Despite seemingly unending turbulence on Brexit, the UK, and London in particular, remains a very attractive place to do business. Our level of foreign direct investment (FDI) is at record levels, and London continues to outrank all other metropolitan areas across the globe in terms of the number of projects.
Since the 1990s, the capital and other parts of the country have benefited massively from an attractive regulatory and political environment, prompting significant investment. FDI flows into Heathrow, for example, have led to a total investment of more than £11bn over the last decade.
But the stable backdrop that enabled this to happen could be at risk. Nationally, investors are taking fright about the prospect of the UK’s utilities and rail companies being renationalised – especially given that Labour’s plans seem to involve compensating shareholders below market value rates.
Pension funds have a clear stake here. There is no doubt that many UK pension pots would be affected by a proposal to renationalise on the cheap. Data from the Global Infrastructure Investor Association shows that 7.67m pension pots would be exposed to losses in sectors that could be put back into state hands under a Labour government.
This is, of course, a serious issue for those who have worked hard and saved for their retirement. However, the consequences would be far more wide-reaching.
Britain’s reputation for stable and reliable regulatory frameworks would be lost, potentially leading to a chilling effect on investment.
Worryingly, investors in UK infrastructure are already seeing red flags. For example, the country’s water regulator has proposed tightening returns for English water companies, which led to Moody’s recent conclusion that there is “continuing regulatory, political, and public pressure on the industry”.
Investors now worry that these kinds of pressures may become much more pronounced – and could spread to other sectors.
The implications of discouraging investment into UK infrastructure would have major implications for our growth prospects. The National Infrastructure Commission (NIC) has set out ambitious targets that would help turbo-charge growth. These include rolling out full fibre broadband by 2033, preparing for 100 per cent of electric vehicle sales by 2030, and halving water leakage by 2050. Achieving these targets requires enormous amounts of private investment.
And an unattractive investment environment could in some cases pose larger risks to London compared to the rest of the country. The NIC estimates that there is a one in four chance of drought between now and 2050 – and it is the south east of England that is most at risk.
Moreover, London will need to be at the forefront of embracing the electric vehicle revolution, which will require enormous amounts of investment into energy networks over the coming decade.
Similarly, full fibre and the development of 5G infrastructure is an absolute necessity for London if it is to remain internationally competitive. Again, for this ambition to become reality, we need to continue promoting an attractive environment for private investment.
With another election increasingly under discussion, Labour would do well to make clear that, if it is determined to return the utilities and railways back into public ownership, renationalisation would be done on fair terms. It should also clarify that it welcomes continued private investment from both the UK and overseas.
Such welcome words will need to be given substance via regulatory and other public policy if Labour wants to put investors’ fears to rest.