Labour accused of failing to attract foreign investment

Thursday 11 September 2025 2:23 pm
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Thursday 11 September 2025 8:23 pm

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The UK government has been pressed to stop choosing for short-term solutions to boost foreign investment.

The Labour government is opting to use quick “sticking plasters” which fail to affect long-term change to attract foreign direct investment (FDI), according to a new report.

The report from Caudwell Strong Britain, a research project of think tank Council on Geostrategy, argues that the government needs to remove the structural barriers that hinder foreign investment.

The UK attracted 853 FDI projects in 2024, making it the second most popular destination in Europe, as investors chose to inject money into the strong financial services sector and take advantage of liquid capital markets.

However, this was a 13 per cent decrease on the year before, indicating that the UK’s self-imposed issues are weakening the country’s attractiveness and causing foreign investors to become uncertain of the market, the report said.

John Caudwell said: “For too long, as a nation, we have focused on short-term solutions, sticking plasters, when it’s clear that deeper reforms are needed.”

It comes after US pharmaceutical giant Merck pulled a £1bn investment in a new London research centre, despite the building already under construction and expected to open in 2027.

Meanwhile UK heavyweight Astrazeneca pulled the plug on a new vaccine manufacturing plant in Liverpool earlier this year, while Ienos Energy decided to cut funding in recent days, after the company boss labelled the UK’s tax policy “one of the most fiscal regimes in the world”.

Navigating bureaucracy

Dr Mann Virdee, author of the report, noted that “navigating the confusing and fragmented bureaucracy” in Britain, in particular, causes investors to look elsewhere.

They added that foreign investors lack clarity during the investment process as they are forced to deal with a range of Whitehall departments, public bodies and regulators, ultimately risking significant investment delays.

Virdee said: “This is a problem of the UK’s own making, there is no certainty where decision-making authority lies in Britain.”

The think tank called for increased support for foreign investors, including offering bespoke assistance throughout the process, in order to decrease confusion and accelerate the speed of investment.

Lord Harrington, author of the 2023 Harrington Review of foreign direct investment, said: “It is about providing the best possible support to investors, and ensuring that they have a single point of contact.”

Meanwhile, a lack of consistency in policy and information on tax levels, rent and labour costs has also deterred foreign companies as they are unable to know the full costs of a project.

Enough slogans, Labour must walk the walk on growth

Planning system and costs an ’embarrassment’

The state of the planning system has also caused a downturn in major foreign investment, with developers believing it to be sluggish and cumbersome, according to the report.

Despite the government pushing for more infrastructure projects to be green lit, the time taken to get consent for a nationally significant infrastructure project takes on average 4.2 years, compared to just 2.6 years in 2010.

The lengthy decision process leads to project costs increasing over time while investors lose confidence in the system, the report added.

The report has called for the outdated planning system to be overhauled through the introduction of set deadlines on statutory consultations as well as making brownfield sites readily available for development.

Investors also face considerable structural cost disadvantages, with UK electricity prices being higher than many competing countries, risking the future of energy-intensive sectors unless relief is granted it argued.

While regional energy pricing was proposed as a solution to the electricity problem, the government rejected it in July, meaning a new incentive must be found to reduce energy prices before further investors flee the market.

Virdee said in the report: “It should be a source of national embarrassment that the UK has the world’s most expensive electricity costs…and cannot build a high-speed rail line.

“It is no wonder foreign investors think twice.”

Tread carefully with financial incentives

While the UK has failed to cement a steady long term financial incentive to lure investors, when implemented, they can be highly effective in securing foreign capital.

However, the think tank warned that the government must adopt a measured approach to incentives, and not view it as a total solution, due to their use coming with a range of risks and costs.

Large subsidies often indicate wider problems in the business and economic environment, including the belief the country cannot pull in money without offering companies financial motivation.

Instead, the report suggested the government consider a tax rate of 10 per cent for greenfield investments in critical sectors, such as biotech, conditional on meeting targets such as job creation and R&D spending.

It also added that offering 100 per cent first-year capital allowances for investments in critical sectors would help channel private investment towards the UK’s more strategic priorities, in order to boost their potential.

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