By Claire West
The UK is facing increasing competition as a destination for business investment and, although it is starting from a strong base, will need to work hard if it is to maintain its position, the CBI said.
The business group said that, if future growth is to be assured, the UK must adapt and improve its policies to recognise the concerns of investors.
Ahead of its flagship annual conference today (Monday), the CBI unveiled the findings of new research on The UK as a place to invest,which highlights what matters most to would-be investors and likely patterns of investment during the next five years.
On behalf of the CBI and Deloitte, the professional services firm, Ipsos MORI carried out 121 telephone interviews with senior business leaders in FTSE 100 & 250 companies, and equivalent large overseas companies operating here.
In order to identify which issues the Government should prioritise, the survey set out to understand how attractive the UK is to investors, how it compares with other investment locations in both mature and emerging markets and what matters most to key decision makers.
In a number of areas that are considered to be critical to investment decisions, the UK performs relatively poorly, and in recent years the UK's position is seen as having slipped. The CBI/Deloitte survey identifies four key areas requiring attention: regulation, business taxation, personal taxation, and planning and infrastructure. The one factor seen as important against which the UK performs well is economic stability.
Other areas, where the UK was rated more highly, were seen by investors as less influential. These include historical legacy, such as existing investment and networks surrounding a business.
Evidence about trends in future investment shows that, if action is not taken, investors will be more likely to reduce their presence in the UK, as the primary location for their business shifts abroad. This is particularly the case in design, marketing & brand development, and services provision, areas traditionally considered to be strengths of the UK.
On a positive note, the survey shows many companies (between 8% and 12% across the sectors) have still not decided where their primary location will be in five years' time. So if the UK sets the right policies now, it can not only maintain its position but it can attract additional activity to the UK.
According to the survey, the coalition Government seems to have made a promising start. The majority of respondents (62%) believe that the new administration will improve the overall climate for business: 55% believe the impact the coalition will have on the business climate will be 'fairly positive', while 21% said there will 'no change'.
Respondents put the UK ahead of continental Europe and Russia as a place to invest, and on a par with Brazil and Asian countries other than India and China. However, the UK is currently perceived to be less attractive than North America, China and India.
Richard Lambert, CBI Director-General, said:
"Having acted fast to tackle the deficit, the Government must now focus on how to attract more investment to the UK, if we are to create new jobs and grow the economy.
"The UK is still perceived to be an attractive place to invest compared to many other countries, but is seen to have lost ground in recent years, and as lagging behind the US, China and India. The UK needs to improve in the areas that really matter, otherwise other nations will steal a march on the UK as a place to invest.
"The Coalition’s efforts to improve the general business climate are viewed favourably, but there is much to do to improve the UK’s competitiveness as a destination for investment. The stakes are high, but if the UK raises its game, the prize we reap in jobs and opportunities will be considerable."
Despite its still-favourable rating against other countries, the UK has lost ground over the past 10 years. Moreover, it is in areas that really matter to business investment — the level of taxation, and the nature and level of its regulation — that the UK’s position has been eroded.
Respondents to the survey underlined these concerns in the following comments:
"Corporate tax conditions are constraining. Legislation adds significant cost in the UK compared to Western Europe."
"Tax levels are very high and low return. Quality of life isn't as high as tax would suggest it should be."
"Significantly greater support in other countries in new investments."
"Completing projects with multi-local authority involvement is a nightmare. We struggle to see how we're going to develop major projects in the UK."
Areas where the UK’s position has improved relative to its competitors — good labour relations, the historical legacy of a business and flexible working practices — are all factors companies making investment decisions see as less important.
Looking at the attractiveness of the UK to different sectors, manufacturers find it less attractive and say they are less likely to invest here. This is a real concern as the UK works to re-balance its economy. Financial and other services are more likely than the average to view the UK in a favourable light.
Those firms with UK headquarters are more likely to relocate their investments abroad, whereas firms with overseas headquarters seem to be more certain about maintaining their UK presence.
John Connolly, Chief Executive and Senior Partner of Deloitte, commented:
"If the UK economy is to continue its recovery, then growth and jobs will have to come from the private sector. The Government has to focus its efforts on helping business deliver the maximum power to drive the recovery forward. The leaders of major UK companies have no expectation of a return to 'business as usual' and Government too is getting to grips with this new reality. One of the great challenges for policy makers is to provide the right conditions for companies to grow. Our research shows where they need to start.
"The UK corporate sector has a tremendous ability to adapt and to bounce back. While businesses remain focussed on controlling costs, strategies to introduce new products or services, expand by acquisition and increase capital spending, feature prominently on their agendas. Even in these uncertain times corporate UK is looking for growth opportunities. Some of those opportunities will lie outside the UK. The Government needs to play its role in ensuring that many of those opportunities lie here, in the UK."