Investment is the fuel that powers a country’s economy, and unfortunately, the UK’s tank is running on empty. This scarcity of investment not only hampers economic growth but also perpetuates inequality and hinders progress towards net zero emissions and energy security.
According to a recent report by the IPPR, the UK ranks last among the G7 countries in terms of investment. Moreover, the report reveals that out of the 30 OECD countries, the UK now holds the twenty-seventh position in business investment. This means that apart from Poland, Luxembourg, and Greece, the UK fares worse than every other developed economy.
These findings raise concerns about the negative impact of high taxes and excessive regulations on British businesses and, ultimately, on the overall economy. Gerard Lyons, a strategist at Netwealth and a former economic advisor to Boris Johnson, suggests that implementing “serious and targeted tax reforms” is crucial to reverse this decline. Lyons argues that focusing on sustainable tax reforms is a more effective approach than relying solely on increased public spending.
Lyons explains, “The UK has a history of low business investment compared to other OECD nations. This is partly due to our unattractive approach to capital cost recovery, specifically, the limited ability of firms to write off investment against tax.”
While the Chancellor has taken steps to address this issue with measures like full expensing for tax relief, Lyons emphasizes the importance of making permanent changes that can have a long-term impact on business behavior.
Prime Minister Rishi Sunak has faced criticism for raising the headline rate of corporation tax from 19% to 25% starting April this year. BT, the FTSE 100 telecoms giant, warns that this move will lead the UK towards a “drastically anti-investment direction,” creating a detrimental tax environment for investment.
Sir James Dyson, in an article for the Telegraph, also expressed his dissatisfaction with the Conservative Party’s approach, describing it as “short-sighted” and “stupid.” Dyson argues that penalizing the private sector is not a winning strategy at the ballot box.
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