Unless major changes are made, the UK will lose its place as Europe’s top destination for foreign direct investment (FDI) to Germany within the next two years, Ernst & Young warns.
Britain attracted 679 projects in 2011 creating nearly 30,000 jobs, according to the annual UK attractiveness survey.
But that represents a seven per cent fall in projects on the year, led by a 15 per cent drop in financial services investment, traditionally a strong sector for the UK.
Britain attracted 17 per cent of total FDI in Europe last year, with Germany gaining 15 per cent – a rapid rise as the Eurozone powerhouse saw only one third of the UK’s level back in 2009.
The report cited the bank levy and the increasing burden of regulation as key factors hitting investment in financial services – with a third of investors claiming it is vital to the UK’s economic future to play to its strengths.
And although chancellor George Osborne has focused on cutting corporation tax, barely half of investors surveyed said the tax regime is attractive.
Less than half believe the UK’s labour costs are appealing, leading the report to call for a greater focus on developing skills in the workforce.
Furthermore, one sixth of investors are also put off Britain by the availability of real estate.
However, investors remain positive on the UK’s economic outlook – 86 per cent believe the country will overcome its economic difficulties, higher than the 81 per cent average across Europe.
Nonetheless, that is firmly below the 91 per cent who expect the German economy to recover.
“Looking to Germany, investors value its transport and logistics skills and infrastructure and its telecommunications infrastructure very highly,” said Ernst and Young’s Mark Gregory.
“The UK tends to attract investors based on softer criteria such as quality of life and political stability.”