Press Story

UK firms invest just 11.1 per cent of GDP, with only Canada lower in the G7
British manufacturing workers have access to 47 per cent fewer machines, tools and technologies than workers in similar economies
IPPR urges government to use the British Industrial Competitiveness Scheme to drive investment, and revive energy bill support for firms if Iran crisis pushes prices higher

Among G7 countries, only Canada has lower levels of business investment by private companies than the UK, according to new analysis by the Institute for Public Policy Research (IPPR).

The think tank finds that UK companies invest the equivalent of 11.1 per cent of GDP — behind countries such as Japan (18.2 per cent), France (12.7 per cent) and Germany (12 per cent).

Further analysis of capital intensity shows that the UK has a 38 per cent ‘capital gap’ compared with peer countries. This means British workers have far fewer machines, buildings, robots and intellectual property available to them per hour worked.

In manufacturing, this gap is even wider. The UK’s capital intensity in the sector is 47 per cent lower than in peer countries (US, Germany, France and the Netherlands).

IPPR warns that this chronic underinvestment - which is holding back UK productivity and growth - could worsen as energy prices rise again.

Global manufacturing competitiveness is increasingly driven by factories adopting new forms of automation and digitisation. This shift increases electricity consumption, meaning high energy prices act as a brake on the very investments the economy needs. If British industry does not keep up, it will require a constant lifeline from UK taxpayers to stay alive.

However, the think tank argues the government has a unique lever it could pull to support both investment and competitiveness.

Last summer, the government unveiled the British Industrial Competitiveness Scheme (BICS), which aims to cut electricity costs by up to 25 per cent for around 7,000 manufacturing businesses as part of its industrial strategy. The Department for Business and Trade is currently designing the eligibility criteria that will determine how the scheme is targeted, with decisions expected soon.

IPPR says the policy should not simply aim to “keep businesses alive”, but should instead be designed to drive long-term growth, crowd in private investment and boost competitiveness.

In practice, the think tank recommends adjusting the scheme’s eligibility criteria to prioritise sectors where lower electricity costs are most likely to unlock new investment. In other words, BICS should focus not just on how much electricity costs weigh on today’s balance sheet, but on where lower energy costs could help drive tomorrow’s investment.

As energy prices soar due to the conflict in the Middle East, the government may need to act more broadly in the short term to bring down bills and prevent unnecessary business closures. There are already policy options available. The British Industrial Supercharger provides electricity discounts for the most energy-intensive industries, while a revived version of the Energy Bills Discount Scheme used during the Ukraine crisis could offer broader, temporary support. BICS, by contrast, should be reserved for its core purpose: supporting long-term industrial strategy and driving new investment.

Pranesh Narayanan, senior research fellow at IPPR, said:

“British industry faces a double squeeze: companies are investing too little, and they face some of the highest electricity costs in Europe, and the two are related. But the government has a unique opportunity to both reduce the energy bills for businesses and incentivise investment. This isn’t about subsidising firms to stand still. With limited fiscal room, every pound should go to the sectors where lower energy costs will actually drive new factories, new equipment and new jobs.”

ENDS

Pranesh Narayanan is available for interview

CONTACT

Liam Evans, head of news and media: 07419 365 334 l.evans@ippr.org

NOTES TO EDITORS

Advance copies of the report are available under embargo on request.
Analysis of the capital gap uses a modified version of the methodology developed in Zenghelis and Allas 2025, which takes international data of capital stocks and converts them into a metric that allows for direct cross-country comparison.
The G7 comparison data is for the 2023, the latest available year.
IPPR (the Institute for Public Policy Research) is the UK’s most influential think tank, with alumni in Downing Street, the cabinet and parliament. We are the practical ideas factory behind many of the current government’s flagship policies, including changes to fiscal rules, the creation of a National Wealth Fund, GB Energy, devolution, and reforms to the NHS. As an independent charity working towards a fairer, greener, and more prosperous society, we have spent almost 40 years creating tangible progressive change - turning bold ideas into common sense realities. www.ippr.org