DECADES of under-investment in businesses has left the UK in a growth doom loop, according to new analysis by  the Institute for Public Police Research (IPPR).

Business investment is lower in the UK than any other country in the G7 and the UK ranks 27th for business investment among the 30 OECD countries for which the IPPR has data, worse than every other developed economy apart from Poland, Luxembourg, and Greece.

The UK has been below average in the G7 for private sector investment since 2005. Had the UK maintained that position since then, the private sector would have invested an additional £354 billion in real terms in the UK.

If public sector investment had been similarly at the level of the G7 median, the UK government would have invested an additional £208 billion between 2006 and 2021. Combined, that is the equivalent of building another 30 Elizabeth lines, according to new research by the progressive thinktank.

Low investment – both by the government and private companies – has resulted in the UK being left behind in the global race to capture the green industries of the future, which are estimated to be worth $10.3 trillion to the global economy by 2050.

IPPR has previously called for the government to significantly increase public investment to deliver economic prosperity, tackle regional inequality and address climate change. Even an additional £30 billion of public investment per year, phased in over time, would still see the UK below the most effective level of public investment that some analysts have argued for (4.5 per cent of GDP).

  • Criticisms that increased government investment would be bad for the economy are misguided, argues IPPR.
  • Chronic under-investment in the UK economy, public and private, is perpetuating low growth.
  • Economic growth stemming from public investment makes it easier to achieve a falling debt-to-GDP ratio.
  • Green investments can drive growth by raising the productive capacity of the economy. A 0.5 percentage point increase in growth could generate about £12 billion more ‘fiscal space’.
  • The US and EU are significantly stepping up their investment with the UK falling behind in the global green race to net zero.

Increased public investment will ‘crowd-in’ private sector investment and give confidence to companies to choose the UK as a place to build the green companies of the future, says IPPR, provided the government invests with a sense of longevity and certainty, as the Biden administration has done in the US with the Inflation Reduction Act.

Moreover, the cost of inaction, both economically and environmentally, should spur the government into action. It would also win political support: climate action is popular and the vast majority of the public do not think the government is doing enough.

George Dibb, associate director for economy at IPPR, said: “If the economy is the engine of a country, investment is its fuel. But the UK’s tank is running on empty and it’s harming economic growth, driving inequality, and slowing progress towards net zero and energy security. Currently, the UK is experiencing a debilitating case of investment-phobia, and the government’s aversion to investing to seize future opportunities is stopping us from getting out of the growth doom loop we find ourselves in.”

Luke Murphy, associate director for energy and climate at IPPR, said: “The UK is in an investment and growth doom loop. Chronic under-investment, public and private, is delivering stagnating growth and a struggling economy. The answer is an ambitious plan to invest in long-term, job-generating, green industries of the future, which is vastly different from borrowing to fund irresponsible tax cuts.

“There’s a global green race and right now the UK isn’t even on the starting line, if we want to reap the huge benefits that the green transition offers, we need to invest, and invest now.”

* Source IPPR