Foreign Direct Investment (FDI) is a key factor driving the strength of the UK economy – larger overseas companies bring a new range of technological and managerial experience, and FDI also encourages UK firms to be more competitive and can stimulate the development and efficiency of supply chains. There is concern that Brexit will reduce FDI inflow the UK relies on, especially within the financial services, technology and manufacturing industries.
Delivering the Autumn Budget last week, Chancellor Philip Hammond allocated an extra £500M for Brexit preparations, with allocations to individual departments being announced in the coming weeks. Despite the UK’s impending EU exit and continuing uncertainty over the Brexit deal that will eventually be agreed, Reuters reports that in 2017 (the first full year after the Brexit vote) the value of FDI in Britain continued to grow, with long term foreign investment reaching 1.564 trillion pounds. This is in addition to positive figures highlighted below, reinforcing the UK’s position as a leading, attractive destination for foreign investment, particularly for Digital FDI:
The Office for National Statistics also writes that Britain saw in 2017 the first net increase in FDI since 2011, having a positive effect on Britain’s current account balance.
While a small number of UK business receive investment from foreign investors, these businesses are noticeably more productive than those that do not. This result has been consistently presented in the last few years (including 2017), showing that Brexit has so far had a smaller impact than initially anticipated. The current government have also pledged to increase start-up loans from 2021 and reduce small business contributions to the Apprenticeship Levy from 10% to 5%.
The post-vote fall in Sterling will have undoubtedly contributed to this result, making UK business seem more attractive to foreign investors. Additionally, Britain’s labour markets, structured legal system, and educated workforce mean that it will continue to be an attractive proposition to both EU and non-EU investors long into the future. As announced in the Budget, growth is forecast to rise from 1.3% this year to 1.6% in four years. Over three million more people are in work since 2010 and wages growth are at their highest in almost ten years.
Gerry Collins, Managing Partner and Head of Inbound Investment at Ecovis Wingrave Yeats, commented that “The devaluation of sterling also makes it cheaper setting up in the UK than was previously the case. These cost savings allied to the other factors listed above, ensure that the UK is still a clear destination of choice for FDI investment.”
With business rates for companies with a rateable value of £51,000 or less being reduced by a third over two years, a further £1.6bn in investments to support a new industrial strategy, and the retention of Entrepreneurs’ Relief, there is no doubt that the UK is home to a dynamic economy and will “be one of the great winners of the technological revolution” according to the Chancellor.