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How can the UK make better use of inward investment to support levelling up?

09 August 2021

We brought together parliamentarians and industry leaders for a webinar, in partnership with Onward, to address how we can collectively harness the power of inward investment to contribute to the Government's Levelling Up agenda. With around 6,400 projects currently being considered for public funding, how do we improve value for money?

Levelling Up is one of the Government's flagship policies, setting out a positive vision of how the North and other parts of the UK can become more prosperous. 

Inward Investment is the process of attracting outside investment into an area, thereby creating new jobs and opportunities.  

We brought together parliamentarians and industry leaders for a webinar, in partnership with Onward, to address how we can collectively harness the power of inward investment to contribute to the Government's Levelling Up agenda. With around 6,400 projects currently being considered for public funding, how do we improve value for money?

Jonathan Branton, Partner, Head of Government and Public Sector at DWF was joined by Lord Grimstone, Minister for Investment, Richard Holden, MP for North West Durham and Tim Newns, Chief Executive, MIDAS. The event was chaired by Will Holloway, Deputy Director, Onward.

Here are the key policy solutions we collectively discussed to promote inward investment across the UK (content produced by Onward):

1. How the subsidy regime can better support inward investment?
The panel agreed that the UK needs to have a transparent, robust and coordinated subsidy regime if it wants to attract inward investment and the associated jobs. The panel explained that international companies require flexible partners to incentivise business locations. Therefore, the UK must be prepared to act as such. It was emphasised that international players recognise the competitive business environment and that the UK cannot be an outlier if it wants to fulfill its desire to locate stable, well paying jobs. The panel suggested a number of ways in which this could be achieved. Richard Holden suggested that enterprise zones and free ports were a successful way of attracting foreign investment. Alternatively, Jonathan Branton suggested that the UK has a strong opportunity to recast its subsidy control policy to reflect the competitive environment. Jonathan also noted that many subsidies may not immediately appear like subsidies, but are vital to attracting businesses - these include infrastructure development, site clearances, and a strong R&D presence in universities. 
2. Subsidy Control Bill improvements
Jonathan Branton suggested a number of practical solutions to improve the Subsidy Control Bill. He suggested that, in its current form, the Bill does not favour areas in need of levelling up and places a prohibition on relocations within the UK. It was deemed that this might improve the Bill’s ability to level up left behind places.  
3. Framing cities as global brands to improve international reputation
There was a general consensus on the need for differentiated approaches by areas. Tim Newns outlined that while London ranks near the very top for international reputations, many of the UK’s other great cities do not. He suggested that more must be done to create global brands for the UK’s big cities, such as Manchester, to help them level up their global attractiveness as a place for inward investment. It was suggested that this could be achieved by encouraging more direct flights from longer haul locations because this is known to improve productivity. 
4. Recognising the impact of inward investment
Lord Grimstone highlighted the importance of inward investment to the UK economy.  The Minister highlighted that the UK is the most heavily invested advanced economy in the world.  UK based companies that are in receipt of foreign direct investment represent around 1 per cent of the total business population, but employ 16 per cent of the UK workforce. According to the latest data, foreign-owned companies are 70 per cent more productive than domestically owned companies.  The panel noted that recent trends had pushed inward investment towards one area of the United Kingdom above all else, namely London, and that the capital had benefited from globalisation. This is a result of the decline of manufacturing in favour of services.  Lord Grimstone highlighted the UK’s success, stating that according to a survey by EY, the UK is the most attractive place to invest in Europe. However, the Minister acknowledged that this attraction was not spread evenly, and had not been for some decades. He noted that areas in the South East, such as Buckinghamshire, ranked highly in terms of inward investment stock, but areas such as Devon and Yorkshire ranked poorly. In spite of this, there was also strong agreement across the panel that the aim of the levelling up agenda was to level up rather than level down. This means boosting the efforts to retain existing mobile investment inflows in existing areas while attracting new mobile investment to lagging areas.  This move would benefit the recipient areas through increased productivity and wages, as well as through broader spillover benefits.  The panel agreed that Britain’s focus on inward investment should aim to realise these potential benefits.
