Inward Foreign Direct Investment (FDI) is where overseas
investors acquire ownership of, or a controlling stake in, UK
businesses.
The report explores the Government’s strategy for promoting and
facilitating inward FDI, the proposed new National Security and
Investment regime, and the role played by foreign governments’
Sovereign Wealth Funds (SWFs).
While the Government says inward investment is important for its
“levelling up” agenda, current patterns of FDI perpetuate the
economic dominance of London and the South East. The report calls
on the Government to show it has a plan to maximise the benefits
of FDI for all parts of the UK.
The report welcomes recent measures for investment promotion,
such as the creation of the Office for Investment (OfI), but
cautions that these initiatives must be integral parts of a
coherent overall investment strategy, not just a collection of ad
hoc measures.
Commenting on the report, , Chair of the International Trade
Committee, said:
“Inward foreign direct investment can benefit local economies,
generating new jobs and bringing new skills.
“However, far from helping to ‘level up’ across the UK, current
patterns of foreign direct investment overwhelmingly benefit
London and the South East.
“If the Government is serious about its levelling-up agenda, it
needs to show it has a plan to maximise the benefits of inward
investment in all parts of the UK.
“We thank all those who have engaged with our inquiry and look
forward to receiving the Government’s response.”
The report includes the following conclusions and
recommendations:
Data on inward investment
- While progress has been made in addressing deficiencies in
data on inward investment produced by the Department for
International Trade (DIT) and the Office for National Statistics,
the Committee joins the Office for Statistics Regulation in
calling for greater transparency about progress, quick
implementation of changes and broader engagement of users.
Promoting investment
- With keen international competition for inward investment, it
is vitally important for the UK to have effective arrangements
for investment promotion. The creation of the OfI is a
significant and innovative addition to the UK
investment-promotion landscape. At the same time, the role of the
Minister for Investment appears to be evolving and growing.
- While these developments are welcome, the Government should
be mindful that the roles of the OfI and the Minister should
function as integral parts of a coherent overall investment
strategy. There also needs to be further clarity on how the OfI
relates to 10 Downing Street, DIT and other departments. In
addition, the Government should keep the Committee updated on the
staffing, developing role and performance of the OfI – and
develop criteria for measuring its success.
- The Government needs to show how its investment promotion
initiatives fit into its overall investment strategy, rather than
just being ad hoc. Regarding DIT’s new Trade and Investment Hubs,
the Committee asks the Government to explain why it is creating a
Hub for each of the devolved nations yet only one in the English
regions (in the North of England, at Darlington). It should also
say more about the scale on which specialist investment staff –
including those from the OfI – will be present in the Hubs and
the specific roles that they will play there.
- Involvement by DIT in inward investment successes, measured
in project numbers, is a crude performance metric for investment
promotion. The Committee welcomes the progress that DIT has made
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.
Levelling up and inward investment
- The Government has made much of "levelling up" across the UK
– and indicated that inward investment has an important role in
achieving it. However, it is uncertain how this translates into
concrete interventions.
- The Government should set out in its forthcoming levelling-up
White Paper how it expects investment promotion to support and
align with wider levelling-up goals. This should include
reference to policy on infrastructure, skills, higher education,
integrating with Global Value Chains and further devolution of
powers in the English regions.
- The Skills Accelerator is a welcome innovation in enhancing
local skills bases. To maximise the benefits of this, skills
policy needs to be coherently joined up with investment promotion
at sub-national level. Similarly, higher education can play a
crucial role in attracting inward investment and the Government
should seek the sector's full engagement in sub-national
investment promotion.
- The Prime Minister has indicated the possibility of more
devolution in the English regions, but the form this will take is
unclear. The Committee recommends the Government consider how to
create a coherent sub-national geography that works for
investment promotion, effectively tying together areas with
common identities and features. This should include reviewing the
role of Local Enterprise Partnerships and considering how they
can most effectively be funded in relation to investment
promotion.
Sovereign Wealth Funds
- SWFs, and other Sovereign Investors, 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.
- The Committee welcomes the Government exploring ways to
encourage this potential source of major investment, but notes
that not all SWFs use the Government's investment promotion
services. The Committee recommends the development of an
appropriate strategy for better engaging with this type of
investor.
The National Security and Investment regime
- The National Security and Investment Act 2021 is a welcome
measure, updating legislation that was no longer fit-for-purpose,
given the challenges that investment screening now poses. The
Committee supports the Government's intention to screen on an
“actor-agnostic” basis (without targeting investors from
particular countries or specific types of investor).
- The Committee recommends the Government use its discretionary
call-in powers sparingly and in a carefully targeted way, to deal
with issues such as non-controlling investments of concern. It
also recommends the Government set out the criteria it will use
to minimise the risk of its powers under the screening regime
being deployed in a politicised way.
- The Committee recommends the Government set out overtly how
it intends, in operating the new screening regime, to communicate
clearly and transparently to investors the principles underlying
the regime, along with its processes and timeframes.
- It is recommended that the Government set out the respective
roles of DIT, the OfI and other Government bodies in implementing
the new regime. It should also consider whether the Export
Control Joint Unit could be a possible model for developing the
Investment Security Unit (ISU) on an integrated,
cross-departmental basis.
- The Committee recommends the Government monitor closely the
functioning of the new regime, including the work of the ISU. A
review of the regime's first 12 months of operation should be
undertaken and the findings published. If necessary, processes
under the regime, or the regime itself, should be modified –
including by changing legislation, if this is required.
-- Ends --
Inward Foreign Direct Investment inquiry
- The Committee launched its inquiry
into Inward Foreign Direct Investment in December 2020. Written
evidence oral session transcripts can be found here.
- The predecessor Committee undertook a wide-ranging inquiry
into all aspects of UK investment policy and reported in
July 2019.
