
However, although the international sources of investment may be changing, the politics of overseas investment continue to be an issue. This was reflected in the new Foreign Secretary David Cameron hosting a conversation at the Summit on geopolitics and the global economy. This reflects growing concerns in the UK and the US concerning relying too heavily on China as an economic partner.
The third challenge is how the summit fits within UK industrial policy. The UK’s latest industrial strategy was published in 2017 by Theresa May with the aim of ‘boosting productivity by backing businesses to create good jobs and increase the earning power of people throughout the UK with investment in skills, industries and infrastructure’.
In 2021, Johnson alongside the then Chancellor Rishi Sunak replaced this with their Plan for Growth which focused on levelling up, transitioning to net zero and investment in infrastructure, skills and innovation. This also marked a move away from an economy wide industrial strategy to a greater focus on sector specific strategies, particularly in areas such as science and technology. This was followed in September 2022 by Liz Truss’s Growth Plan.
Clearly, the UK’s strategy has chopped and changed along with political leadership in recent years. These recent changes at least partly reflect changes in political leadership within the government. This flux is indicative of more longstanding fluctuations in UK industrial policy that can be dated back to the 1970s. The policy landscape has involved a number of different public bodies, government departments and levels of government in terms of delivery and the policy direction itself has changed frequently, often reflecting short term political aims.
Regular changes in the focus of industrial policy, alongside a complex and dynamic delivery model, do not readily provide the policy certainty and stability that business investment typically thrives on. This is particularly true as the global economy now appears to be moving to an era of greater state intervention, seen most clearly in the US’ Inflation Reduction Act and the EU’s Green Deal.
Addressing the shortcomings in both policy clarity and delivery, whilst no easy task, would provide a more fruitful landscape for the investments announced at Sunak’s Summit this week to maximise their economic impact.
By Professor Sarah Hall, Deputy Director, UK in a Changing Europe.