Labour desperately needs some foreign cash – and fast

Sir Keir Starmer
Sir Keir Starmer plans to kickstart foreign direct investment in Britain with an investment conference - Wiktor Szymanowicz/Anadolu via Getty Images

They can line up Chequers, or perhaps Windsor Palace. They can ask the King or Prince William to host a glamorous dinner. Perhaps they can even persuade Sir Elton John, given that he is supporting the party, to sing a few songs, or, failing that, at least get Ed Sheeran to strum his guitar.

The Labour Party has promised to hold a major “investment conference” within 100 days of taking office to bring a wave of foreign investment into the UK.

In fairness, it is not a fundamentally terrible idea. The trouble is, the new Labour Government will have to make some big, bold offers – because it desperately needs some global cash to have any chance of improving growth.

If you happen to be running one of the sovereign wealth funds in the Middle East, one of the American technology or pharmaceutical conglomerates or a Chinese manufacturing giant, it does not sound like a hugely appealing invitation. The British investment summit may well include Rachel Reeves, the new Chancellor, regaling everyone with a lecture about how her time as a relatively junior economist at the Bank of England, means she knows how to run the economy, followed by Sir Keir Starmer, the new Prime Minister, telling everyone that as the son of a toolmaker he knows how industry works.

Even so, the investment summit will be a centrepiece of Labour’s first 100 days in power. It will put a huge amount of energy into unveiling a series of major investments designed to demonstrate that the new government can reboot growth and get Britain’s economy back on track.

It certainly needs to do something. The UK has fallen down the league tables for foreign direct investment (FDI). According to the latest figures from the Department for Business and Trade, the number of foreign investment projects has fallen to a 12-year low.

There were 1,555 FDI projects in Britain in the fiscal year that ended in March 2024, which was 6pc down on the previous year, and 31pc down on the number before we left the EU. It is not hard to understand why.

Brexit unpopular among investors

Whatever you think of Brexit, there is no question that it was hugely unpopular among global investors, while political turmoil and a huge rise in corporation tax both dented confidence that was already very fragile. The UK has been regarded as uninvestable for the last few years, and that has shown up in the figures.

An investment summit is one way of fixing that. France’s President Emmanuel Macron had some success with his gatherings at Versailles, personally wooing global business leaders with some Gallic flair and charm. It might be cheesy at times, but it can make a difference. At the last “Choose France” event, projects worth $16bn (£12bn) from the likes of Amazon and Microsoft were unveiled.

If Labour is to have any chance of turning the UK into the fastest-growing economy in the G7, which always sounded implausible, it will need to bring in some serious cash and do so very quickly.

The trouble is, it is going to be an uphill struggle. The sovereign wealth funds of the Middle East with huge sums at their disposal are still very suspicious of the UK. The American giants are being offered huge subsidies by President Joe Biden to invest at home, and that is a lot more attractive than taking a chance on Britain.

The Chinese industrial giants are starting to expand across the world, but, understandably, they don’t want to face tariffs, or restrictions on what industries they can put money into.

Against that backdrop, Labour is planning a huge extension of employment rights, will beef up the power of the trade unions, and may well have some extra tax rises in stores as well, even if it has not owned up to them yet. Sure, there is always stability. Investors like to know that someone is in charge for a few years. But the blunt truth is this. There are plenty of more attractive places to build a new factory or R&D centre than in Labour’s Britain right now.

If the investment summit is to yield any meaningful results, Labour will have to make some big, bold offers to investors, and it will have to do so fast. Such as? It could offer to keep regulators such as the Financial Conduct Authority, and the Competition and Markets Authority on a very short leash, and prevent the regulators from trying to interfere with business too much.

It could double down on its promise not to raise corporation tax, especially ruling out stealth rises such as extra taxes on business class flights, or the taxes on share options or buy-backs, even if they are popular with its natural supporters. Finally, it could offer speedier planning approvals.

Over the last few months, plans for new skyscrapers in London have been blocked, as well as for a massive new entertainment complex from the group behind the Sphere in Las Vegas, and new data centres in the Home Counties, all of them financed by overseas investors. If they are given the go-ahead, assuming the backers have not given up in despair, it would at least prove a start.

Labour is complacently assuming that foreign investment is waiting to flood into the UK once it takes power. All it has to do is ask nicely. Sure, the political turmoil in France and perhaps soon in Germany will help. Not so many corporate chiefs will be accepting President Macron’s next invitation to Versailles if he clings on to office, no matter how good the food is.

But it will learn very quickly that it will be far harder to get the UK moving back up the league table for global investment than it thinks – and it will need to make some major changes to its plans to land any deals of sufficient scale to make a difference to how the economy performs during its time in power.