THE FIVE GIANTS - Neglect
Britain has committed too little capital and channelled too much of what it does commit into unproductive assets.
This manifests in three ways: workers with too little capital to work with, growing firms that cannot raise what growth requires, and world-class clusters starved of the capacity to expand.
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Authors
Jeegar Kakkad
Shivani Menon
introduction
Britain has invested less than comparable countries for a very long time. The shortfall exists in public infrastructure and private businesses alike. One estimate suggests that matching peer levels of net capital per hour worked requires the UK closing a capital gap of £2 trillion.
This is not a new phenomenon. Britain's total investment has been lower than the average of its peer nations for decades. The UK’s total investment has averaged 18% of GDP since 1993, compared to 21% across the average of the US, France, Germany, and the Netherlands.
Public investment · 2005–2025
Source: OECD. Note: the first year with data for all G7 countries was 2005 and the last was 2024.26
The UK's investment shortfall is not one problem but five. Britain invests too little in the new ideas its firms invent (research, development and other intangibles), in the technology workers use (machinery, equipment and software), in the homes people live in, in the infrastructure and institutions that connect and finance the economy, and in the skills and management that determine whether any of the rest pays off.
On current trends, the UK will not close the gap in the stock of capital any time soon. Even if we could raise investment by four percentage points of GDP, it would take roughly a century to close the gap with our peer countries. We do not need to hit our peers' level to achieve productivity growth (and, with a differently shaped economy, we plausibly shouldn't). But by removing clear distortions so investment can more easily flow into areas with the highest returns, and the most critical underpinning infrastructure, we can achieve greater prosperity for ourselves and future generations.
Here we set out the nature of the UK’s investment shortfall, explains the drivers that hold Britain in a low-investment equilibrium, and states the trade-offs any correction demands. It evaluates a list of policy solutions against their likely cost, the estimated impact on growth, and how strong the evidence is in favour of them. Finally, it sets out a series of priority policy areas that could help improve the UK’s investment performance and require further analysis on costs, impact and public support.
4x
British industry pays 4x more than what American industry pays for electricity, and about 50% more than French and German competitors. In 2023, UK industrial users paid the most of any IEA member.
Each of these has its own causes and they reinforce each other. A firm with poor managerial talent makes poor procurement choices for their capital stock; firms choose not to expand to areas with thin labour markets. This section breaks down each of these issues.
The analysis is organised by asset rather than by sector. Many of the answers to boosting investment and growth will be sectoral, and the Alliance will return to that in a later phase.
This report sets out the landscape, explains the drivers that hold Britain in a low-investment equilibrium, and states the trade-offs any correction demands. It then evaluates a list of policy solutions against their impact on growth, how likely they are to produce good outcomes, their breadth of impact, and political and public support.
