Claim: “We will see a pent-up tidal wave of investment into our country.”
Boris Johnson, Conservative Party manifesto
InFact: The UK is a frictionless trade gateway to the whole EU by virtue of its membership of the single market and customs union. This plus the English language and our legal system have made us a magnet for investment from countries both inside and outside the EU. Brexit will damage this because there will no longer be frictionless trade and the other countries will lure away our top investors.
About half of the total £1 trillion stock of foreign investment comes from EU countries, according to an analysis by the London School of Economics’ Centre for Economic Performance (CEP). It makes what it calls a “very conservative” prediction that Brexit will cause foreign investment to fall by 22% over the next decade.
We have benefited from foreign investment in a whole range of industries – including aerospace, food and retailing. One of the biggest successes is our car industry – reviving a sector that almost vanished in the 1970s. Think of the vast Nissan, Honda and Toyota plants. Think of BMW’s investment in Mini and Tata’s revival of Jaguar Land Rover.
Since the referendum, investment in the automotive industry has plummeted, halving last year to £589 million. Nissan has reversed a decision to build its new X-Trail model in Sunderland. Honda has announced the closure of its Swindon plant. The head of Unipart has warned of “Carmageddon”.
Services industries, which make up 80% of our economy, have also used the UK as a launchpad to sell into the entire EU market. A “passport” gives financial services companies unfettered access. Not surprisingly, the UK has become a vast and throbbing financial centre – with American, German, French, Japanese and Chinese banks making it their headquarters for European investment banking and other activities.
Financial services has been the largest recipient of foreign investment, according to the LSE’s CEP. But it warns: “Restrictions on ‘single passport’ privileges following Brexit, would lead to big cuts in activity.” Banks are already shifting their activities offshore – to Frankfurt, Paris, Dublin and Amsterdam – where they will still enjoy a passport. This exodus will hurt us badly. The financial services industry may be unpopular, but it contributes £75 billion a year in tax revenue – or 11% of the total.
Firms across different industries will continue to sit on their hands if Brexit goes ahead. Johnson’s manifesto commitment not to extend the transition beyond the end of 2020 means that companies will spend next year on tenterhooks worried whether we are going to crash out of the single market and customs union without any safety net. We’ll then either crash out (in which case companies certainly won’t invest), or we’ll move to a third-rate trade deal with lots of friction (which is hardly the best way of inducing foreign investment).
One way there could be a big influx of foreign money is if there are takeovers of some of our top companies. But that’s selling the crown jewels, not productive investment.
The idea that we are about to get a tidal wave of investment is another Johnson pipedream. The only way to get that is to cancel Brexit.
The penultimate para about selling the crown jewels was added shortly after publication.
The headline was updated on December 4