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Economy / Jobs

The benefits of Foreign Direct Investment are not being shared with Britain’s towns

There is a growing awareness that regional disparities are an urgent problem for the UK’s economy and society, following decades of government policy that has fostered divergence in the fortunes of different places. Research by Will Jennings and Gerry stoker for the Centre for Towns has repeatedly revealed stark differences in the economic fortunes of Britain’s towns and cities. It’s a picture of “Two Englands”, with increasingly different outlooks and experiences.

Until now, however, this debate has not considered another important driver of local jobs and growth: Foreign Direct Investment (FDI). Bridging the Gap, the new report launched this week by EY and the Centre for Towns shines a light on the gaping disparity between the UK’s largest cities and towns, which have been successful in attracting investors from overseas, and the smaller towns and rural areas which have increasingly struggled to attract investment.

FDI has increased by four-fold into the UK’s Core Cities – including London, Manchester, Birmingham and Glasgow – whilst investment elsewhere has tended to stagnate or decline. These Core Cities have attracted 51 per cent of all FDI projects in the last twenty years.

This was not always the case. The share has increased from 31 per cent of the UK’s total FDI in 1997 to a staggering 56 per cent share in 2017. Of these, London has attracted a whopping 74 per cent of projects in the bigger cities.

The good news story for Britain’s cities is in stark contrast to that for many smaller towns: former industrial towns experienced a seismic 74 per cent fall in FDI projects between 1997 and 2013. This decline shows how certain areas have been neglected by government over a long period of time – dating back to restructuring of the UK economy that began in the 1970s.

Successive governments have compounded this. In 2005 Tony Blair, said the future belongs to those, “Swift to adapt, slow to complain, open, willing and able to change”. Today’s report shows just how much those areas that were able to adapt have continued to benefit, while those who were unable to have fallen further behind.

Towns in particular have suffered from under-investment in transport, and ineffective interventions to raise local skills and qualifications in the local labour market.


By contrast, those towns whose local economies have adapted through location close to universities, such as Cambridge and Loughborough; or a revived contemporary industrial presence, such as Redcar, Rotherham and Mansfield, fared significantly better. The patterns that emerge from this report underline that decline in investment is not inevitable: it tends to occur in places where government has taken its eye off the ball, failing to rebuild or provide conditions that attract investors.

Simply, government must do far more to deliver conditions that make its towns and regions far more attractive to investors abroad. There are political as well as economic rewards for all parties in delivering an agenda with a promise of jobs, skills and infrastructure across the diverse local economies of the UK.

As Mark Gregory, EY’s chief economist notes in the report, the decisions taken by foreign investors are driven by infrastructure and skills locally. The UK government needs to pay urgent attention to improving its offer on this front, and thereby ensure a more even distribution of investment across the country. Our report identifies a clear set of priorities for attracting foreign investment that would share the benefits between Britain’s towns and cities: investment in regional transport, a more place-sensitive approach to industrial strategy, faster broadband for all areas, and incentives that lure service investors out of Core Cities.

The Brexit vote highlighted the deep divisions felt between different parts of the country and the aftermath of Brexit is going to prompt fundamental questions about the UK’s economic model – and how prosperity is to be shared by all. Yet today’s politics is characterised by division. The ex-industrial towns that have suffered from low levels of overseas investment in their local economies were more likely to vote to leave the EU – with successive governments having failed to support them in the shift to a more open global economy. Why believe in a global and open Britain, when you are left to go it alone?

The government cannot afford to ignore the growing evidence about the economic challenges faced by Britain’s towns, and the policies and investment required to make them attractive to investment that will bring jobs, business, amenities and hope to local communities. Not only would this stimulate local economies and boost to some of our most deprived regions: it would make the whole country more attractive to foreign investment, and begin to heal some of the divisions that have emerged.

Lisa Nandy is the Labour MP for Wigan. Dr Will Jennings is a senior lecturer in politics at the University of the Southampton. They are among the co-founders of the Centre for Towns.
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