5. Tools of the trade.
Successfully attracting mobile investment projects to lagging areas requires a number of ingredients, and potentially additional tools that the Government has not possessed or utilised. Lord Grimstone outlined that in pursuit of securing mobile investment projects, the UK Government was committed to being more “muscular and entrepreneurial” than it had in recent years. However, one area that hindered policymakers and Ministers is the metrics of success.  Given the different ways to measure inward investment, and the need for much more granular and comprehensive data, there was agreement that better metrics would boost efforts. 
6. The role of Mayors.
Lord Grimstone highlighted that he has a regular dialogue with all of the metro mayors, in an effort to promote investment across the country and successfully ‘level up’.  The Minister outlined his view that investment decisions have a ‘place’ attached to them, and understanding the comparative strengths of each place to attract investment projects is essential.  
7. Trading links.
In order to boost the investable potential of lagging areas, a portfolio of investment-ready sites was suggested as one mechanism that could assist in capturing investment flows by acting quickly when there is a peak in demand.  However one point raised in the discussion was the physical connectivity nationally and internationally. Tim Newns highlighted the wealth of research showing the increase in FDI inflows linked to international connectivity, both in freight and passengers. 
8. Transparency of mechanism.
There was broad consensus on the panel about the role of incentives in winning investment, particularly in attracting investment to lagging areas.  However, one point raised was the importance of transparency in the decision making.  A transparent and recognised incentives framework could provide value added to the UK economy, allowing UK locations to make the ‘long list’ for global investors. A transparent subsidy regime could pay dividends both for investors and policy makers by providing certainty. 
9. Types of investment.
The panel considered whether the UK Government should focus on specific sectors or geographies when looking to secure investment. Panelists highlighted that the United States remains a significant investor in parts of the UK, by both project numbers and investment value, and that this was expected to remain the case for the short to medium term. However in other parts of the UK, the rising investment potential from countries in South Asia (specifically India) could not be ignored.  Tim Newns argued that there should be a renewed focus on high-value manufacturing. He emphasised that this could support left-behind places by helping them to be globally competitive in specific manufacturing sectors. However, this, too, has prerequisites. Jonathan Branton made clear that high value manufacturing would require access to large energy supplies, local skills, and good educational institutes to attract newcomers. However, other panel members highlighted that - in terms of value added to local areas - source of inward investment was in some cases a secondary concern to the type of inward investment (i.e. greenfield to brownfield). 
10. Anchor companies.
Reshoring should play a major part in attracting inward investment. Richard Holden MP argued that the pandemic has demonstrated the UK’s strength in manufacturing and that now was the time to support reshoring supply chains in Britain. He emphasised that the UK should focus on supporting the return and creation of ‘anchor companies’ in regions. These companies would serve as the focal point for a wider supply chain that adds value and creates jobs. Not only would this support regions to improve economic performance, it would create opportunities to support young people and stay closer to home. The panel agreed that, currently, too many people feel they have to depart their home region in order to be successful and that the presence of strong anchor institutions would help remedy this. 
11. Downstream potential.
The panel noted that there is some potential for inward investment to enhance the productivity of small and medium sized businesses, however it was generally agreed that the onus should be directed towards delivering the highest number of jobs. Therefore a deliberate focus on the larger employers in the coming months might be more advantageous and desirable. It was agreed that this, in turn, would support small businesses by establishing supply chains that build on and sustain local economies - Nissan’s plant in Sunderland was highlighted as an example, indirectly supporting tens of thousands of jobs. 

We'll be publishing a research report at an event in September for which we have interviewed over 1,000 members of the public in the North and Midlands about their views on levelling up and how the Government should support their towns and communities.

If you would like to request the report or to discuss any aspect of levelling up and how it impacts your organisation, please get in touch.

Further Reading