Brexit’s FDI crisis

There are two obvious hits to the British economy from Brexit: the barriers to trade that it throws up and what follows from that; that it makes the UK a less attractive place to invest.

Before 2016, if you were a foreign businessperson or company that invested in a factory, office or distribution centre in the UK, you knew that it could serve and sell effortlessly across the whole of the EU. Now you know you can sell from there only across the UK – and if you want to do business in the EU, you might want to invest there instead or as well.

The consequences are obvious and the data has been incontrovertible. Foreign Direct Investment has plummeted in the UK. Foreign businesses are just not coming to the UK in the numbers they used to.

Thursday saw the latest figures on FDI released by the Department for Business and Trade. They show that the number of foreign projects in the UK fell by 6% in the last year and is down by almost a third on 2016. The hit has been massive, and it is still continuing.

Civil servants are supposed to observe a strict omerta during any election campaign, but the release of official statistics continues. The Conservatives will probably be glad that this data release will not get the attention it deserves at this stage of the election cycle – especially when there are betting scandals and dismal polls to discuss – but this one deserves to be hung around the neck of the Brexit-supporting party and its cabinet like a badge of shame.

Because FDI really matters. In a country with appallingly low levels of productivity, one of the few things preventing it from being even worse is FDI.

When foreign firms set up business in a country like the UK they do not come for the low wages or the cheap land; this is an expensive place to do business.

That means they tend to only come here with their latest designs, their newest technology, their cutting-edge products and their excellent management. They then set up local supply chains and insist that they are as innovative, quality driven, productive, and efficient as they are.

The influence of a company like Nissan or Siemens on the British economy is huge, it trickles down through the supply chain to dozens if not hundreds of British firms, which have to up their game or die. Higher productivity is the result but for that to continue the UK needs to keep attracting foreign firms to invest in the UK.

But things are getting worse, not better. In the last year, 1,555 FDI projects were started in the UK, down from 1,782 in 2019. If you ignore the years when Covid hit investment, then the new figures are the lowest in 12 years.

The UK still has many advantages, language, the law, culture, the arts and sport, our universities and research institutes. That is why we are still the second largest attractor of foreign investment in Europe, but France has had the top spot for five years now.

That could and should have been our position, it was for decades and it is Brexit that has knocked us off the top spot, hit productivity, weakened investment and damaged the economy.