Starmer’s investment summit had a Brexit-shaped hole

If a promise to light a bonfire of regulations, a speech by the prime minister of the day, and drinks with the monarch were all it took to spark a national economic renaissance, then Britain would have the best investment record in the G7 group of advanced economies. But instead, Britain has the lowest rate of investment in relation to its GDP — and, I’m sorry, but you have to wonder what, if any, lasting difference, the great British International Investment Summit is going to have on the rate of gross fixed capital formation in the United Kingdom. It would make some sense if Keir Starmer and his chancellor Rachel Reeves used the occasion to declare that the UK has agreed to rejoin the EU on the terms prevailing before — but that particular path to prosperity was blocked off in 2016. So this is what we have to do now.

When you read economic history books — more fun than it sounds — they rarely mention investment summits as one of the great engines of growth. Natural resources, a plentiful supply of skilled and other labour, ready sources of reliable and cheap energy, the rule of law, stable, free liberal political structures, a reliable financial system, a willingness to trade, a competitive environment, a permissive attitude to building properties, acquiring assets and making fortunes... those are the kinds of things that propel nations towards industrial revolutions. They did so for Britain in the 18th century, for America and Europe in the 19th, Japan in the 20th, and now China in the 21st. At no stage did every nation possess all the necessary preconditions for industrial “take-off” (contemporary China, least of all), but they had, and have, many of them; and the most successful in the longer term — America — the most of all.

Cocktail parties with monarchs and show-off lists of “big names” in business don’t feature much. Countries that are obviously great places to make money don’t really need to persuade anyone of their obvious merits. It is the business of big global businesses to scour the earth for the best prospects.

Britain isn’t such an obscure location that it is easily overlooked. Indeed, when the UK was in the EU, and had undergone a long period of restructuring and more radical deregulation under the Thatcher and Major governments it was the ideal location for carmakers, bankers and many others to risk their money.

No longer. If, as Starmer claims, this is a great moment to invest in Britain, why do we need this big shindig to try and convince the world? Still, maybe that is an overly jaundiced view. An open letter from big bosses released to the media reminded us all of the real, historic, precious advantages that the UK can still boast about: “Britain’s educational establishments, legal system, financial services sector and language form the bedrock of a strong investment proposition.”

There are also some obvious things that the government can and will be doing that will help — stabilising the public finances, relaxing planning rules, easing regulations in finance and pharma, trying to secure cheap green energy, and pump-priming investment from the Growth Fund are all helpful. Existing strengths in the City, biotech, AI and other service sectors hit less hard by Brexit will benefit from foreign direct and “portfolio” investment — albeit buying British companies such as Arm Holdings leads to a certain loss of control.

But it is as well to be realistic, too. The UK has indeed lost easy access to the 450 million consumers in the EU, and the flexible flow of labour of all kinds from those partners. If the UK ever does rejoin the EU, it will be on less advantageous terms — especially joining the euro and thus losing the ability to float and devalue the pound (plus exposure to periodic eurozone financial crises).

The free trade deals in the Pacific region won’t yield much advantage for decades, and cannot make up for Brexit. The British phobia about immigration guarantees labour and skills shortages, and presents a serious barrier to growth. The public finances are also in such a poor long-term condition, mostly because of the UK’s ageing population, that it is difficult to see them allowing for a low-tax business environment. When the best place for any Briton to put their money is in their own virtually tax-free residential property, we should not be surprised that more productive long-term options are starved of investment.

In other words, a British government (or any political party) that was serious about growth would organise a summit after a radical Budget, one at which it had announced a return to the EU, with whatever protections can be negotiated (in return for a mutually advantageous defence pact); the end to absurdly generous tax concessions on owning your home; reform to the welfare state and care systems that would guarantee space for incentivising risk-taking and enterprise; levies and taxes to pay for a nuclear and renewable energy revolution; deregulating the labour market; further relaxing migration and planning rules; and putting much more money into education. That is something the world’s business leaders might be persuaded to take a punt on — and it would make Britain a happier, wealthier place.

But whoever’s going to vote for that?