On November 22, the UK government published the Harrington Review of Foreign Direct Investment — an investigation into the country’s approach to attracting foreign direct investment. The report was commissioned in March 2023 by Chancellor of the Exchequer Jeremy Hunt, and the secretary of state for business and trade Kemi Badenoch. 

Below, we have republished the report’s foreword, as written by Lord Richard Harrington, who led the review. 

I was asked to carry out this Review into foreign direct investment because of concerns at the highest levels of government that the UK is missing out on potentially transformational investments by multinational companies and foreign investors. These investments have gone to competing countries, with the follow-on benefits to their economies, rather than ours. It is easy for some politicians and commentators to say ‘it’s because of Brexit’, or ‘it’s because of corporation tax’. The situation is far more complicated than that.

Our comprehensive analysis into what leads to an investment decision has given us a unique view of how the UK government appears to prospective investors, and what we can do to improve. We have worked with more than 200 companies, financial institutions and sovereign wealth funds as part of this Review to find out exactly what their experiences were — why they invested here if they did, and why not if they didn’t. 

I have formed the view during this process that capitalism has changed. Gone is any residual view that government shouldn’t use taxpayers’ money and other resources to assist private companies in investment decisions. Often this position comes with a fear that civil servants and ministers alike will try to pick winners, and fail, or that it will manifest as companies with ‘begging bowls’ at government’s door, asking for money when they would have invested anyway.

The reality is that many of our competitors chase investments via their industrial strategies backed by substantial government support. They identify which ‘races’ they want to be in, which sectors and sub-sectors they have a competitive advantage in, and how they are going to attract the finest businesses in the world to their country.

The UK needs to respond. To do this, I believe we need a new business investment strategy, headed up by a senior minister at cabinet level, with dedicated cross-government machinery to deliver it here and abroad. The prize is a big one: most of our competitors have about 12% of gross domestic product in business investment (domestic and foreign), our equivalent is 10%. The difference is about £50bn per year. If we can attract a sizeable portion of that from abroad, the effects on the economy would be very significant, helping to make the country more prosperous, with better-paid jobs and tax receipts to fund public services. 

The evidence we have received reflects a picture of the UK rich in advantages: our language, our open and vibrant culture, our outstanding research base, the deeply embedded rule of law, the pull of London as one of the world’s great financial centres, and many other assets. However, the barriers outlined in this Review, and the uncertainty they create, act like a tax on investment.

We have heard time and again about government systems that are too often disorganised, risk-averse, siloed and inflexible when it comes to the needs of modern investors. We have developed a system where civil servants and politicians alike will do anything to de-risk a decision, by shoving financial decisions to a series of semi arm’s length institutions as well as a series of “competitions” as a system of allocating taxpayers’ money. All too slow and cumbersome to compete in the modern world.

In an environment of intensifying international competition for the industries of the future, we need to learn from the best examples globally. We must provide a fast, tailored, responsive and comprehensive offer that meets contemporary investors’ expectations. We know that when government invests, the private sector follows, and that £1 of government investment can unlock between £7 and £9 of private sector investment. This shows that when we are proactive, we can achieve great things in partnership with business. 

I believe all this is achievable. In my experience, all businesses need to evolve to compete with changing circumstances. Government is no different.  

The UK government is organised into separate departments — each with individual policy objectives. It is confusing for potential investors who are used to dealing with companies, or with countries who have outward-facing investment organisations with a single front door, to have to navigate their way around different entities for policy, finance, visas, skills, grid and regulation. From my personal experience as a minister across three departments leading two refugee crises, I know how effective a cross-government model can be in breaking down departmental silos. This has been reflected in the organisational recommendations within this report.  

My recommendations will put investment at the heart of all parts of government from the cabinet down. This will help deliver the ambition for the future that the prime minister, chancellor and business and trade secretary have for the UK: a global leader, with innovation driving investment in the five key growth sectors of digital technology, green industries, life sciences, advanced manufacturing, and creative industries. I hope these recommendations will help us achieve that vision.

The full Harrington Review of Foreign Direct Investment is available here.

Richard Harrington is a member of the UK’s House of Lords and chair of the Review of Foreign Direct Investment