A think-tank is calling on the next government to deliver “high quality public investments to crowd in private sector funds” ahead of the UK general election.
Of the G7 group of economies, the UK has had the lowest business investment for three years running, according to analysis by the Institute for Public Policy Research.
But both the Conservative and Labour parties plan to further reduce public investment over the next parliamentary term, the think-tank says, echoing earlier analysis from the Institute for Fiscal Studies.
Public sector net investment is set to decrease to £53.1bn in 2028–29 from £66.6bn in 2024–25, according to the Office for Budget Responsibility’s economic and fiscal outlook, published in March.
The Labour party has pledged an extra £4.7bn a year under its Green Prosperity Plan, although both IPPR and the IFS note that the additional investment would not be enough to offset cuts pencilled in by the current government.
In numbers: Labour’s Green Prosperity Plan
Funding (annual average) | £bn | Policies funded (annual average) | £bn |
Windfall tax on oil and gas giants | 1.2 | Great British Energy | 1.7 |
National Wealth Fund | 1.5 | ||
British Jobs Bonus | 0.3 | ||
Warm Homes Plan | 1.1 | ||
Barnett consequentials | 0.2 | ||
Total | 1.2 | Total including Barnett consequentials | 4.7 |
Borrowing to invest within fiscal rules | 3.5 | ||
Source: Labour manifesto | |||
As part of its Green Prosperity Plan, and acknowledging that investment in the UK is “too low”, Labour has pledged to establish a national wealth fund of £7.3bn during the next parliament, with a remit to support its growth and clean energy objectives.
So what do investors think of Labour’s investment plans?
“The UK in stock market terms has been overlooked. The US has outperformed, people are selling locally, and there's worries about UK growth,” says Gervais Williams, head of equities at Premier Miton. “So from that point of view I think it's helpful, at the margin, to bring in some extra investment.
“[Public-private partnerships] are particularly effective when there is less capital coming anyway,” he adds. “So what we've seen is capital particularly being withdrawn from the UK market.
“At a time when there's capital being withdrawn, to have some step-up in terms of new demand is not just helpful, it's detracting from a negative.”
A national wealth fund would also have a target of attracting £3 of private investment for every £1 of public investment, Labour says. Among other things, the party plans to allocate £1bn towards carbon capture and £500mn towards green hydrogen manufacturing.
Sustainable Development Capital chief executive Jonathan Maxwell warns that a national wealth fund should not be a “subsidy bucket”, but instead should be, potentially, a lead investor in areas of the economy where innovation in business and financial structure is needed.
“The successful outcome of that is the private sector will take it from there. Because if it's proven to be financially and commercially satisfiable and attractive, then that's where the capital markets step in, and the business thrives,” he says.
Tom Williams, partner and head of energy and infrastructure at Downing, expresses a similar view.
“If you're investing into something that is of itself currently a sensible, attractive investment for people, which produces an appropriate risk-adjusted return for the kind of capital that is seeking a home, then there is an argument that that capital will find its way to that opportunity anyway,” says Williams.
